For many businesses and organizations, investing in commercial solar installation is a significant decision that comes with equally significant questions. Is commercial solar panel installation worth it for your business? Let's dive into this topic and answer this critical question.
Introduction to Solar Energy Investment
Welcome back, everyone! I'm Eric, and this is “Going Solar with Pivot Energy,” where we cover all things related to solar energy, including commercial solar, financial incentives, and community solar. Many companies are eager to know if an on-site solar investment is a prudent choice. The value of a solar project varies for each business and depends on multiple factors. Today, we'll go through a step-by-step example to illustrate how these factors play out.
Four Main Factors in Solar Investment
At Pivot Energy, we consider four main factors when determining the value of a solar project:
- Solar Resource: This includes potential shading, space, and available sunlight at the site.
- Local Utility Rates: The cost of electricity and its annual rate increase.
- State and Federal Solar Incentives and Policies: Various incentives that can significantly impact the financial returns of a solar project.
- Material, Construction, and Labor Costs: The upfront and ongoing costs of the solar installation.
For a deeper dive into these factors, check out our video on the economics of commercial solar, linked below.
Hypothetical Example: ABC Company
Let's look at a hypothetical scenario to understand the potential value of commercial solar. Our hypothetical customer, ABC Company, consumes 1.4 million kilowatt-hours (kWh) per year. Here’s how the four factors come into play:
- Solar Resource: ABC Company has a large, new roof with no shading, located in a state with excellent solar production. They can install a one-megawatt solar array capable of producing 100% of their electricity needs.
- Local Utility Rates: ABC Company currently pays 8 cents per kWh for electricity. We estimate a 2% annual increase in utility rates.
- State and Federal Incentives: ABC Company can take advantage of the federal investment tax credit (ITC) and depreciation benefits, which significantly reduce the project's upfront cost. Additionally, their facility is in an energy community, providing a 40% tax credit due to the Inflation Reduction Act. They also benefit from a utility’s net metering policy and a renewable energy certificate (REC) program.
- Material, Construction, and Labor Costs: The installation of the one-megawatt system costs $2.7 million. ABC Company also opts for a preventative operation and maintenance service package at $10,000 per year.
Financial Breakdown
- Project Cost: $2.7 million
- ITC and Depreciation Benefits: $1,684,446 (62% of the upfront cost)
- REC Payments: $69,600 in the first year and $1.3 million over 20 years
- Utility Bill Savings: $112,000 in the first year and $3.36 million over 25 years
With these assumptions, the project will pay for itself in seven years, accumulate $3.2 million in savings over 25 years, and have an internal rate of return of 13.2%. This excellent return allows ABC Company to control their energy supply and avoid rising electricity costs.
Beyond Financial Benefits
The benefits of commercial solar panel installation extend beyond financial savings. Check out our video on ESG (Environmental, Social, and Governance) for businesses to learn more about the environmental and social gains with solar.
Future-Proofing Your Business
With increasing demand on the electric grid and rising electricity prices, investing in solar can future-proof your business against unpredictable utility rate hikes. By installing solar, ABC Company has stabilized their electric costs and secured long-term savings and cash flow.
Contact Solar SME Inc.
If you're still on the fence or ready to take the plunge, contact us. Solar SME Inc. can provide a free estimate using our solar calculator and consult with you to offer a free quote. Our experienced commercial solar installers can help you evaluate your options by reviewing your historical energy data, incentives, infrastructure, and more. We guide you through every step, from planning to financing, installation, and long-term maintenance.
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