Many farms and ag businesses today are going solar to save money, reduce the energy intensity of their crops and improve their environmental sustainability. Solar can dramatically cut your company’s carbon emissions and virtually eliminate your electric bill. Understanding the best way to pay for your solar project is the first step to realizing the benefits of solar.
There are generally three options in paying for solar: cash purchase, loans, or a solar lease/PPA.
Let’s look at the definition of each of them and look at their pros and cons.
Simply stated, this is a capital expenditure to pay upfront for your solar installation. A cash purchase is typically the best way to maximize your savings because there are no finance costs associated with the purchase.
Pros: Cash purchase enables you to claim the full Investment Tax Credit of 30%f the cost of the system. Since it’s a capital asset you can take accelerated depreciation benefits as well. Because there are no banking approvals to wait for, a cash purchase is generally the fastest installation process.
Cons: For most farms, cash can be scarce for new equipment. While the return on investment for solar projects are competitive with other upgrades, tying up cash for that long may not be the best use of capital or the needs of your business.
Financing your solar system is also a viable option. The industry has come a long way on solar financing. These days, most farms can leverage their existing banking relationships to finance solar at competitive rates. CalCom’s expertise in solar means that local and national lenders trust the systems we install, which translates to better finance terms for you.
Pros: Solar loans still enable you to take full advantage of the tax credits and depreciation benefits. And no upfront cost is attractive for most farms. You start saving on energy costs on day one and with competitive lending rates you’ll see a net savings that can be significant.
Cons: Paying interest on your solar investment cuts into the savings you’ll ultimate realize to your bottom line. All of the performance risk and cost of ownership falls to you.
If you want to hold onto your cash and/or can’t take full advantage of the tax incentives, leases and power purchase agreements (PPAs) are a flexible way to go solar with no upfront investment. The main difference between leases and PPAs is in the ownership risk. With a lease, the customer assumes responsibility for the performance of the system. In a PPA, the owner of the PPA assumes the risk.
Pros: No upfront cash required. Immediate savings on electricity from day one. You only pay for the energy your system produces. You buy the electricity that is produced at the same guaranteed low rate every month. A PPA is not a loan, it’s a long-term service contract so it’s considered off-balance
Cons: No tax advantages or depreciation benefits.
Choosing the Right Solution
CalCom can help you evaluate whether cash, loan, lease or a PPA is the right option for your business. We can help you find the right finance partner and even help you negotiate the terms.
Contact us to evaluate your finance options today.