Commercial solar and long-term cost savings

While the cost curve is falling, electricity generated from solar PV generally remains more expensive than electricity that's generated from conventional sources, like coal and natural gas. For details, check out this comparison of 2007 prices, provided by SolarBuzz. As such, solar isn't right for every building or site. But with the right mix of government incentives and electricity usage trends, your company can drastically cut operating costs. Further, as prices for conventional power continue to rise, over time these monthly savings grow. Here we present three topics that decision makers review when considering solar power as an option for their company. 

 
(1) Government incentives

It turns out that the federal government, and many state governments, have decided that encouraging the adoption of -- and investment in -- alternative forms of energy is a good thing. As a result, a considerable array of incentives are available to businesses that invest in solar-energy systems and other forms of renewable power. By lowering upfront costs and reducing your company's tax burden, these programs can drastically improve the cost effectiveness of a solar-energy system.

The most important of the federal programs is the 30-percent corporate investment tax credit (ITC), which has no absolute cap (in $ terms) for total installed costs. No appetite for tax credit? No problem. For systems installed during FY09 and FY10, companies may instead choose to receive a grant from the Treasury instead of, and equal to, the 30 percent tax credit. 

A second noteworthy federal program is the Modified Accelerated Cost-Recovery System (MACRS), which permits companies to recover investments in solar equipment (and other types of renewable energy technologies) through an accelerated depreciation schedule. The initiative allows for a 5-year schedule for most types of solar, including solar photovoltaics (PV). What's more, the federal stimulus legislation of 2008 and 2009 includes an additional, one-time 50% bonus depreciation for systems installed in 2009 and 2010. From a tax perspective, MACRS facilitates the financing of a solar energy system. 

Many state governments also extend tax credits to businesses. Some provide grant money and rebates for businesses that install solar-energy systems. We're in the process of expanding our section on commercial solar to include information on state-sponsored incentive programs. In the meantime, the Database on Incentives for Renewables & Efficiency is a useful public resource that provides information on renewable-energy programs across the country.
 

(2) Peak shaving

Essentially, peak shaving is a process by which your company is able to avoid buying electricity at times when the utility charges the most for it. In many places, the price of electricity varies throughout the day. It starts out relatively cheap in the morning, is more expensive between noon and 6 pm, and then is relatively cheap again in the evening. This trend mirrors demand, which is typically highest during the middle hours of the day. (Think back to Microeconomics: high demand equals higher price; lower demand equals lower price.) 

It's called "peak shaving" because, with a well-designed PV system, your company is able to reduce the amount of electricity it purchases during peak hours. The beauty of solar-energy systems is that they tend to produce the most output precisely during those times that utilities are charging the most for power. For more information, check out this brief overview by the California Energy Commission.

(3) Electricity price inflation

With an average lifespan of 25 years or more, a solar-energy system is a long-term capital investment. In economics-speak, it represents a fixed cost that works to reduce and smooth over variable costs. In other words, a solar-energy system reduces your company's exposure to energy price inflation.

The reasons are fairly intuitive. For example, company A installs a PV array that meets, say, half their electricity needs. Company B doesn't invest in renewable electricity and continues to purchase conventional power from their utility. It's clear that Company A has reduced by half its exposure to electricity price inflation, which nationwide averages about 5 percent a year -- and which, in some regions, outpaces inflation in the broader economy. Company A, however, had to make a considerable investment in capital, and may have taken funds away from another project. Who's right? Well, it depends on your expectations for future inflation rates.  
 
The bottom line: Is your company ready to mitigate higher rates of inflation in the price of electricity? Solar panels won't solve all your energy problems. But if your management foresees rising inflation in electricity prices over the course of the next 20 years (did someone say carbon legislation?), you should probably take a harder look at solar.

Next steps

Get started today by filling out our solar survey. After gathering some preliminary info about your electricity usage and energy goals, we'll answer any questions and work to get your quotes and proposals from one of our qualified solar installation partners. 

Commercial Solar: Incentives, Inflation and Savings