Five reasons why solar could make sense for your business

If you’re a business owner, going solar could be one of the best ways to lower your operating costs, save money, and support the development of renewable energy.

Today, businesses of all sizes install solar panels. Whether you're looking to build a sustainable brand image, earn a strong financial return, or improve employee retention, solar offers many potential benefits to your business.

Most commercial and industrial solar installations are substantially larger than a typical residential solar power system. For perspective, the average size of a residential solar panel system is around 10 kilowatts (kW), while a commercial solar energy system can be up to several megawatts (MW), depending on the electricity needs of your company. 

Different from utility-scale solar, commercial solar power is “distributed generation,” which means we use the energy the system produces at or near the point of generation. Distributed generation projects, such as rooftop or ground-mounted residential solar, are usually connected to the local electric grid. This allows your business to take advantage of net metering, a policy that enables you to send unused electricity back to the grid in exchange for electricity bill credits (more on this below).

Here’s why so many businesses choose to install solar:

The upfront cost of a commercial solar panel system may seem overwhelming, but many incentives significantly lower the price. The cost of your system will come down to its size (measured in kW or MW), its system design (rooftop, solar carport canopy, or ground-mounted), and your eligibility for incentives and rebates. Here are some of the best solar incentives available today for businesses, which can reduce the cost of your system by nearly 70%:

• Federal Investment Tax Credit (ITC): Whether you’re a business owner or homeowner, the federal tax credit is the most significant financial incentive for all solar shoppers. At least until 2025, the ITC provides a tax credit equal to 30% of the upfront cost of solar for businesses. It’s a credit, not a deduction, meaning if your project costs $100,000, the ITC reduces the amount you owe the federal government in taxes by $30,000. If your system includes U.S.-manufactured equipment, is located in an energy community, is located in a low-income community or tribal land, or is installed as part of a low-income residential building project or economic benefit system, you may also qualify for additional tax credits on top of the 30%!

• Production Tax Credit (PTC): Instead of receiving the ITC, you can choose to get tax credits based on the amount of electricity your system produces (on a dollar per kilowatt-hour, $/kWh basis) through the PTC. If your project produces a lot of electricity and is relatively inexpensive to build, you may save more with the PTC than the ITC.

• Modified Accelerated Cost Recovery System (MACRS): MACRS is a depreciation benefit that allows you to lower your taxable earnings and recover the depreciated value of your solar installation over five years. When you combine MACRS with the solar tax credit, you can earn tax incentives worth about 70% of your system’s cost. 

• Bonus depreciation: Bonus depreciation is similar to MACRS, but you take the full depreciation benefit in the first year of your investment instead of over five years. You have to choose between MACRS and bonus depreciation.

• Net metering: Some states and utility companies offer an incentive called net metering that can significantly increase your solar savings over time. Under net metering, your utility company provides you with credits for the excess electricity your system generates and sends to the grid. When you need to pull electricity from the grid instead of your system, it counts against the credits you bank over time. At the end of your billing cycle, your utility company only bills you for your “net” electricity consumption. 

Cost of commercial solar energy systems installed on flat roofs

Note: These prices will vary depending on your business’s location, the equipment you select, and the type of system you install.

If you’re still concerned about how to pay for your business’s solar energy system after incentives, don’t worry. Most businesses don’t pay upfront for solar because there are many financing options available. You can finance your system with a solar loan or choose a third-party ownership arrangement like a lease or power purchase agreement (PPA), though you won’t be eligible for the direct benefit of tax incentives if you don’t own your system.

Commercial solar provides a great return on investment. According to the U.S. Energy Information Administration (EIA), in 2021, the average commercial building spent $650.04 on electricity (likely on par with most small-to-mid-sized-businesses). Over a year, this equates to $7,800 in operating expenses. Over 20 years, your business will spend about $156,010 on energy costs.

Based on the same EIA dataset, the average commercial property consumed about 69,540 kWh of electricity in 2021. Let’s assume your business installs a solar panel system that offsets 90% of this electricity consumption. Let’s also assume that your system’s production ratio (the ratio of its estimated energy output over time, in kWh, relative to its actual size, in W) is 1.4 (it typically ranges between 1.1 and 1.7 in the U.S., depending on your location).

How big of a system does your business need? Plugging in our numbers from above, we get:

System size (in W) = Annual consumption (569,540 kWh) * system offset (0.9) / production ratio (1.4)

This gives us a system size of 44,704 W or about 45 kW. According to our table above, a 45 kW system costs about $39,150, including the ITC and five-year depreciation with MACRS. 

Over 20 years, your business will save about $101,259 in electricity costs with solar:

20-year savings = 20-year electricity costs ($156,010) * system offset (0.9) - upfront solar energy system cost including incentives ($39,150)

Beyond the direct financial benefits, installing solar panels can also help your business protect itself against electricity price volatility and inflation. In many states, the price of electricity can fluctuate significantly due to demand, creating a headache for business owners who closely manage their cash flow. With solar, your business can lock in electricity prices and reduce reliance on the unpredictable electricity market, making it easier to budget and plan for the future.

Many current and potential customers are attracted to businesses with a commitment to sustainability. According to PwC’s 2021 Consumer Intelligence Series survey on environmental, social, and governance (ESG) issues, 83% of consumers believe companies “should be actively shaping ESG best practices.” Studies by McKinsey & Company and NielsenIQ show that consumers are willing to pay more for sustainable products. 

Going solar will lower your company’s carbon footprint, helping you build a sustainable brand. It could even help you gain positive media attention and raise brand awareness among your customers.

Similar to consumers, employees are increasingly looking to work for sustainability-minded companies. In the same 2021 survey, PwC found that 86% of employees “prefer to support or work for companies that care about the same issues they do.”

By demonstrating your company’s commitment to solar power, you could improve employee retention and attract new high-quality employees. Your employees could be happier, more productive, and more invested in your company’s mission, just by installing a solar energy system.

When businesses contract with solar companies, workers in the local market complete the installations. Greater demand for solar projects increases the availability of high-quality, well-paying jobs. As of 2022, there are over 250,000 solar jobs nationwide, which represents a 9% increase year-over-year.

Depending on the size and scope of your project, you could provide jobs for multiple crews of contractors for over a month at a time. In the future, these workers could become your customers.

Whether you’re looking to save on electricity bills or build a more sustainable brand, going solar is a great choice for many businesses. Unsure how to get started? EnergySage offers a concierge service for businesses to make installing a solar panel system simple. We’ll provide you with an initial solar benchmarking estimate to show how many solar panels you can fit on your property, how much electricity they’ll produce, and how much you can save with solar. When you’re ready, we’ll gather custom quotes from up to three vetted solar companies in your area and help you choose the best option for you. 

A version of this post first appeared on Inc.com.