Should My Business Go Solar?
If you’re a business owner, solar energy can provide a range of benefits, including lower energy costs and tax incentives. Solar isn’t for every business, though, so you will want to do a little research to determine if it makes sense for yours. This article is just a brief introduction to get you acquainted with the basics.
Why should you listen to me? As a solar developer, I spend my time working on various projects, large and small, blazing through the "wild west" (as everyone likes to call it) of solar development. As a result, I have gained a wealth of experience and knowledge that can help you decide whether solar is right for your business.
Vermont net metering rules:
If you own a solar energy system, you will likely connect your system to the grid of your public utility. When you do this, you will be able to take advantage of net metering, which credits your utility account for any surplus energy your solar panels create.
Net metering rules in Vermont are complex. However, in a nut shell, you can get anywhere from two to four cents per kWh on top of Vermont’s current average residential retail rate for ten years, as follows:
If you were considering a large solar array (greater than a 150kW) you would receive a three cent adder, per kW hour, for the first ten years and a one-cent negative adder for the life of the system. The adder would be on top of the rate offered by your electric utility. This would result in a two-cent adder for the first ten years (the ten-year three-cent adder plus the negative one-cent lifetime adder) and a negative one-cent adder thereafter.
What is an “adder”? A solar adder is a credit on your electric bill for each kWh of solar energy produced.
If your array is 150kW or less, you would likely receive a three-cent adder without the negative adder for the life of the project.
If the project is less than 15kW, you would get a four-cent adder for the first ten years.
*There are certain benefits to each one of the sizes, which I will dive into in a later blog.
Net-metering eligibility for business owners:
Any business that has grid-tied electrical needs is eligible to participate in Vermont's net metering program. However, not all businesses will want to take advantage of net metering. As an example, a machine shop that generally uses a lot of electricity and has vacant land or a sturdy roof can install solar at their location and use the credits from the solar. The machine-shop owner who does not use much power and has to lease land for a solar site may not gain enough from the solar they generate to justify the expense of the solar array.
Businesses that go solar can receive a 30% tax credit from the federal government and 7.2% from the state, based on the cost of their solar system. Nonprofits do not have state and federal income tax liabilities and consequently cannot take a deduction. With this in mind, a nonprofit could partner with a business owner or developer to lease their land (or roof) to the system owner, allowing the system owner to use the tax credits while the nonprofit purchases the credits (the electricity created).
Solar isn't the only way to save money for your business. Read about "How to Plan and Pay for Business Energy Efficiency Upgrades."
Involvement in solar can come in a few different flavors, with varying risks associated with each. Ideally, your business can own its solar project (or hold it in a separate LLC) to fully take advantage of all the benefits—i.e. tax credits, rapid depreciation options, no lease payments, and reduced electrical costs.
Another option is to purchase electrical credits (be an offtaker). An offtaker is a business or individual who purchases the credits that the solar project generates, usually at less than face value. This allows the solar project owner to sell their credits, if they can’t consume the credits, and allows the buyer (offtaker) of the credits to save money on their electric bill from another solar generator at a fixed discount from the utility rate. This option will not offer the range of benefits that ownership can, but it can reduce your costs.
The third option is to lease your property—land or roof—to a developer, who would pay you an annual lease for the purpose of constructing a solar array for an extended period of time. You could also decide to be an offtaker, but you don’t have to.
Ground vs rooftop:
When it comes to placing your solar system, there are two options with completely different variables to consider—i.e. siting restrictions for ground mounts and structural requirements for roof mounts. The price for each can vary considerably:
With ground mount arrays (a term used to describe a group of solar panels), you can face challenges like expensive permitting costs as a result of road construction to the site, consultant fees for ground disturbance impacts, and racking (mounting) requirements that may result from a below-surface ground structure. A benefit to the ground mount approach is that you can keep the array separate from the building. When you sell the building, you can also maintain an easement on the array after the sale of the property.
For rooftop mounts, you may need to make improvements to your roof, which you won’t realize until you have completed a survey. Surveys are not costly and are well worth while before getting too far into your project. A benefit of rooftop projects is that there are fewer permitting requirements, as long as your structure meets the requirements to manage the added weight on your roof.
If you have passive income tax liabilities, if your business uses electricity and pays taxes, or if you are a nonprofit that doesn’t pay taxes, you can find a solar model that works for you—whether you choose to create a sole proprietorship, a partnership, a corporation, or another organizational structure. In a future article, I will cover the options in greater depth, with the caveat that I am not a tax expert. Rather, I will relay what I understand about current tax models and how it applies to renewables, so any business owner interested in renewable can know what to ask their tax accountant. (Yes, this is my disclaimer.)
Offtakers and offtaker agreements:
As stated above, offtakers are those entities that do not own solar arrays but purchase the net metering credits (think gift card for your electric utility). They can usually purchase the credits at a discount off what the current rate is. In other words, an offtaker buys the credits (money) that are generated from solar farm, usually at a discount. The most common question I get asked about this is whether it effects a business’s energy demand charges? It does not. However these credits are purchased with a Vermont sales tax exemption.
Stay tuned for more in-depth articles about each of the above-mentioned topics.
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About Mike Norris
Mike Norris is a 5th generation Vermonter (going to back to when New York and New Hampshire were arguing over what to do with so-called Vermont). Having been raised in the small town of Monkton, he embarked on a three and half month uncharted solo motorcycle trip around the USA in his late thirties to determine whether there was another place for him in this world other than Vermont. To almost no one’s surprise, he was not able to find the next Shangri-La and here he is, firmly entrenched in Pittsford. Having cut his teeth in his twenties at a transformer (design/build) manufacturer with roles in sales and production engineering, he took a slight turn into the fast paced arena of commercial insurance and enjoyed the profession for 10 years. In addition to insurance activities, he developed some investment properties, and by 2014 owned six residential rental units. In 2014, he started helping his brother Pete with a commercial solar development model. They launched their business, Norris Brothers Solar Development (NBSD), LLC, by permitting and building three solar arrays, each covering about an acre and generating about 30 households worth of power a year. Since then, NBSD has built numerous similarly-sized and larger projects and has partnered with industry leaders. They have been able to successfully navigate the unchartered waters of the new solar permitting regulations and the federally mandated tariff climate. When he’s not permitting and managing the construction of solar projects, he is enjoying time at home with his wife and their two dogs, Holly and Peanut.