Financing a commercial solar system requires careful consideration of various options, including purchasing outright, obtaining a loan, opting for a Power Purchase Agreement (PPA), or leasing the solar equipment. Purchasing the system outright is ideal for businesses with available capital, offering immediate financial returns.
Green loans from banks or credit unions can also provide competitive interest rates for solar system purchases. PPAs involve a partnership with a solar provider, where businesses buy the electricity generated at a fixed rate over a specified period, resulting in cheaper electricity without the initial investment.
Solar equipment leasing, lasting between five to ten years, offers fixed lease costs and potential tax benefits. Careful financial modelling is necessary to determine the optimum solar system size and maximise returns. Additionally, Renewable Energy Certificates (RECs) such as Small Scale Technology Certificates (STCs) can provide rebates for solar systems up to 100 kW capacity.
How can you finance a commercial solar system?
Financing a commercial solar system isn’t always feasible solely from existing cash flow. There are financing and leasing options; all have cash flow impacts, risk and tax considerations.
It is also possible not to acquire the solar system but to have it owned by a third party who sells you the generated electricity at a set rate. This is called a Power Purchase Agreement (PPA). As with any finance option, a PPA will see a “middleman” introduced, who makes a margin.
Only sophisticated financial modelling can calculate the optimum commercial solar system size to maximise your financial return.
Are there rebates on commercial solar systems?
Renewable Energy Certificates (RECs) can be created via the Federal Government’s Renewable Energy Target (RET) Scheme. These effects can reduce the cost of a commercial solar system, as they are a kind of “rebate”.
Small Scale Technology Certificates (STCs) are available for commercial solar systems up to 100 kW capacity, allowing immediate redemption and serving as an enticing discount on upfront capital costs.
Regarding Large Scale Generation Certificates (LGCs), these are generated monthly or annually based on actual metered solar generation. They can be registered and sold continuously. However, the long-term LGC target in the Renewable Energy Target (RET) has been met, causing a substantial decrease in their value. Predictions indicate their value might plummet close to zero in the future.
Solar installation companies or the ISC can perform calculations for STC and LGC rebates. Systems larger than 100 kW can be classified as power stations under the RET scheme, enabling the generation of LGCs.
So what are the different options for financing a commercial solar system?
- Pay the system in total. One can purchase the commercial solar system outright with funds from the business. This option is helpful for companies with solid cash flow and the capital available. This method allows you to enjoy the system’s full financial returns immediately.
- Get a loan. Some banks and credit unions offer green loans to assist in the purchase of environmentally friendly products. A commercial solar system falls into this category. These loans usually have a more competitive interest rate than other business loans.
- Power Purchase Agreements (PPA) are also popular. A PPA is an agreement between your business and a solar provider. The solar installation company supplies and maintains the solar system on your business’s roof. You agree to buy the electricity generated by the commercial solar system at a fixed rate over a set period. Usually, the fixed rate per kWh is lower than the usual commercial rate. This way, one still can get cheaper electricity but does not have the initial outlay.
- Solar Equipment Lease. An equipment lease allows your business to lease the solar system from a provider for a period. This timeframe is typically between five and ten years. This option may include maintenance and repair costs, making managing the system’s ongoing costs easier. Having a fixed lease cost, one can budget for the purchase, and leasing can also have favourable tax implications.
Financing a commercial solar system in Australia can help your business reduce energy running costs, gain a higher certainty in energy expenditure and increase sustainability. It’s essential to explore all the options with your accountant to choose a financing solution that best suits your business’s needs and financial reality.