How to finance a commercial solar system?

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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 you can finance a commercial solar system

Purchasing a solar system can only sometimes be financed out of 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 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 solar power system, as they are a kind of “rebate”.

Solar systems up to 100 kW capacity are eligible for Small Scale Technology Certificates (STCs), which can be redeemed immediately. They, therefore, form an attractive discount off the upfront capex cost.

These LGCs are created monthly or annually and can then be registered and sold according to actual metered solar generation on an ongoing basis. However, the long-term LGC target in the RET has been reached, and thus the value of LGCs has decreased substantially and is predicted to be close to zero in the future.

STCs and LGC rebate calculations can be undertaken by the ISC or the solar installation company. Larger solar systems (above 100kW) can be registered as power stations under the RET scheme and generate Large Scale Generation Certificates (LGCs).

commercial solar system

So what are the different options – one by one?

  1. 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.
  2. 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.
  3. 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 PV 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.
  4. 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.

In summary

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.

Should you consider purchasing solar, batteries, or other renewable energy products, we recommend engaging with a qualified local supplier or installer to provide you with extensive advice.  To find the right partner try our company finder and ask our recommended experts to assist you.  Using a Your Energy Answers Authorised Partner will give you a well-vetted, experienced, reliable, and trustworthy company to serve your needs.

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