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Financing Strategies for solar power
Financing Strategies for solar power

Even with considerable subsidies available for commercial solar power, nearly all buyers still finance their projects. The primary benefit of non-cash purchasing is the potential for immediate positive cash flow with little or no out-of-pocket expense. Sunlight Electric offers a broad array of financing options through our class-leading finance partnerships.

Below are the five possible options to finance commercial solar power systems along with some perspective on the pros and cons for each option.

 

Commercial Debt

Operating Lease

Property-Assessed Clean Energy Loan

Power Purchase Agreement

Hybrid Pre-Paid PPA via PACE

Description

Commercial loan secured by company assets, typically real estate, to fund purchase.

3rd party owns system; customer makes lease payments for term of lease, typ. 7-10 years, w/ purchase option at end of term.

PACE financing is secured against real estate with payments made along with property tax payments.

3rd party owns system; sells you power at close to utility rates for term of agreement. Purchase option at end of term.

Long-term PPA paid up-front via PACE financing.

Pros

  • Usually the highest NPV - better than cash
  • Achieve positive cash flow in Year One with benefit of 30% federal tax credit and 50% bonus depreciation
  • Off-balance sheet financing option
  • Typically immediate savings of 5%-20%
  • Tax benefits taken by lessor reflected in lease pricing
  • Some industry-specific leasing programs offer better rates (e.g., agriculture)

Typically longer-term than debt or leasing; terms of up to 20 years available

  • Off-balance sheet financing option
  • Possibility of savings
  • Tax benefits taken by PPA underwriter reflected in PPA pricing
  • Off-balance sheet financing option
  • Tax benefits taken by PPA underwriter reflected in PPA pricing

Cons

Adds to debt load, potentially limiting extent of future borrowing

  • No ownership of PV system until end of lease term
  • Slightly higher implied interest rate than debt
  • Higher interest rates than traditional debt or leasing

  • No ownership of PV system
  • Usually modest short-term per-kWh savings, if any
    • No ownership of PV system
    • Usually modest short-term per-kWh savings, if any

    Best
    Suited
    For

    Most profitable businesses with sufficient tax appetite

  • Those with no/low tax appetite -- paying little/no taxes
  • Large corporations with long capital budgeting processes
  • Those with strong aversion to debt
  • Those with limited access to traditional debt

    Subsidiaries of large corporations with strict prohibitions on adding assets

    Businesses with limited borrowing capacity or short track record of profitability

    Savings

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