What Developers Need to Know About Financing Commercial Solar + Storage
by Lindsey Paulk on Aug 01, 2023
commercial solar
energy storage financing
solar financing
solar plus storage
The combination of solar and energy storage is becoming more urgent due to the environmental necessity and economic benefits, such as bill savings, resiliency, and preventing grid blackouts. Pairing battery storage to an existing solar system enables a more significant opportunity for savings in most cases. The financing options for energy storage are starting to catch up with solar, even though some differences remain, however, developers are working to take advantage of the various options for solar + storage.
Financing Options for Solar Projects
The best financing option for a project will depend on the available capital and company size. Given the updates to the Investment Tax Credit (ITC) within the Inflation Reduction Act, smaller companies might favor Power Purchase Agreements (PPA) and solar leases, whereas larger ones with more cash might opt for solar loans. Every solar system is unique, requiring different methods for obtaining financing. Generating clean energy requires more than simply covering the costs of solar panels, and the right path for financing will depend on the expected performance of the solar systems and the perceived risk the company is willing to take on.
Solar Lease
A commercial solar lease is an agreement between a third party and a developer, where the third-party leases solar panels to the developer and pays according to the energy generated. In this agreement, the customer will make fixed monthly payments on the power at a rate independent of the system’s energy output. Upfront costs are eliminated in a solar lease, as a third-party financier reduces energy costs for the customer. Developers often find having a third party manage the installation and depreciation of panels to be enticing. However, in a solar lease, the financier owns the system, so developers interested in being the sole owner of the system, the energy, and the land might prefer a different financing solution. Capital leases and operating leases are the two types of solar leases that developers can explore.
Solar Loan
Solar loans assist developers in paying the upfront costs of their projects. Solar loans have specific interest rates and are a viable solution for developers wishing to take advantage of different ITC options. A solar loan may not be the best option for developers inexperienced in leveraging solar ITC options. With this financing, however, developers do not have to make monthly payments to property owners due to the initial cash and the lender’s funding. The ITC also offers tax benefits that minimize the risk of paying the loan’s interest rates, typically seen with large organizations.
Power Purchase Agreement (PPA)
A Power Purchase Agreement (PPA) is a financing agreement where the developer is responsible for installation, permitting, and other aspects of the solar system on the customer’s property. In this financing method, the system’s owner is also the system’s financier, who will also receive the tax benefits and be responsible for the tax liability. A PPA requires customers to exclusively use the energy generated by the PV system and the solar services for the contract’s term. Billing will vary monthly according to the system’s production. A PPA is the most commonly used financing option for commercial solar systems. Lasting typically 20 to 30 years, a PPA can be renewed and is the most beneficial for organizations that cannot take care of costs upfront or use tax incentives (i.e., the solar ITC).
Property Assessed Clean Energy Program (PACE)
The PACE program is available at the federal and state level. It is designed according to “land-secured financing districts” that give specified bonds enabling funding for community improvement projects. This financing option can be applied to residential and commercial projects so homeowners and developers can reap the program’s rewards. It is important to note that in this program, property owners must pay development costs, with monthly rates typically less than a loan’s.
Financing for Energy Storage Systems
Cash Purchase
Batteries are most commonly purchased upfront with cash. By purchasing a battery upfront, you reap all the benefits of available rebates and incentives. Like solar, buying a battery upfront will help to maximize savings with storage. A cash purchase may be the perfect option if you wish to augment savings from storage and have an adequate tax liability to benefit from the ITC. Similarly, it might be right for you if you have capital available to pay for storage or storage-plus-solar at the outset.
Energy Storage Loans
A storage loan lets you own your storage system from the outset while letting you pay in installments over a specified period. A storage-only loan offered by a solar financier allows you to reap the benefits of financing for standalone systems. A solar-plus-storage loan is currently the most common way that storage is financed, where effectively pairing the two will result in a small increase in your monthly bill. A storage loan is likely the best option if you want to be eligible for various rebates and incentives but would prefer to avoid paying upfront for storage-only or solar-plus-storage.
Energy Storage Lease
In the same way you lease a solar photovoltaic (PV) system, you can lease a battery. Battery leases are less common than solar leases. However, they work very similarly. If you plan to lease your solar system and wish to add storage, you can finance your battery by effectively rolling it into the solar lease agreement. A storage lease is best if you pair it with a leased solar system if you would like someone else to maintain the battery system and if you do not qualify for tax incentives.
How & Where to Secure Financing for Solar + Storage?
The right financing arrangement can easily make or break a viable deal, and our team understands that project finance is a key part of selling projects. Energy Toolbase has always provided users with dynamic tools to define the specifications of their financing transactions and model the cashflows and project economics for any third-party financial transaction (e.g., cash purchase, PPA, loan, lease) and then effectively communicate that to an end customer.
ETB Developer also offersdirect financing integrations within the platform, enabling users to generate quotes from our integrated financing partners instantly for both solar and energy storage. Our integrations with Green Bridge Energy, Sustainable Capital Finance, and Luminia have proven to streamline the process of generating indicative PPA and PACE loan financing for commercial solar, energy storage, and energy efficiency projects. This fast-tracks the process of project modeling and deploying projects. These financing quotes are integrated with project cash flows and avoided cost, allowing project developers to eliminate the need to navigate between multiple applications. You can use these integrations by signing up for a 14-day free trial of the ETB Developer platform.
Learn more about the financing partners within ETB Developer:
