February 28, 2024

Gary Klaben on the Economic Advantages of Solar Energy for Businesses

Gary Klaben is a chartered financial consultant (ChFC) and has a Master of Science in Financial Services (MSFS). He is an author, gentleman farmer, and savvy businessperson. Recently he has been developing an expertise espousing the economic advantages of solar energy for businesses, an area that combines all his interests and skills. He spoke to a group of Weiss tax and accounting professionals in Dec. 2023.

The impetus is the Inflation Reduction Act of 2022.

According to Klaben, “It’s a great time for owners of commercial buildings to consider investing in clean energy upgrades to business facilities. There are numerous credits and deductions available because of new and reinstated tax laws.”

Advanced Energy Project Credit – 30%
The most generous credit is the Advanced Energy Project Credit. Here’s how it works. Businesses that decide to invest in a new clean energy system–such as installing photovoltaic panels–are eligible for an investment tax credit (ITC) equal to 30% of the investment cost, providing the project meets “prevailing wage and apprenticeship requirements.”

This 30% credit is available through 2032.

Once the work has been completed, the changes to the commercial building qualify as a depreciated tax expenditure over the next six years. This is referred to as Modified Accelerated Cost Recovery System or MACRS depreciation.

Selling and “Banking” Energy Credits
Another possible business savings stems from Solar Renewable Energy Credits (SRECs) based on the energy produced. These credits are like vouchers. In the previous example, the business installed photovoltaic panels on the roof of their large manufacturing plant. It’s possible the energy generated by those panels would be more than what the company uses. The excess energy can be sold to utilities on the SREC open market.

SRECs vary by state and utility. In Illinois, COMED pays out quarterly over seven years for businesses that produce green energy over 15 years. This credit may represent about 25% of the total cost of solar installation.

Business owners pursuing this option “need to request a quote from a solar installer who has the appropriate illustration software to determine what their SREC credit will be,” according to Klaben.

He also cautions this program is at risk of being curtailed and the credit may not last much longer. Check with your accountant or financial advisor to be certain.

Another savings opportunity is called net metering, also referred to as net energy metering. Net metering allows businesses that generate their own electricity to “bank” their energy credits or to sell them to the utility. Within the U.S., the details and regulations of net metering vary by state. Again, check with your accountant or financial advisor to be certain which regulations affect your business.

One other rebate, known as the Smart Inverter Rebate, or the DG Rebate. In Illinois, it was approved by the Illinois Commerce Commission (ICC) in November 2017. According to the Illinois Solar Education Association website, “this rebate is intended to enable solar inverters to increase grid benefits and capacity for distributed energy resources. The rebate value is set at $250/kW DC, available to non-residential and community solar facilities that have a nameplate rating of no greater than 2 MWs and is subject to a utility’s terms and conditions.”

Businesses should check with their current utility company to see if their solar investments are eligible for the smart inverter rebate.

Other Positive Benefits
Klaben emphasized other benefits to the business beyond tax credits. Significantly, the fair market value of the commercial building may increase. This will be beneficial to the business when seeking bank loans, insurance, and readying a business for sale, whether those events are in the immediate future or years later.

Another investment consideration is the business’ ESG rating, which stands for environmental, social and corporate governance. ESG impacts investment choices, so a business with a high ESG rating is viewed more favorably than one with a low ESG rating. Most private businesses are not obligated to report ESG events, but those that make positive investments such as installing solar panels would probably choose to make that information public.

There would also likely be a positive public relations aspect to a solar investment.

Klaben cautioned that these are big decisions for a business. Some companies are not suited to install solar panels due to location, the need for extensive roof engineering, an inability to obtain financing or other concerns. But for those businesses where it does make sense, it can be a worthwhile and profitable financial investment that also goes a long way to help the planet.

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