For many business owners, it can seem a bit complicated to go solar. If you choose to go solar, there are several different options for commercial solar financing, each of which has its own advantages and disadvantages, making it difficult to know which one is best for your business. Here is a look at the different options as well as their pros and cons.

Should You Own or Finance Your Solar System?

The first thing that you should determine is whether you should outright purchase your commercial solar system or if you should finance it. In terms of long-term return on investment, owning or obtaining a loan is the best option for an organization. Of course, this assumes that you are taking advantage of any solar tax incentives that are available to you and paying taxes. If you are unable to make use of these incentives or do not have little to no upfront capital, then some good options may be commercial solar leases or power purchase agreements (PPAs).

Ultimately, you should consider the following information to determine if you should own or finance your solar system. Your company may benefit by owning the solar system and opting to pay via a loan or outright cash if your tax bill is more than 50 percent of the cost of the solar system project. However, if you are a nonprofit organization, a government entity, or even a commercial organization that pays little to no taxes, then it may be a better option to go with a solar lease or PPA.

What Options Are Available for Financing Solar Systems?

If you decide to finance your solar system, you have several different options available to you. Your three primary options are cash, lease, and PPA. Here is a brief look at all three of them.

Paying with Cash

If you opt to pay with cash, you will own the solar system outright. This allows you to benefit from any and all local, state, and federal solar tax incentives directly. You can benefit from energy savings immediately. Ultimately, paying with cash offers the greatest return on investment in the long run, but it also requires that you have access to capital.

Paying via Lease

If you are unsure how your company can afford to pay for a solar system because you have little to no access to capital, then a lease may be your answer since it allows you to rent a system at a fixed rate. You will experience an immediate reduction in energy costs, and then at the end of the lease agreement, you can choose to renew the lease agreement, purchase the solar system, or have the solar system removed from the property.

Paying via PPA

A PPA is a financial agreement that allows a solar developer to build a solar system on your property and sell the electricity to you at a predetermined fixed rate that tends to be lower than the retail rate of your local utility company. This rate is subsidized by the solar tax incentives that are retained by the financier, who will assume the risk of the project. You will not be responsible for any upfront capital, but you will benefit from reduced energy costs.  

For more information, consult with a lender with information about commercial solar energy project financing in your area.