If you're considering switching to solar power for your business, you might wonder, "What's the ROI on solar panels?" The answer depends on several factors, but there are certain steps that you can take to ensure a faster return.
One thing to consider is the solar incentives. Many states and utilities offer incentives for businesses to switch to solar power, which you can often use to offset the installation cost. By taking advantage of these sooner rather than later, you can achieve a faster ROI.
This article provides an overview of the most common solar incentives and how your business can take advantage of them.
Solar ROI for Businesses
Businesses that install a commercial solar energy system can expect a quick return on their investment. The average payback period is five to ten years, depending on your solar energy system setup. By taking advantage of available solar incentives, you can reduce the cost of your system and achieve a faster ROI on solar panels.
After the initial investment has been paid off, you'll enjoy years of tax savings and reduced energy costs. The typical lifetime for a commercial solar energy system is twenty-five to thirty years, so you can expect significant savings for the long term.
How Solar Incentives Can Affect Your ROI
Taking advantage of available solar incentives is an excellent start if you're looking for a faster ROI on your commercial solar installation. These incentives come in many forms, including tax credits, rebates, and grants. Some are specific to certain states, while others are at the federal level.
It's critical to research what incentives are available in your state and take advantage of as many as possible. For example, New Jersey is one of the top states for solar installations in the US due mainly to its generous solar incentives. You can speed up your investment return by taking advantage of as many solar incentives as possible.
Solar Incentives for Businesses
There are two main solar incentives: federal tax incentives and state utility incentives.
Federal Tax Incentives
Your business can enjoy significant tax savings by installing a commercial solar energy system. These savings can help offset your investment's upfront cost.
Solar Investment Tax Credit (ITC)
The ITC is a tax credit for businesses that install a commercial solar energy system. According to the Inflation Reduction Act of 2022, businesses can claim a 30% tax credit for their solar installation until 2032. In 2033 and 2034, the credit for commercial properties will drop back to 26%. The ITC grants a solar installation tax credit with no yearly maximum. If your business cannot use the credit in the year that you earn it, you can carry it forward for up to five years.
Production Tax Credit (PTC)
The PTC is a federal tax credit available to business owners who install a qualified solar energy system. It’s a credit for your solar energy system's energy production and is currently $0.026 per kWh. It will adjust each year with inflation, so it's essential to take advantage of it sooner rather than later. You can receive either the ITC or the PTC for your commercial solar installation.
Modified Accelerated Cost Recovery System (MACRS)
The MACRS is a tax depreciation system that enables businesses to recover the costs of certain types of property more quickly. With MACRS, you can deduct the cost of purchasing qualifying assets over the life of those assets. For example, you can deduct solar equipment at the state level over five years. For businesses, this deduction gets 100% of the cost basis in the first year on the federal level with bonus depreciation. However, starting in 2023, you will only be able to claim 80% of the value of your bonus depreciation in the first year. You can claim the remaining 20% over five years.
State Tax Incentives
Incentives vary by state, so be sure to research incentives specific to your area. For example, businesses in New Jersey can take advantage of the state's tax incentives to achieve a quicker return on their investment.
- Sales tax exemption. New Jersey offers a total exemption from the state's sales tax for businesses that purchase solar energy equipment.
- Property tax exemption. Companies in New Jersey that install a solar energy system can also enjoy a property tax exemption.
New Jersey Utility Incentives
In addition to the federal incentives, your business may be eligible for utility incentives. Companies in New Jersey can take advantage of the state's generous solar incentives to achieve a faster ROI.
Net metering is a billing method that credits solar energy system owners for the electricity that they add to the grid. The solar energy system owner is credited at the full retail rate for every kilowatt hour (kWh) of electricity generated by the system but not used by the owner. In New Jersey, net-metered system credits carry over to future utility bills for up to twelve months.
Successor Solar Incentive Program (SuSI)
The SuSI is New Jersey's follow-up to its initial SREC program. You can earn one SREC-II for every megawatt hour (Mwh) that your commercial solar energy system generates. The price of the SREC-II depends on the type of system that you install and its size.
For commercial systems smaller than 1 megawatt (MW) on a rooftop or carport, the current value is $100. For larger systems, 1 MW to 5 MW, the current value is $90. Systems that are owned by public entities have a slightly higher incentive, at $120 for smaller systems and $110 for larger ones.
Other Factors that Affect ROI
In addition to incentives, other factors affect the ROI of a commercial solar energy system. For example, shading factors, solar energy system size, and the cost of electricity all play a role in determining how quickly a business will see a return on its investment. Therefore, the sooner you invest in a commercial solar energy system, the faster you can start enjoying its benefits.
Maximize Your Solar Investment
Getting the most out of your solar investment is essential as a business owner. Take advantage of solar incentives at the highest rates by going solar now. Solar incentives will help you get a faster ROI on solar panels by offsetting the cost of your installation. Maximize your return, and get a tailored solar energy system for your business to fit your needs.
At Geoscape Solar, we help businesses utilize solar energy for profit. Your business will become energy independent, be able to decrease utility costs, and leverage available solar incentives for a quick ROI.
To discover how installing solar energy on your property will increase your business profitability, contact one of our energy specialists!