It’s not just homeowners that can take advantage of the benefits of solar: commercial and industrial businesses can also participate in the clean energy revolution by installing solar–and storage!–on their properties. In fact, in many cases, the incentives for businesses to invest in solar are even better than they are for homeowners. If you are a business looking to explore your solar options, here are the key incentives to be aware of in 2021.
Key takeaways
- Businesses can take advantage of a number of incentives to make investing in solar more financially attractive
- The best solar incentives for businesses are tax incentives: between the ITC and depreciation benefits, businesses can receive tax incentives of more than 50 percent the cost of the solar panel system
- Certain states also offer performance-based incentives to businesses that install solar
- To see how much your business can save with solar, sign up for a free EnergySage account today
Solar tax incentives for businesses
The best incentives for businesses are tax incentives: between the federal investment tax credit and federal-level depreciation benefits, like the Modified Accelerated Cost Recovery System (MACRS) and bonus depreciation, the current tax incentives available for businesses nationwide can cut the cost of solar in half!
Business Investment Tax Credit
The federal investment tax credit (ITC) works the exact same way for businesses as it does for residential properties that install solar. At present, the ITC provides a credit on your taxes at 26 percent of the value of your solar project.
Importantly, the ITC is a tax credit, and not a deduction. In other words, if your solar project costs $100,000, the ITC reduces the amount that you owe the federal government by $26,000, as opposed to reducing your taxable income.
If you want to take advantage of this incentive, now’s the time to do it: the ITC won’t stick around forever. While it’s currently at 26 percent in 2021, it’s scheduled to decline to 22 percent in 2023, and then drop to 10 percent for businesses beginning in 2024.
Modified Accelerated Cost Recovery System (MACRS)
While the ITC is available to both commercial businesses and residential homes, these next two incentives are only available to commercial properties.
MACRS is a depreciation benefit that allows you to recover the value of your solar assets over an accelerated time frame. Unlike the tax credit, depreciation is a way to lower your taxable earnings, meaning it is a way to reduce what you owe on your taxes as opposed to being a credit towards what you owe. For solar, MACRS allows you to recover the depreciated value of your solar install over five years.
MACRS is available at both the federal level as well as for some states taxes–like California. In places where you can take advantage of MACRS both at the federal and state level, MACRS can combine with the ITC to provide tax incentives worth more than 70 percent of the cost of your solar panel system!
Bonus depreciation
Similar to MACRS, bonus depreciation is a depreciation-based tax incentive available to businesses that invest in solar.
The key difference between MACRS and bonus depreciation is that with MACRS, you allocate the value of the depreciation benefit across five years, whereas with bonus depreciation, you’re able to take the full benefit in the first year of your investment. Your savings will vary based on your tax rate, but in most cases, bonus depreciation effectively doubles the impact of the ITC.
At the federal level, bonus depreciation and MACRS are an either-or deal: you either take one or the other. But if you take advantage of bonus depreciation federally, you can still use MACRS at the state level.
Like the ITC, this incentive is a time sensitive one: bonus depreciation for solar is scheduled to expire at the end of 2022–so if you want to take advantage of this incentive, now’s the time to start looking at solar for your business.
What about for non-profits?
You’ll notice that all of the incentives we’ve discussed so far are tax incentives. So what happens if you’re a tax-exempt entity? At the moment, nonprofits cannot take advantage of these tax incentives directly. However, there are entities–like CollectiveSun–that will offer a discount on the cost of your system in exchange for the tax benefits, which their investors can take advantage of.
Solar performance incentives for businesses
While the best incentives for solar are often tax incentives, those certainly aren’t the only incentives for businesses to install solar. Many states and utilities offer additional programs and incentives to further offset the cost of solar, usually providing an incentive for every unit of energy your solar panel system produces.
With these types of incentives, like a solar renewable energy certificate (SREC) program or the SMART program in Massachusetts, your state or utility will offer an incentive rate of typically a few cents per kilowatt-hour of solar produced. Performance-based incentives (PBIs) are paid out in addition to any bill savings you’re able to achieve with solar, helping to reduce the solar payback period and to further increase the ROI you’ll see from investing in solar.
Storage incentives for businesses
For businesses considering adding storage to a solar installation, there are a number of incentives to be aware of.
First, all of the same tax incentives listed above for solar also apply for storage, which can quickly reduce the net cost of adding storage. However, to claim the ITC for storage, businesses have to prove that they’re charging the battery with renewable energy at least 70 percent of the time, and the value of the ITC is reduced if the battery is charged by less than 100 percent clean energy. (i.e., if your battery is charged by solar 85 percent of the time, you only get to claim 85 percent of the ITC value.) Beyond that, many states now have solar battery incentives for both home and business owners, including California and most Northeastern states.
It’s worth pointing out that, similar to homeowners, many businesses consider storage for the resiliency benefit: i.e., to keep your business running even in the event of a power outage. But for many commercial properties, there’s another reason to consider storage: demand charges.
Many utility companies charge large electricity users–like businesses!–extra each month based on not just how many kilowatt-hours of electricity they use per month, but also based on the single largest amount of power they pull from the grid over any hour (or fifteen minute period) in the month. These charges, called demand charges, often account for 40 percent or more of a business’s monthly electricity bill, and can be easily offset by adding storage to a solar installation–those savings are perhaps the biggest incentive to install storage!
What if you don’t want to install solar on site?
If you’re interested in solar but don’t want to install it on your property for any reason, fear not! You can still take advantage of the benefits that solar has to offer and participate in the clean energy economy by subscribing to a community solar project. The best place to look to see if there are any projects accepting subscriptions in your area is to check out the EnergySage Community Solar Marketplace.
Explore solar for your business
All of these solar incentives available to businesses add up quickly: for many businesses, solar is an option with a quick payback period (often less than five years), and with a significant return on investment (often over 10 percent!). To get started exploring solar options for your business, sign up for a free account on EnergySage today. We’ll work with you to understand your goals for the project and your energy usage, and walk you through an initial project design. And if you’re ready to get custom quotes for solar from pre-screened installers in your area, we can do that too by tapping into our network of nationwide solar installers.
