By Tricia Rolfing, Vice President, Finance, Hawaii Pacific Solar
Thinking of going green? Fantastic! How will you pay for it?
There are many ways to finance your renewable energy project including cash, loans, leases, power purchase agreements (PPA), on-bill financing and others. But to get started, we strongly suggest getting an energy audit to determine how energy is currently being used and to evaluate which modifications could reduce usage. An audit will evaluate modifications such as lighting retrofits, changes to HVAC systems, insulation and other possible changes. It should also assess the benefit of adding onsite energy generation (such as a solar system). Once you have that information, you can determine the best next step and how to pay for it.
When you pay for a solar system with cash or debt, you own it. You enjoy the tax incentives and the benefits including reduced electric bills and contributing to Hawaii’s energy sustainability goals. Federal tax incentives are currently 30 percent of the approved system cost, but those will decline starting in 2020. State tax incentives are presently 35 percent of the approved system cost subject to a cap. Remember, that to use tax credits, you must have a tax liability. The State offers cash in lieu of the credit, but at a discount to the 35 percent amount (your tax accountant can advise you). If you decide to own the system, you also need to consider the associated costs such as insurance and maintenance.
Maintenance includes regular cleaning and repairs if the system is not working properly. Your solar installer should provide operations and maintenance (“O&M”) at no charge for at least the initial year. You can contract with them, or another solar company, to provide O&M services after that period. It is important to contract with a company that understands solar systems to insure they troubleshoot and repair faults correctly.
You should also budget for equipment replacement. Solar panels will produce energy for many years and should not need to be replaced for at least 25 to 30 years. Other components, however, such as the inverters and batteries, have shorter useful lives and will need to be replaced at some point.
Under a lease or PPA, you will not receive any tax credits, but you won’t be burdened by O&M or equipment replacement cost. Under a lease you generally pay nothing upfront, but will make fixed monthly payments regardless of how much energy is produced.
With a PPA, you only pay for the energy that is produced. Generally, the rate you pay is fixed and lower than the utility cost. When analyzing the potential savings, it is important to consider which utility rate schedule you are on (there are different schedules and companies with multiple properties may find that different properties are on different rate schedules). Larger properties are often assessed demand charges, which do not immediately go away with a solar system. Most solar installers will provide an analysis of the potential savings from installing a solar system; but an analysis which only compares the difference in rate per kilowatt hour is inadequate and misleading and may result in a poor decision. Make sure your solar company does a thorough job in analyzing and presenting the information so you can make a good, green decision.
PUBLISHED IN BUILDING MANAGEMENT MAGAZINE, OCTOBER 2019 ISSUE