Is Solar a Wise Investment for Businesses?
Is Solar a wise investment for businesses and how does that impact utilities?
Would you pay an $87 Million exit fee to leave the grid? If you are like most customers you probably didn’t even know that in some states you might have to pay a fee to get completely off the grid. MGM recently announced that it would leave the grid, despite the $87 Million price tag that comes along with it. What would motivate a company to take such drastic measures? After all, we’ve been on the grid forever and seem to have no problems with it. Why are these companies looking towards renewable energy as an answer and does it even make financial sense?
MGM is just a recent example of a trend towards many large companies of going solar. Apple, Microsoft, Google and Facebook among others have been leading the way and encouraging others to reduce their carbon footprint. However, there are other benefits to these companies as well. One of the leading consumers of solar energy in the world is none other then Walmart. If any of you have worked at Walmart you might know that the only way they ever spend a dime is if they see that dime coming back with a few of its friends. Thus, it had to have made sense for Walmart to make a significant impact in solar power.
Why do companies invest in solar energy?
For companies like Walmart an investment in solar comes down to numbers. As we know, many of these large companies are always looking to invest wisely and cut down on operating expenses. Another benefit to investing in Solar is the tax credits offered by our current tax system which allows a credit of 30%. That means for every $100 invested in solar for their stores they are allowed to receive $30 in tax credit. That $30 was owed to Uncle Sam anyway and is now simply redirected. If this wasn’t convincing, there may even be more grants and rebates to these companies. For example, ONCOR sets aside millions of dollars a year to provide rebates for residential as well as large and small commercial customers. Those rebates can potentially be another 15-20% off of the cost of the system. There is also a little known rebate by the US Department of Agriculture for homes and businesses in the qualifying area. This rebate can further bring the cost down for the business as well. Lastly, another advantage to investing in solar is the ability to depreciate the system which allows for further tax incentives. As you can see, for many business owners a system can be as much as 60% off simply because of tax credits, depreciation and area rebates. These incentives help increase the Return On Investment, or ROI, and thus make this a lucrative option for many businesses. For companies, or even homeowners, with cash to invest, investment decisions are based on 2 factors, ROI and risk. As far as risk – Tier 1 Solar panels are warranted to produce for 25 years or more and the inverters come with a warranty of a decade or more, thus minimizing risk. There is also no maintenance with solar thus making it easy to own. As far as ROI, S&P has historically returned 10% dating back to 1928. Most solar projects completed by our company have a 15% ROI or higher! That means the company is able to get a better return on investment with virtually no risk! As the electricity rates go up, the return on investment gets even sweeter.
Another reason many companies choose solar, even with electricity prices at historic lows, is hedging. Electricity prices generally track natural gas prices and if natural gas goes down so do electricity prices. Natural gas bottomed out at around 1.80/MBTU within the last year. The low price came about as more supply of natural gas- with techniques like fracking- entered the market compared to the demand. With the rock bottom of natural gas, came the rock bottom of electricity prices and thus any businesses today are paying historically low rates on their electric bill. So, if you can get 15% ROI or better and break even on your investment in Solar in around 5 years and the data used for calculation is based on historic low prices you are going to be that much better when the prices go up. Many of these businesses can replace anywhere from 30-70% of their usage based on solar, which means they are only susceptible to higher electricity prices for the remaining portion which is pulled from the grid thus minimizing their risk!
Another benefit that comes along with having panels installed for these companies is the increased value of an asset along with ownership of a power plant. Most people don’t really think of it this way but in the current model we rent a power plant. We get a bill every month for our share of the power plant used and we pay it. As long as we use that power plant – decades for most of us, we will continue to pay the bill or ‘rent’. However, owning your own power plant, even for you home, makes you the owner of the plant and all of the energy generated from it is yours to do with as you please. Furthermore, once the investment is recouped or the system is paid off, all of the energy generated from that plant is free to the owner!
Lastly, for many of these companies the reason to go green is the impact on the environment. A small 10KW system, which is barely large enough for most Texas homes, is equivalent to planting 270 trees every year the system is on. That is a massive impact for very little cost! These companies understand that if they go green and make an investment in the future, many others might follow thus causing a ripple effect. They also know that if, like MGM, they threaten to go off grid unless more renewable power is generated into the grid the electricity providers and distributors will have no choice but to oblige!
Will Dallas keep up with the solar trend?
Will businesses in the DFW area follow suit? There are many great incentives for business in Dallas to go solar. Dallas recently enacted the PACE program, which makes solar even more lucrative. Find out more about PACE program by clicking here.
Would you like to know if Solar system for your home or business makes sense? We would love to work with you to get you all of the pertinent information to make an informed decision. Click here to fill out a short form and one of our agents will get in touch with you with more details!