by Frank Urro
New England is one of the best regions in the country for solar incentives. This means that for many property owners, solar not only lowers energy costs, but is a lucrative investment. In Massachusetts, for example, solar projects often have payback periods ranging from 3.5 to 5 years and IRRs in the range of 16% to 23%.
If solar is such a good investment in New England, why aren’t more commercial property owners adding solar to their properties? There are three main factors at play: lack of knowledge about the region’s solar investment potential, concerns about the time and effort needed to evaluate a particular property’s solar potential, and concerns about the upfront capital investment needed. However, there is a strong network in the region helping to address these barriers and help property owners go solar.
Knowledge is power
The first barrier is that when most people think of New England, sunshine isn’t usually the first thing that comes to mind. However, the amount of sunlight a geographic area receives is only part of the equation when it comes to determining if solar is a good investment. The installed cost, federal and state incentives, and how much your utility will pay for your clean energy contributions matter just as much, if not more. It just so happens that New England has some of the strongest solar incentives in the country.
Another point of misunderstanding might be solar having a reputation of being more expensive than traditional fossil fuel energy. However, the price of solar panels has dropped considerably in the last decade, so now solar is not only affordable but can actually offer a very sound investment for your business or personal portfolio.
Each property and owner is different
However, as any in-the-know property owner will tell you, general trends may not hold true for their particular property or business. While the quantity of energy and offered incentives are part of the equation, a property and the owner will need to be able to capture 100% of these incentives for the installed solar to offer the most sound investment opportunity. Many property owners don’t have access to the material to go about figuring this out, and if they do, they then must have the time to assemble all of the financial details into a business case for review with their CPA. It is assumed that this is going to be a long, distracting process.
Additionally, due to the seemingly complex nature of the technology, there is a fear of losing control of the competitive bidding process. For an outsider, the variances in the solar technology being proposed, along with the mounting and the inverter technology selected, can be confusing to say the least.
Whose money in? Whose money out?
The final barrier presents itself when considering the upfront capital required to fund a solar project and what the realistic returns of such a project offer. This is another case where information is power. With the right financial modeling and business case in hand, more and more financial institutions are recognizing the positive returns solar projects produce, and as such there are progressively more competitive financing options available for solar. Many institutions now offer specific solar loans, but business owners can also finance solar through SBA 504 or 7(a) loans, equity loans/lines of credit, or even roll the cost of the solar installation into their mortgage when buying a new property.
But what about private investment?
Yes, this too has proven to be a viable option, particularly for properties owned by multiple parties, for example commercial or residential condominium complexes. And again, with the proper business case and some of the newer incentive programs, it may even be possible to collateralize the solar energy revenue.
Each financing option has their benefits and their drawbacks, so it’s important to talk to a solar financial professional that can assist you in defining your personal project plan. But, given the various financing options available, in many cases a property owner need only select the one that meets their investment criteria delivering the highest possible returns with as little upfront capital as desired.
Solar remains a good investment for many New England property owners. And determining a property’s solar potential, economic model, and financing structure is easier than you think.
Frank Urro is an electrical engineer and green tech educator.
