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Commercial Finance Series: Cash Purchase and Introduction to Tax Incentives

Time to read: 5 minutes

Updated on August 15, 2022

Welcome to the first installment of our series on Commercial Finance! In this series, we take a journey through each financing option available to those looking to explore Solar for their business. Delving into all of the financial options available can seem like an overwhelming task, but luckily we have a professional to guide us. IES Energy Solutions Manager and Solar Energy expert Justin Charles acts as our guide through this series.

In this post, Justin will explain the first of several finance options available to commercial clients: Cash Purchases. We’re also going to be going over things like tax incentives and how IES approaches solar power.

Justin has 12 years of experience in the alternative energy space, specifically the solar industry, and runs the solar division of IES where he focuses on building commercial opportunities, particularly in regard to creative design, engineering, and helping customers with finance solutions that allow them to afford the projects they want.

To start things off, let’s look at the already impressive list of things that IES Energy Solutions provides and focuses on for its commercial clients along with how they approach solar power.

“While we look at solar as our primary opportunity, we also offer battery backup as well as battery for demand mitigation, generator solutions, and LED lighting for reduced energy consumption. We also look at control systems and high efficiency, HVAC variable frequency drives. We try to look at energy solutions as a holistic opportunity. It’s a lot less expensive to reduce energy consumption than it is to offset energy consumption with the production of solar energy. Our goal is always to help reduce before we produce and to find ways to make that an economical and affordable solution for our customers.”

It’s clear that IES offers a comprehensive set of energy solutions, but the affordability of solar is often the biggest concern for both residential and commercial customers. However, as Justin points out, this isn’t actually as big an obstacle as prospective customers think that it is. Tax incentives provide substantial assistance with an investment in solar.

As of 2022, the Inflation Reduction Act was passed, increasing the federal tax credit that can be claimed from 26% to 30% for installations between 2022-2032.

“Solar is often regarded as a very expensive and unaffordable process for a lot of consumers, both residential and commercial. One of the most common ways that people think about making a solar purchase is by just going out and buying it with cash. In our country, the way that our government has chosen to subsidize solar energy is with tax credits, and while there is currently some legislation that might change this a little bit, what you have is a tax credit that is non-refundable. In the commercial sector, you have depreciation incentives and that non-refundable tax credit is currently 30% of the system price, and depreciation is an accelerated depreciation scale. It’s the MACRS five-year depreciation schedule, but you also have the ability to bonus depreciate up to 100% in year one. Depending on what your particular tax situation is and what type of entity you have, you can get 45% to 50% of the system covered by government incentives. That, however, requires that you have a tax appetite for those things, and it still requires you to have a lot of capital upfront in order to take advantage of it.”

“There are hurdles that a lot of businesses, especially small businesses, have to contend with in order to take advantage of that, and the hardest part is that a lot of it is a non-refundable situation. If you don’t, and well, frankly, many of us try to run our businesses so that we don’t don’t owe the government taxes at the end of the year. If you don’t have a tax liability, how do you take advantage of a tax credit that’s nonrefundable? These are the challenges that a lot of our businesses face when they’re coming to us and asking us how they can take advantage of these solar opportunities.”

With that said, Justin describes the advantages of the opportunities that we will be covering in this series.

“As we look at these opportunities, we’re going to see a decreased cost of capital to the consumer but at the same time, a slightly diminished ROI to the consumer. Each option makes it slightly less appetizing from a payback scenario, but it makes it much more appetizing from the ability to afford and get in the door. The reason why is because you’re shifting responsibility and cost scenarios away from the consumer to somebody else. The first scenario is obviously just to use cash to go out, buy the system, and then take advantage of the tax credits, and that gives you the best return on your investment.

While this is a more straightforward approach than some of the other options, it still comes with many of the benefits associated with the other financing options. Justin leaves us with more wisdom on why someone weighing these options should make the switch to solar.

Solar is a phenomenal and stable financial investment for almost any and all types of businesses and the best way to figure out if it’s right for your business is to talk to a consultant. Start by getting them at least one, but preferably 12 months, of your energy bills to see what kind of opportunity there is for you in savings. We can then look to see if there is a perfect financial vehicle for you. If purchasing it outright with cash isn’t the right option, there are several ways to do it with no money out-of-pocket. Don’t make cost a barrier to entry for you. Doing a lease can start for system purchases as low as $50,000.

If you are considering switching to solar for your home or business, reach out to us by going to our website, iestxsolar.com, or by giving us a call at (855) 447-6527.