5 reasons why commercial solar makes sense for businesses in 2023

Businesses with solar panels

If you’re a business owner, going solar could be one of the best ways to lower your operating costs, save money, and support the development of renewable energy. Today, businesses of all sizes install solar panels to build a sustainable brand image and earn a strong financial return. We’ll explain 5 reasons why your business should consider solar.

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Key takeaways

  • There are many incentives available to businesses that can lower the cost of commercial solar by about 70%, making it very cost-effective.

  • The average mid-sized or small business will save about $101,259 in electricity costs with solar.

  • Going solar can help your business attract more customers and better employees.

  • Commercial solar projects support your local economy.

  • Check out EnergySage’s concierge service to go solar with confidence.

Before we explain why your business should consider solar, it’s important to understand what a commercial or commercial and industrial (C&I) solar installation entails. Most commercial and industrial solar installations are substantially larger than a typical residential solar power system. For perspective, the average size of a residential solar panel system is around 10 kilowatts (kW), while a commercial solar energy system can be up to several megawatts (MW), depending on the electricity needs of your company. 

Different from utility-scale solar, commercial solar power is considered “distributed generation,” meaning that we use the energy produced by the system at or near the point of generation. Distributed generation projects, such as rooftop or ground-mounted residential solar, are usually connected to the local electric grid. This allows your business to take advantage of net metering, a policy that enables you to send unused electricity back to the grid in exchange for electricity bill credits (more on this below).

Here’s why so many businesses choose to install solar:

The upfront cost of a commercial solar panel system may seem overwhelming, but many incentives significantly lower the price. Ultimately the cost of your system will primarily depend on its size (measured in kW or MW), the system design (rooftop, solar carport canopy, or ground-mounted), and the incentives and rebates available to you. Here are some of the best solar incentives available today for businesses, which can reduce the cost of your system by nearly 70%:

  • Federal Investment Tax Credit (ITC): Whether you’re a business owner or homeowner, the federal tax credit is the most significant financial incentive for all solar shoppers. At least until 2025, the ITC provides a tax credit equal to 30% of the upfront cost of solar for businesses. It’s a tax credit, not a deduction, meaning if your project costs $100,000, the ITC reduces the amount you owe the federal government by $30,000. If your system includes U.S.-manufactured equipment, is located in an energy community, is located in a low-income community or tribal land, or is installed as part of a low-income residential building project or economic benefit system, you may also qualify for additional percentage adders on top of the 30%!

  • Production Tax Credit (PTC): Instead of receiving the ITC, you can choose to be compensated based on the amount of electricity your system produces (on a dollar per kilowatt-hour, $/kWh basis) through the PTC. If your project produces a lot of electricity but it was relatively inexpensive to build, you may save more with the PTC than the ITC.

  • Modified Accelerated Cost Recovery System (MACRS): MACRS is a depreciation benefit that allows you to lower your taxable earnings and recover the depreciated value of your solar installation over 5 years. When you combine MACRS with the solar tax credit, you can earn tax incentives worth about 70% of your system’s cost. 

  • Bonus depreciation: Bonus depreciation is similar to MACRS, but you take the full depreciation benefit in the first year of your investment, instead of over 5 years. You have to choose between MACRS and bonus depreciation.

  • Net metering: Some states and utility companies offer an incentive called net metering that can significantly increase your solar savings over time. Under net metering, your utility company provides you with credits for the excess electricity your system generates and sends to the grid. When you need to pull electricity from the grid instead of your system, it counts against the credits you bank over time. At the end of your billing cycle, you’re only billed for your “net” electricity consumption. 

Cost of commercial solar energy systems installed on flat roofs

System Size (k W)
Price Per Watt ($/W)
Expected Price Before Incentives
Expected Price After ITC
Expected Price After ITC + MACRS
25 kW$3.15/W$78,750$55,125$16,537.50
50 kW$2.90/W$145,000$101,500$30,450
100 kW$2.50/W$250,000$175,000$52,500
250 kW$2.30/W$575,000$402,500$120,750
500 kW$2.10/W$1,050,000$735,000$220,500

Note: These prices are variable depending on your business’s location, the equipment you select, and the type of system you install.

If you’re still concerned about how to pay for your business’s solar energy system after incentives, don’t worry: Most businesses don’t pay upfront for solar and there are many financing options available. You can finance your system with a solar loan or choose a third-party ownership arrangement like a lease or power purchase agreement (PPA), though you won’t be eligible for the direct benefit of tax incentives if you don’t own your system.

Commercial solar provides a great return on investment. According to the U.S. Energy Information Administration (EIA), in 2021, the average commercial building spent $650.04 on electricity (likely on par with most small-to-mid-sized-businesses). Over a year, this equates to $7,800 in operating expenses; over 20 years, your business will have spent $156,010 on energy costs.

Based on the same EIA dataset, the average commercial property consumed about 69,540 kWh of electricity in 2021. Let’s assume your business installs a solar panel system that offsets 90% of this electricity consumption. Let’s also assume that your system’s production ratio (the ratio of its estimated energy output over time, in kWh, relative to its actual size, in W) is 1.4 (it typically ranges between 1.3 and 1.6 in the U.S., depending on your location).

So how big of a system do you need? Plugging in our numbers from above, we get:

System size (in Watts) = Annual consumption (569,540 kWh) * system offset (0.9) / production ratio (1.4)

This gives us a system size of 44,704 Watts or about 45 kW. According to our table above, a 45 kW system costs about $39,150, when you account for the ITC and 5-year depreciation with MACRS. 

This means that over 20 years, your business will save about $101,259 in electricity costs with solar:

20-year savings = 20-year electricity costs ($156,010) * system offset (0.9) - upfront solar energy system cost including incentives ($39,150)

Beyond the direct financial benefits, installing solar panels can also help your business protect itself against electricity price volatility and inflation. In many states, the price of electricity can fluctuate significantly due to demand, creating a headache for business owners who closely manage their cash flow. With solar, your business can lock in electricity prices and reduce reliance on the unpredictable electricity market, making it easier to budget and plan for the future.

Many current and potential customers are attracted to businesses with a commitment to sustainability. According to PwC’s 2021 Consumer Intelligence Series survey on environmental, social, and governance (ESG) issues, 83% of consumers believe companies “should be actively shaping ESG best practices.” Studies by McKinsey & Company and NielsenIQ show that consumers are willing to pay more for sustainable products. 

Going solar will lower your company’s carbon footprint, helping you build a sustainable brand. It could even help you gain positive media attention and raise brand awareness among your customers.

Similar to consumers, employees are increasingly looking to work for sustainability-minded companies. In the same 2021 survey, PwC found that 86% of employees “prefer to support or work for companies that care about the same issues they do.” By demonstrating your company’s commitment to solar power, you could improve employee retention and attract new high-quality employees. Overall, your employees could be happier, more productive, and more invested in your company’s mission, just by installing a solar energy system.

When businesses contract with solar companies, workers in the local market complete the installations. Greater demand for solar projects increases the availability of high-quality, well-paying jobs. As of 2022, there are over 250,000 solar jobs nationwide, which represents a 9% increase year-over-year. Depending on the size and scope of your project, you could provide jobs for multiple crews of contractors for over a month at a time. In the future, these workers could even become your customers.

What does a commercial or industrial solar installation look like?

There are many installation options for commercial solar projects, including factory roofs, solar carports in parking lots, or large ground-mounted arrays. Unlike most rooftop solar arrays, commercial and industrial solar systems often include intricate racking systems to elevate and tilt the panels. Some commercial panel arrays even use racking with tracking capabilities, allowing the panels to face different directions throughout the day. This helps increase the amount of direct sunlight that hits the panels (and maximizes electricity production!).

What type of solar panel is best for commercial use?

There are two primary types of solar panels: monocrystalline and polycrystalline. Monocrystalline panels are best for businesses with limited space because they’re more efficient and produce more electricity. Polycrystalline panels are cheaper than monocrystalline panels and could be a better choice for businesses that have a lot of space and can install more panels to meet their energy needs.

The solar panels used in commercial and industrial-scale installations are also often larger than residential panels for homeowners. Large-scale commercial solar installations usually use 96-cell or greater solar panels, meaning each panel is comprised of 96 or more individual solar photovoltaic cells. Comparatively, a typical residential solar panel will have 60 or 72 cells. Commercial installations also use larger and more advanced grid-tied solar inverters.

Is commercial solar profitable?

The average business will save $5,063 in avoided electricity costs annually with commercial solar. If your business reinvests this money towards other business needs, commercial solar is profitable. 

Should my business install a battery?

Batteries are expensive, but they’re worth it for some companies. Many utility companies charge businesses based on their peak demand during an individual month through demand charges. These rates are based on your single moment of highest demand over the month, so your utility company will charge you the same amount regardless of how often you hit your peak demand, whether it’s for five minutes or five hours per day. Batteries can help you shave peak demand, which can lead to substantial bill savings if rates are based on demand charges. 

Similarly, if you’re charged based on time-of-use (TOU) rates and your rates fluctuate depending on the hour of the day, day of the week, and time of year, with a battery you can minimize the amount of electricity you need to pull from the grid when rates are high, resulting in significant savings.

Can nonprofits install solar?

Absolutely! Going solar as a nonprofit organization is very similar to going solar as a business. Check out our article on solar for nonprofits to learn more.

Whether you’re looking to save on electricity bills or build a more sustainable brand, going solar is a great choice for many businesses. Unsure how to get started? EnergySage offers a concierge service for businesses to make installing a solar panel system simple. We’ll provide you with an initial solar benchmarking estimate to show how many solar panels you can fit on your property, how much electricity they’ll produce, and how much you can save with solar. When you’re ready, we’ll gather custom quotes from up to 3 vetted solar companies in your area and help you choose which is best for you. 

A version of this post first appeared on Inc.com.

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