Business Energy Investment Energy Tax Credit

Although it has a different official name, this tax credit works exactly the same way that the residential tax credit does. Business owners are able to earn a 30% tax credit from the federal government and the amount of the tax credit is determined entirely by the total cost of the solar energy system. The biggest difference is the average size of the credit available.

For example, in residential solar, the average total cost of a solar system is around $25,000. A homeowner who buys a system for $25,000 is thus eligible for a $7,500 tax credit. By contrast, the average cost of a small commercial solar panel installation is usually around $250,000. This means that business owners, on average, earn a tax credit worth $75,000. Now, it stands to reason that for-profit companies will have larger tax liabilities than homeowners, so these numbers shouldn’t be all that surprising but the large numbers make for large savings and so you can start to understand why a business would be wise to consider solar panels.

This incentive really only makes sense with for-profit companies with large tax appetites as non-profits and other non-taxable entities will not be able to realize the additional savings. Also, with commercial solar panel installations, leases and PPAs are still the most popular solar energy financing option and it is important to note that businesses who enter into a lease agreement or PPA are ineligible to take advantage of the tax credit. The credit will instead go to the lessor.

In most cases, the tax credit can be a straightforward process but make sure to check with your accountant and CPA to be sure your business is eligible for the tax credit.

Federal and State Tax Depreciation

Depreciation is one piece of the tax code that is hugely beneficial for the growth of solar and also the available savings for businesses and business owners. Essentially, the tax code allows business owners to take a tax deduction for the recovery of the cost of tangible property over the life of the property. The most common method for depreciation is called the Modified Cost Recovery System or MACRS. Under MACRS, for solar panel installations, the taxable basis of the equipment must be reduced by 50% of any federal tax credits associated with the system, which applies to the business investment tax credit explained above. The good news for business owners is that, thanks to the new tax bill, business owners are now able to depreciate 100% of the asset in Year 1.

Basically the new tax bill modifies bonus depreciation to allow 100% expensing for solar panels and other equipment that was installed after September of 2017 and before January of 2023. By increasing depreciation to 100 percent, the bill essentially allows eligible entities to deduct the entire allowable tax basis of the system in the first year of operation. Depending on the effective tax rate of the business, on a system that costs $400,000, the federal depreciation incentive can be worth more than $50,000.

State tax depreciation is not quite as quick in California. Under MACRS, California allows business owners to depreciate 100% of the asset over six years, which is still incredibly fast. On a the aforementioned $400,000 system, that incentive can be worth as much as $30,000.

Depreciation and its value can depend on a lot of different things and it is important for any business owner doing his/her due diligence to speak with a tax professional to understand the incentive in more detail. Tax rate is an important piece to the puzzle and only the business owner will be able to identify those exact rates and thus determine the value of the incentive.

Self-Generation Incentive Program (SGIP)

Batteries or “battery backup” systems are beginning to take hold in the residential space, but they remain much more valuable and worthwhile in the commercial space. While batteries are a bit of an unnecessary luxury still in residential solar, batteries for commercial solar can help businesses and business owners save a lot of money on their demand charges. The problem is that batteries are still quite expensive and on larger solar panel installations, in order to maximize the benefit of the batteries, you need a lot of them. The good news is that there is still a rebate available for energy storage in California.

The California Public Utilities Commission that set aside money to incentivize “existing, new, and emerging distributed energy resources” and that program is SGIP. Now, there are a number of factors at play when determining the value of that rebate. It can depend on the size of the project, the utility in question, how much of the funding has already been allocated and the number of batteries as well.

For more information on the value of the energy storage rebate in California, follow along here as the program is updated regularly.

Los Angeles Department of Water and Power Solar Incentive Program

LADWP is one of the only remaining utilities in California that offers a solar rebate to both homeowners and business owners alike. Currently, commercial customers of LADWP are eligible for a $0.30/W rebate if they add solar panels to their business. If the business is a non-profit, the rebate is as high as $0.95/W This means that on an average 200 KW commercial solar system, the homeowner will earn a rebate of $60,000.

Barnes Solar has plenty of experience working with LADWP on these rebates and will apply for the rebate on the behalf of the customer and will happily work with the customer to determine what is the best way for the rebate to be collected.