As a business owner, taking on a new capital project requires careful thought and analysis. Will the new project benefit our stakeholders and our employees? Will the new project have a positive impact on our bottom line? The same thought process should be applied when considering a commercial solar project for your company.
“Business owners that are considering commercial solar projects should understand the economics of solar,” says Roy Pack, vice president and relationship manager in the Energy & Infrastructure Group at Bridge Bank. “Does it make financial sense for my business? That’s the way you need to look at it.”
If you are launching a commercial solar project, there are three things you’ll want to keep in mind: Who is going to build it, how are you going to finance it and what financial incentives are available to help you cover the project costs?
Smart Business spoke with Pack about these three crucial steps and some other keys to managing your next commercial solar project.
What kind of support can a bank provide toward building a commercial solar project?
A bank can often provide construction financing by issuing a loan and then directing the loan proceeds to pay the contractor/builder or the manufacturer of major equipment such as solar panels. Because the nature of repayment relates to the quality of the solar energy facility, a bank should have knowledge of high-quality equipment manufacturers and builders that are available in your area.
A bank with solar experience will also understand the construction process. Will the project require additional capital because it is a carport system? What happens in case of construction delays? How does the permitting process work and do I need to contact my local utility? When approached with a capital request, a qualified solar lender will understand these issues that a business owner faces. Business owners and banks should always share the same objective: to build a high quality solar facility.
What are the benefits of using a bank with expertise in financing solar power?
Most solar projects will qualify for one or more incentives that make the projects more financially attractive to build. Various incentives include cash rebates, tax credits, tax refunds or performance payments. Incentives can be based on the cost to build or electricity output, they can also be federal, state or local benefits.
Because of the complexity, a bank with solar experience can help a business owner fully understand and eventually monetize those benefits. A bank should also have the ability to incorporate those incentives into a borrowing formula which will increase the value of a loan to the business owner.
How important is your ability to be a project manager?
There are a lot of moving parts involved with solar projects, so you need to be a good project manager or have one in place. Stay on top of your builder, major equipment manufacturers and all the important details involved during construction.
Keep a clean accounting of all capital expenditures and understand the legal aspects of your new solar property. This will help you avoid headaches, keep your expenses down and manage the project from start to finish.
What about the project’s return on investment?
The ultimate decision of whether to build solar or not depends heavily on the project’s return on investment (ROI). It will reflect the project’s capex requirement, how bank debt can help pay for that capex, financial incentives and expenses required to operate and maintain the project.
In many cases the largest contributor to ROI will be a significant savings on a business owner’s electricity bill. A solar project can only be green-lighted if it makes financial sense. ●
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