RENEWABLE ENERGY CREDITS
Solar panels generate energy that is sent back to your utility company’s grid. These energy “credits” that are generated can be traded for cash paid back to you from your utility company. Your utility company uses these credits to offset their federal mandate to have a certain percentage of the energy in their portfolio as renewable. These are actual cash payments paid out to you for 15 years and are based on the amount of energy you create. These payments can significantly offset the cost of your system.
WHAT CREATES AN ENERGY CREDIT?
Every time a renewable energy system creates 1,000kwh (1Mwh) of energy, 1 ZREC or REC is earned. These have little or no value to residential and commercial customers. As mentioned above, they have value to utility companies that must meet mandates for green energy production. If you produce 100 RECs in one year, the Utility company pays you for the RECs and gets to claim 100Mwh of clean energy production in their portfolio.
All 50 US states have different Federal goals. If these are not met then the utilities are fined for not meeting clean energy guidelines. Most Utility Companies in the Northeast don’t have enough green energy production to meet this goal so they pay customers for their credits.
While each utility has different prices they pay and different terms, they are all valuable to customers.
As an example: In CT, a commercial solar panel system for a 50,000 square foot building might produce 200 RECs per year. Current pricing is about $85 – $100 per REC with a 15 year agreement with UI or Eversource. Total RECs paid would be about $300,000 which significantly offsets system costs in Connecticut.
THE FEDERAL INVESTMENT TAX CREDIT (ITC)
This tax benefit was created to provide an incentive for businesses to pursue renewable energy sources. This tax credit is currently equal to 26% of the gross project cost. This will phase down to 22% on January 1, 2021, and finally to 10% over the next 4 years, respectively. Effective utilization of available incentive programs can dramatically reduce the upfront cost of solar while providing a predictable long-term revenue stream.
MODIFIED ACCELERATED COST RECOVERY SYSTEM (MACRS) AND BONUS DEPRECIATION
New depreciation laws for renewable energy projects allow businesses to write off portions of the solar PV system cost in the first year or spread out. Normally a system with 25+ year lifespan would be depreciated slowly over 25 years. The Bonus part of this benefit is that you are allowed to depreciate 85% of your project rather than the typical 70%. This extra bonus is unique to renewable projects.
Many businesses are able to pass these tax benefits through to their personal taxes depending on how the company is structured. We recommend you discuss this option with your tax accountant.
C-PACE (Commercial Property Assessed Clean Energy) is a unique financing option that allows business owners in Connecticut the access to 100% financing for green energy upgrades and pay for them over time.