When it comes to evaluating the financial benefits of commercial solar projects, certain tax credits and utility incentives are available. Below is an overview of the most widely used financial benefits.
Solar Investment Tax Credit. Also known as ITC, this is a dollar for dollar reduction of the taxes the customer would otherwise pay the federal government. The value of the ITC is based on the total cost of the solar project. Currently, it is a 26% credit. It will step down to 22% in 2023 and a permanent 10% credit each year after.
The ITC has been heralded as one of the most successful catalysts for the adoption and implementation of commercial solar projects. It has helped U.S. solar grow 50% /year-over the past decade.
Depreciation is the amount you can deduct annually to recover the cost of business property. This is a very important factor when considering the affordability of a solar installation. When combined with the ITC it may account for nearly half of the cost of the project. It is important to remember, however, that the maximum deduction can not exceed the taxable income from the business. It can, however, carry over to the following year, ensuring the project owner can still take full advantage of the value of the depreciation.
Solar Energy RECs. RECs, renewable energy credits, are actually commodities that represent that 1MWh was produced and delivered to the grid. The energy must be produced by a renewable energy source, (solar, hydro, wind,etc…), for it to be properly credited. The RECs are paid directly by the utility company to the designated solar project owner, which has made an agreement to purchase the energy at a specific cost. At the initial stages of the solar project, it may not seem as substantial as the value of the ITC or Depreciation but over the course of the project, RECs may easily eclipse both of them and prove the most valuable. In Connecticut, for example, the project owner will receive 80 quarterly checks for the energy sold to the grid.
These are just a few of the terms you will come across when considering solar for your facility. Don’t hesitate to ask your local solar provider for clarification of these or any other terms you may have a question about. Ambiguity over a term shouldn’t be the reason that keeps you from implementing what could be a project which would be cost effective for decades to come.