Financial Incentives for Energy Efficiency Solutions

Solar Tax Credits

The Investment tax credit (ITC) is also called the federal solar tax credit. This provision allows you to deduct up to 26% (in 2020) of the cost to install a solar energy system (less any cash rebates) from your federal taxes as energy tax credits. The ITC applies to both residential and commercial projects and offers hefty savings. After installation, you will receive the tax credit when you file for the subsequent year. There is no cap on the value of the ITC. You can even claim the credit over multiple years if you don’t have sufficient tax liabilities.

The Energy Policy act of 2005 established the ITC. Thanks to its success in facilitating America’s transition to renewable energy sources, it has been continually extended. In 2021, the tax credit goes down to 22%, and from 2022 on, the ITC falls to 10% of the cost of the system and will only benefit commercial entities.

State solar tax credits are also available. You can deduct a portion of the cost of your solar system from your state tax bill. These amounts vary widely by state.

Lighting Rebates

Upgrading to energy-efficient LED lighting is often practical thanks to a myriad of rebates offered by states, utilities, and manufacturers. Unfortunately, these programs are declining, with a decrease of 15% in available rebates in 2018 over the previous year. Lighting rebates are straightforward, change constantly, and are often available on a first-come, first-served basis. Retrofitting or converting to LED lights can reduce your energy usage significantly. The most common lighting rebates are as follows:

• Prescriptive Rebates: These rebates are paid out according to given constraints relating to the item sold. For example, your utility company could offer you a $15 incentive for each DLC listed light fixture that you install. After paying the initial costs upfront, your utility company may inspect and then process your rebate.

• Instant Rebates: Utility companies sometimes offer immediate incentives at the time of purchase on qualifying material. For example, the utility can subsidize the cost of lighting fixtures to immediately reduce out-of-pocket expenses.

• Custom Rebates: These rebates are tailored to the individual business, offered for projects that don’t qualify for instant or prescriptive rebates. For example, a utility provides a company with a $0.15 per kWh incentive to reduce annual energy consumption. This incentive is not as straightforward but can add up to a significant rebate depending on your usage.

Solar Energy Rebates And Incentives

Aside from the ITC, there are several other programs available with incentives for solar energy systems. All told, these incentives may cover anywhere from 26% to 50% of your purchase and installation costs. It’s important to note that the tax benefits go to the owner of the solar system, so make sure to purchase it directly or finance it with a solar loan to take advantage of the following opportunities.

Solar Renewable Energy Credits (SRECs) and Performance-Based Incentives: Some states require their utilities to generate a certain amount of their electricity using solar power. Illinois, for example, is committed to producing 25% of its electricity from renewable sources. As you operate your solar array, you earn one SREC for generating one MWh of electricity. Utilities then buy your SRECs so that they can apply them towards their annual quota and fulfill their requirements. You can earn SRECs for as long as you own and operate your solar system.

State and Utility Rebates: States and utilities can offer a per kW incentive for installing solar. The state of Illinois will pay $250 per kW of installed solar power for systems with no more than 2,000 kW. State and utility rebates don’t have to be sold. They are automatic, and the rates are determined prior to installation.

State, Local, And Utility Incentives

Individual states, cities, and utilities offer various incentives to encourage investment in energy-efficient projects. In Illinois, there are nearly 90 current programs in place to promote efficient energy investments.

Property Tax Break: In Illinois, The Special Assessment for Solar Energy Systems means that your property tax rates are unaffected by installing solar panels. You’ll be taxed as if they weren’t there, even though you’ve added significant value to your property. Some states that offer this incentive require you to purchase solar equipment from a local manufacturer.

Sales Tax Break: In some states, you may even be exempt from paying sales tax on your entire solar project purchase as well.

Accelerated Depreciation: The Modified Accelerated Cost Recovery System (MACRS) reduces a business’s tax burden to return solar investments quickly. Certain solar equipment is eligible for a five-year cost recovery period. Accelerated Depreciation can reduce the net cost of the system by another 30%.

Solar Energy Financing Solutions

Though costs for solar panels and related equipment continue to decrease as more firms adopt them, they are still costly. To fund your solar project, you have three main choices:

• Pay Cash: You’ll own the investment outright and can begin to recoup your initial investment through the incentives that we discussed above.

• Solar Lease: If you can’t afford to fund your solar project on your own, consider leasing your solar equipment from a provider. During a solar lease, you will pay a monthly fee to the service provider (sometimes the solar panel manufacturers, for example) over the contract period of between 15-25 years.

• Solar Loan: Financing a solar project at a low, preferential rate is also an option. Some cities and towns offer Property Assessed Clean Energy (PACE) solar energy financing solutions. Manufacturers, private lenders, and credit unions also provide solar energy financing.

LED Financing Solutions

As LED usage continues to rise and production methods have improved, the cost for these fixtures continues to decrease. Still, retrofitting or converting is an expense. Apart from the rebates discussed above, consider these innovative funding solutions as you evaluate your lighting project financing options:

• In-Electric Rate Funding: Complete your lighting project without any capital expenditures. In this scenario, your rate per kWh includes your project costs. You continue to save money by reducing your energy consumption.

• Performance Contracting: Congress authorized Energy Savings Performance Contracts to offer alternative financing for energy efficiency projects. To encourage investment in energy-saving projects, performance contracting eliminates upfront costs. ESPCs allow public entities to upgrade their facilities with future energy savings.

• Financing: Finance your project with low, preferential rates. It may even be possible to service the debt with energy savings so that the project is self-funding. Solar project financing may require you to re-distribute your current energy expenses and requires no capital outlay.

Conclusion

Incentives for energy-efficient investments are available in many forms. Rebates, tax credits, and performance-based incentives are all in place to reward your decision to pursue cost and energy-efficient options like solar energy systems or LED lighting. Together, they help to offset or return your investment rather quickly.

To derive the most benefit from the energy efficiency programs that apply to your project and circumstances, feel free to enlist the services of an energy consultant, like Verde Solutions. Thanks to our extensive network of more than 120 utility partners across the United States, we can help you maximize your savings by helping you to optimize your energy management strategy. We can help guide you through the applicable incentives mentioned here, process rebates, and even take some rebates in place of payment. This process keeps us accountable and allows you to be sure that we continually work to maximize your energy savings.

Verde Solutions works closely with commercial entities of all sizes to develop comprehensive energy strategies that create value for our clients and communities by providing innovative energy-efficient solutions. By reducing energy use and employing renewable energy, like the solar panels and LED lighting solutions discussed above, we can help you reduce your energy costs and chart a sustainable path for the future.