Solar 101 Series – In 100 Words or Less – Financing Solar + Storage: PPAs, ITC, RECs, Tax Equity & More
Solar 101 Series – Financing Your Solar + Storage: PPAs, ITC, and Tax Equity in 100 Words or Less
Solar energy is an excellent renewable resource that helps reduce our dependence on fossil fuels, thereby mitigating climate change. But financing solar projects can be a daunting task for many individuals and businesses.Onyx is your one-stop provider of clean energy solutions — aligned to meet your goals – offering reliability and expertise at no upfront cost to you. Our team has completed more than 340 projects in 27 states. No matter your location or industry, we deliver all stages of development, design, construction, and financing to make every step in your journey to clean energy easier to manage.
To help you navigate the financial aspects of solar energy, we have compiled a list of frequently asked questions about solar financing – in 100 words or less!
Q: What is a PPA, and how does it work?
A: A Power Purchase Agreement (PPA) is a financing option for solar projects where a third-party investor (Onyx) owns and operates the solar system and sells the electricity to the host customer (you) at a fixed rate for a specified period, usually 15-25 years. PPAs can help businesses and individuals access solar energy without having to make any of the large upfront investments otherwise required by self-financing and self-installation. This is how Onyx provides you solar at no upfront cost to you. You are only responsible for your lower utility bills and ongoing PPA payments.
Q: What is the Investment Tax Credit (ITC), and how does it work?
A: The Investment Tax Credit (ITC) is a federal tax credit that allows individuals and businesses to deduct a certain percent of the cost of installing a solar energy system from their federal taxes. The ITC can be claimed by homeowners, commercial property owners, and businesses that own solar systems. With the passage of the Inflation Reduction Act (IRA), the Federal ITC will continue to be 30% for projects beginning construction by 2023. Onyx works to monetize the value of the ITC credit, passing along the savings to you in the form of a reduced energy rate for the solar.
Q: What is tax equity, and how does it relate to solar financing?
A: Tax equity refers to a financing arrangement where investors, usually banks, provide funding for solar projects in exchange for the tax benefits, such as the ITC, associated with the project. In tax equity financing, the investor becomes a partner in the solar project and receives a share of the project's revenue in return for the tax benefits. As above, this financing partnership ultimately results in lower energy costs to the customer and improved energy savings.
Q: What is traditional net metering, and how does it work?
A: Traditional net metering is a billing arrangement where the excess electricity generated by a solar energy system is fed back into the grid and credited to the customer's account. The customer can use the credits to offset their electricity usage when the solar system is not producing energy, such as at night or during cloudy days. Onyx can help you determine if your facility is best-suited for traditional net metering, or virtual / remote net metering (defined below).
Q: What is a Virtual Net Metering (VNM), and how does it work?
A: Virtual Net Metering (VNM) is a billing arrangement that allows multiple customers to share the benefits of a single solar energy system. In VNM, the solar system's output is credited to multiple utility accounts, allowing each customer to receive a credit on their bill for the electricity generated by the solar system. This setup is particularly useful for municipalities who have various parcels of land that can be used to generate solar energy, which can ultimately be applied back to multiple municipal utility accounts.
Q: How can I finance a solar project if I can't organize a PPA or tax equity for myself?
A: If you don't qualify for a PPA or tax equity financing, there are other financing options available, such as loans, and leases. Solar loans allow individuals and businesses to purchase solar systems outright or finance them over time, with interest rates and terms varying depending on the lender. Solar leases work similarly to PPAs, but the customer leases the solar system instead of buying the electricity generated by it.Our customers find that working with Onyx to secure a PPA contract is preferable in most all cases, as this affords the ability to see savings immediately without any upfront investment or cost to the customer.
Q: Are there any state or local incentives for solar energy?
A: Yes, many states and local governments offer incentives for solar energy, such as rebates, tax credits, and property tax exemptions. These incentives vary by location, so it's essential to research what incentives are available in your area. Onyx will conduct the market research and applications / permitting work to obtain the applicable incentives to your project, passing along the value of these incentives in the form of utility cost savings to you.
Q: Can I claim the ITC if I lease a solar system?
A: No, only the owner of the solar system can claim the ITC. If you lease a solar system, the leasing company typically claims the ITC and passes on the savings to you through lower monthly payments. But don’t worry – Onyx manages this process for you so that you receive the ultimate value and enjoy the cost savings.
Q: What are Renewable Energy Credits (RECs), and how do they work?
A: Renewable Energy Credits (RECs) are certificates that represent the environmental and social benefits of renewable energy. When a solar system generates electricity, it also generates RECs, which can be sold separately from the electricity to individuals or businesses that want to support renewable energy but cannot generate it themselves. Onyx typically monetizes these RECs to provide you with a lower energy price.
Q: How do customers see cost savings from solar?
A: Customers can see cost savings from solar in several ways. First, they can save on their monthly electricity bills by generating their electricity instead of buying it from the grid. Second, customers can sell excess electricity generated by their solar system back to the grid and receive credits on their bill. Finally, customers working with Onyx via a PPA benefit from the ITC, tax credits, and other incentives that can lower the upfront costs of installing a solar system and thereby the energy costs you receive.
Q: How much can I save with solar battery storage?
A: Solar battery storage can help customers save money by allowing them to store excess solar energy generated during the day for use at night or during times of peak demand when electricity prices are higher. The amount of money customers can save with battery storage depends on several factors, including the cost of electricity in their area, the size of their solar system, and the size of the battery storage system. Onyx can help you analyze your historical energy usage to determine and analysis on your full savings potential with solar + storage.
Q: How long does it take to recoup the cost of a solar system?
A: When self-financing, the time it takes to recoup the cost of a solar system depends on several factors, including the cost of electricity in the area, the size of the solar system, the financing option chosen, and the incentives available. On average, residential solar systems can pay for themselves within 6 to 10 years, while commercial solar systems can pay for themselves within 4 to 7 years.Working with Onyx mitigates the investment risks of adopting solar + storage, as we fully finance projects on your behalf, allowing to you observe savings immediately.
Q: Can I install a solar system on a rented property?
A: Yes, it is possible to install a solar system on a rented property, but it requires the landlord's permission. In some cases, the landlord may be willing to install the solar system and include the cost in the rent or lease agreement. In other cases, the tenant may be responsible for installing and maintaining the solar system and negotiating a favorable agreement with the landlord.
In all cases, Onyx is your partner in determining the best leasing and contract setup to convert you to renewable energy solutions.
Q: What happens to my solar system if I move or have a short lease term?
A: If you move or have a lease ending soon, you can either sell the solar system to the new facility owner / lessee or transfer the PPA or lease agreement to them. Onyx will work with you to ensure that the project takes into account your optimal timing based on any upcoming plans to relocate and the ability to transfer or extend service at that time.
Solar financing can be a complex process, but with the right development partner navigating the journey to clean energy with you, you can make an informed decision on how best to lead your organization toward a greener future.Onyx is your one-stop provider of clean energy solutions — aligned to meet your goals – offering reliability and expertise at no upfront cost to you. Our team has completed more than 340 projects in 27 states. No matter your location or industry, we deliver all stages of development, design, construction, and financing to make every step in your journey to clean energy easier to manage.
Get in touch with us to learn more about how we can help you install solar + storage with no upfront investment or cost to you, bringing you savings starting today!