Federal Incentives for Commercial Solar Energy Projects

Insights

Written by Daniel S. Schleck

Posted Feb 23, 2023

Solar energy is becoming an increasingly popular form of renewable energy in the United States, and federal tax incentives are a major factor in making it a financially attractive option for businesses. In addition to the environmental benefits of solar energy, these incentives can significantly reduce the cost of installing and operating a commercial solar power system. In this article, we’ll explore the federal tax incentives that are available to businesses looking to install a solar energy system.

The most popular federal incentive for commercial solar power is the Investment Tax Credit (ITC), which provides a tax credit of up to 30% of the cost of installing a solar energy system. This credit can be applied to reduce the company’s federal income tax liability, resulting in a significant cost savings. The credit can be applied to both the equipment and installation costs associated with the solar system, and can even be applied to systems that are leased.

In addition to the ITC, businesses can also take advantage of the Modified Accelerated Cost Recovery System (MACRS) for their solar systems. The MACRS allows businesses to depreciate the cost of the solar system over a period of five years, resulting in a significant tax deduction. This deduction can be claimed in the first year the system is placed in service, allowing businesses to recoup their costs more quickly.

Furthermore, the recently passed Federal Inflation Reduction Act (FIRA) provides many incentives for financing commercial solar energy projects. These incentives can be used to finance up to 80% of the total project cost, making solar energy more accessible and affordable for businesses. These incentives include tax credits, grants and below market rate loans.

Tax credits can be used by developers and investors for dollar-for-dollar reduction of tax liability, meaning that they reduce the amount of taxes owed. The specific amount of the tax credit varies depending on the type of project and the amount of energy produced. For example, businesses may be eligible for a 30% Investment Tax Credit (ITC) for solar projects that are placed in service before the end of 2021. This credit can be used to offset the cost of installing solar panels, and it can be used to finance up to 30% of the total project cost.

Also, FIRA provides for grants and below market loans. Grants are a form of direct financial assistance and vary depending on the size and scope of the project, but grants can typically cover up to 50% of the total project cost. Loans are available at a lower interest rate than traditional loans, making them an attractive option for businesses looking to finance their solar energy projects. Both of these incentives provide valuable options for developers to finance these projects.

Lastly, businesses may be eligible for additional tax credits and deductions through their state and local governments. Many states and localities offer incentives for businesses that install solar energy systems, and these incentives can range from property tax breaks to grants and other forms of financial assistance. Additionally, some states offer renewable energy credits, which allow businesses to earn credits that can be sold to other businesses or utilities in order to offset the cost of their solar systems.

In addition to the tax incentives discussed above, businesses may also be eligible for a number of other financial incentives, such as grants and low-interest loans and state and even local incentives. These incentives can be used to help offset the cost of installing a solar energy system, and can also be used to purchase additional equipment or to make other upgrades to the system. Overall, federal tax incentives are an important factor in making commercial solar power an attractive and financially viable option for businesses. By taking advantage of these incentives, businesses can significantly reduce the cost of installing and operating a solar energy system, and can benefit from the environmental and financial benefits of solar energy. Additionally, businesses may be eligible for additional incentives through their state and local governments, which can help make solar energy even more affordable.

About the Author

Daniel Schleck is an attorney in Messerli Kramer’s Corporate and Commercial Real Estate groups, where he works on all aspects of transactional law, with a particular focus on environmental law and policy, renewable energy projects, commercial real estate development financing and corporate matters, municipal and land use law, and eminent domain proceedings. He specializes in structuring complex transactions and financing packages for all aspects of property development, and he has successfully secured significant public grant funds including TIF, PACE and TBRA funds for clients that choose to redevelop contaminated property—using these funds in creative financing structures. Prior to becoming an attorney, Dan worked as an environmental and chemical engineer, providing project management to many hazardous waste site clean-up projects for the U.S. Environmental Protection Agency, various state environmental agencies, and private companies.