Advanced Energy Systems completed the second phase of a 498.54 kW solar electric system for North River Boats in 2018. The array consists of 1,386 SolarWorld 350 watt and Heliene 370 watt modules, and SolarEdge 33.3KUS inverters. This solar electric system will produce approximately 552,809 kWh in the first year of operation, and more than 18,393,348 kWh over the course of its lifetime, offsetting 13,298 tons of CO2 emissions.
Investing in commercial solar energy is a strategic decision that offers significant financial and environmental advantages for businesses. Why is commercial solar a smart investment? For businesses in Oregon and beyond, commercial solar can reduce operational costs, increase energy independence, and support sustainability goals. Additionally, companies can benefit from various tax incentives and support programs that make solar installations more affordable and appealing.
This article explores the financial opportunities available for businesses, including tax credits, accelerated depreciation, and domestic content bonuses, while highlighting how solar energy positively impacts business operations and the environment.
Key Tax Credits and Incentives for Commercial Solar
One of the primary reasons commercial solar is a smart investment is the range of significant tax credits available for businesses, nonprofits, and even local and tribal governments that invest in solar energy systems:
-
Investment Tax Credit (ITC):
The ITC allows businesses to reduce their federal income tax liability by 30% of the cost of a solar system installed during the tax year. This incentive substantially lowers project costs, making solar financially attractive for businesses of all sizes. Available until 2034, with gradual reductions starting in 2033, the ITC remains one of the most impactful financial tools to reduce solar installation costs¹.
%
Available until 2034, with gradual reductions starting in 2033
-
Production Tax Credit (PTC):
The PTC offers a per-kilowatt-hour (kWh) tax credit for electricity generated by solar and other qualifying renewable technologies over the first ten years of system operation. Adjusted annually for inflation, this credit provides stable financial benefits, helping businesses better predict long-term savings².
-
Modified Accelerated Cost Recovery System (MACRS):
Through MACRS, businesses can further reduce their tax liability by depreciating solar systems over five years. Combined with the ITC, MACRS can reduce installation costs by over 50%, making it especially beneficial for small businesses aiming to lower tax obligations².
%
Your Title Goes Here
-
State and Local Rebates:
Many states, including Oregon, offer substantial rebates to reduce the upfront costs of solar installations for businesses directly. These rebates vary but can save companies thousands of dollars. For instance, the Oregon Energy Trust Commercial Solar Incentive Program provides up to $0.45 per watt for systems under 35 kW and up to $0.30 per watt for larger systems³. The Self-Generation Incentive Program (SGIP) offers up to $250/kWh for small-scale business solar and storage³ in California. Similarly, New York’s NY-Sun Incentive Program supports solar projects based on size, with incentives from $0.40 to $0.80 per watt depending on the region and system size³. These state-specific programs can significantly reduce upfront expenses, making solar installations more accessible and increasing overall return on investment.
Below is a summary table that outlines some of the top state incentives for commercial solar installations:
| Estado | Programa | Incentivo |
|---|---|---|
| Oregon | Energy Trust Commercial Solar Incentive | $0.45/W para <35 kW, $0.30/W para >35 kW |
| California | Self-Generation Incentive Program (SGIP) | Hasta $250/kWh para almacenamiento |
| Nueva York | NY-Sun Incentive Program | $0.40-$0.80/W según tamaño |
By leveraging these incentives, businesses can lower their solar installation costs by tens of thousands of dollars. Staying informed on updates to these programs is crucial, as variations can impact the total project cost.
But what happens after installation? How does installing solar panels affect a business’s energy costs over time?
-
Government Grants for Solar Panels for Businesses:
Businesses may also apply for government grants to offset initial solar costs. This is especially valuable for companies committed to integrating renewable energy into their sustainability strategies². It’s important to note that projects typically cannot claim both the ITC and PTC for the same property. However, IRS guidance may allow businesses to claim separate credits for co-located systems, such as solar with energy storage, optimizing potential savings. Solar systems installed from 2022 to 2033 may be eligible for the 30% ITC or a 2.75¢/kWh PTC if they meet Treasury labor requirements or are under 1 MW¹.
This combination of incentives creates a compelling financial case for solar adoption by reducing upfront costs and providing substantial long-term tax benefits. Coupled with energy savings and positive brand recognition, commercial solar in Oregon has become a valuable strategy for forward-thinking business leaders.
How Do You Choose Between the ITC and PTC?
Choosing between the Investment Tax Credit (ITC) and the Production Tax Credit (PTC) depends on several factors, including project costs, sunlight availability, and eligibility for bonus credits. Each credit offers distinct benefits, making them more suitable for different types of projects:| Factor | ITC (Investment Tax Credit) | PTC (Production Tax Credit) |
|---|---|---|
| High Initial Costs | Best Option | Less Advantageous |
| Sunny Location | Less Relevant | Ideal |
| Small Projects | More Suitable | Less Suitable |
| Large-Scale Projects | May Be Overkill | Highly Beneficial |
| Projects in Low-Income Communities | Eligible for Bonus Credits | Less Common |
| Focus on Energy Output | Not Required | Essential |
What Expenses Are Eligible for the ITC?
The ITC calculation multiplies the tax credit percentage by the “tax basis,” or the amount spent on eligible property. Qualified expenses include:
| Expense Type | Eligible | Not Eligible |
|---|---|---|
| Solar PV Panels | ✔ | — |
| CSP Equipment | ✔ | — |
| Roofing Costs | — | ✔ |
| Reflective Roof Membranes | ✔ | — |
| Interconnection Costs (under 5 MW) | ✔ | — |
Additionally, the tax basis for projects under 5 MW may include interconnection costs beyond the connection point to the distribution system. While typical roofing costs aren’t generally eligible, specific installations, like solar shingles or reflective roof membranes that boost electricity generation, may qualify⁴.
What Are the Labor Requirements for Projects?
To qualify for the full ITC or PTC, projects must meet labor standards established by the Treasury Department, ensuring fair compensation and skill development in the clean energy sector:
| Requirement | Description | Penalty for Non-Compliance |
|---|---|---|
| Prevailing Wage | Pay workers at or above local prevailing wage. | $5,000 per affected worker + interest. |
| Apprenticeship | Ensure a percentage of labor hours are done by apprentices. | $50/hour for unmet apprentice hours. |
| Intentional Non-Compliance | Repeated or deliberate disregard of requirements. | Increased penalties and risk of disqualification. |
What Are the Bonus Credits for Domestically Produced Materials?
The Domestic Content Bonus provides an additional tax credit for solar projects that meet specific domestic manufacturing standards. This bonus can significantly increase the value of the ITC or PTC by adding:
- An extra 10% to the ITC, raising the standard 30% ITC to 40% for projects meeting domestic content requirements.
- An additional 10% to the PTC, increasing the credit from 2.75 cents per kWh to 3.025 cents per kWh during the project’s first ten years ⁵ ⁶.
To qualify for the Domestic Content Bonus, all structural steel or iron used in the project must be produced in the United States. Additionally, a minimum percentage of the facility’s manufactured products must be mined, produced, or manufactured domestically. For projects starting before 2025, at least 40% of the total manufactured components must meet these requirements⁵ ⁶.
This 10% boost can considerably enhance the tax credit, especially for large commercial or industrial solar installations. For example, on a $1 million solar project, the standard ITC would yield $300,000 in credits, but with the Domestic Content Bonus, this amount could increase to $400,000, adding an extra $100,000 in tax savings⁵.
Although the Domestic Content Bonus offers significant financial advantages, businesses should weigh the additional costs and complexities of sourcing U.S.-made materials and meeting IRS guidelines. Evaluating whether the increased tax credits justify these extra expenses is crucial for maximizing the return on investment.
| Material | Eligible for Bonus | Not Eligible |
|---|---|---|
| Structural Steel | ✔ | — |
| Imported Solar Panels | — | ✔ |
| U.S.-Manufactured Batteries | ✔ | — |
What Commercial Buildings in Oregon Qualify for Tax Credits?
One of the reasons commercial solar is a smart investment is the broad eligibility for tax credits available to various types of commercial buildings in Oregon. Federal tax credits like the ITC and PTC apply to a wide range of properties, including:
What Commercial Buildings in Oregon Qualify for Tax Credits?
One of the reasons commercial solar is a smart investment is the broad eligibility for tax credits available to various types of commercial buildings in Oregon. Federal tax credits like the ITC and PTC apply to a wide range of properties, including:
Office Buildings and Corporate Headquarters:
Office buildings that install solar systems to offset electricity consumption may qualify for the ITC or PTC if they meet the required labor and size standards set by the Treasury Department and IRS⁽⁴⁾.
Manufacturing Facilities:
Manufacturing facilities, with their high energy demands, benefit significantly from solar installations, qualifying for tax credits that reduce energy costs and shorten the payback period⁽¹⁾.
Retail Spaces and Shopping Centers:
Solar adoption can lower operating costs and environmental impact in standalone retail spaces and those within larger shopping complexes, benefiting from the ITC or PTC⁽²⁾.
Warehouses and Distribution Centers:
Although traditionally known for lower energy consumption, warehouses and distribution centers may qualify for tax credits if they incorporate solar energy. Additional incentives may apply if these installations include energy storage solutions⁽³⁾.
Hospitality Sector—Hotels and Restaurants:
Hotels, resorts, and restaurants, with their high energy needs for heating, cooling, and lighting, are eligible for solar tax credits. Solar adoption helps these establishments reduce operational expenses⁽²⁾.
Nonprofit and Government Buildings:
Nonprofit organizations, local government buildings, and tribal properties can access tax credits through “direct pay” or “transfer of credit” options. This mechanism enables tax-exempt entities, like nonprofits and local governments, to receive a refund equivalent to the tax credits, even if they don’t owe federal taxes. For instance, a nonprofit that installs a $500,000 solar system could receive a direct refund of $150,000 through the 30% ITC. The refund is reduced to zero if a tax-exempt grant fully funds the project. For partially funded projects, the direct pay credits are prorated accordingly⁽⁴⁾.
Projects beginning in 2024 or later and larger than 1 MW must also meet domestic content requirements to qualify for the full credit. Depending on the project’s start date, failing to meet these requirements may reduce eligibility to 90% or less of the total credit amount⁽⁶⁾.
Additional Qualifying Properties:
The types of buildings listed above provide examples, but many other categories of commercial properties may qualify. To be eligible, properties must be located in the United States or U.S. territories, use new and previously unused equipment, and not be leased to a tax-exempt entity (e.g., a school). However, tax-exempt entities can still receive the ITC as a direct payment⁽⁴⁾.
Moving Forward with Solar Investments
Choosing commercial solar energy allows businesses to reduce energy costs and leverage substantial financial incentives that offset initial investments. From the Investment Tax Credit (ITC) to labor requirements and domestic content bonuses, these programs aim to promote clean energy adoption across various industries and building types.
As more companies transition to renewable energy, those who utilize these incentives will be well-positioned in a market increasingly focused on sustainability and innovation. Commercial solar is a smart investment not only for cutting operational costs but also as a forward-thinking strategy that enhances brand reputation and prepares businesses for a sustainable future. With federal support for solar energy at an all-time high, companies in Oregon and beyond can improve their bottom line and environmental impact by investing in solar energy.
Sources:
- SEMS Publishing. (n.d.). Renewable Energy and Energy-Efficient Approaches Guide. Retrieved from https://semspub.epa.gov/work/HQ/100003509.pdf
- U.S. Environmental Protection Agency. (2020). Renewable Energy or Energy-Efficient Approaches. U.S. EPA. Retrieved from https://www.epa.gov/sites/default/files/2020-08/documents/renewable_energy_or_energy-efficient_approaches.pdf
- U.S. Environmental Protection Agency. (n.d.). Re-Powering America’s Land: Incentives and Policies. U.S. EPA. Retrieved from https://www.epa.gov/re-powering/incentives-and-policies
- U.S. Department of Energy. (n.d.). Federal Solar Tax Credits for Businesses. Retrieved from https://www.energy.gov/eere/solar/federal-solar-tax-credits-businesses
- U.S. Department of the Treasury. (2022). Fact Sheet – Implementing IRA Climate CleanEnergy Tax Incentives. Retrieved from https://home.treasury.gov/system/files/136/FactSheet-Implementing-IRA-Climate-CleanEnergy-TaxIncentives.pdf
- U.S. Department of the Treasury. (2022). Treasury Department Releases Initial Guidance on Labor Requirements for Energy Tax Credits Under the Inflation Reduction Act. Retrieved from https://home.treasury.gov/news/press-releases/jy1708