Solar energy offers many distinct benefits over utility power and other forms of on-site generation. While the traditional benefit of solar is the cost savings, there are other benefits including environmental, social, and financial. The following is a list of the financial benefits:

Current Incentives Make Solar Cost Competitive – Federal, state and local agencies provide a range of market building incentives and tax breaks to accelerate the payback on solar PV investments. Once the payback is achieved, the cost of electricity generated from solar energy is nearly free.

Solar Can Be Free or Cash Flow Neutral – In locations with good combinations of higher incentives, insolation, and utility rates, solar PV project savings (and tax benefits) can be greater than the financing costs. Additionally, solar Power Purchase Agreements (PPAs), where the customer "hosts" a PV system owned by a third party financier and pays only for the power produced, can often match or beat the avoided cost of power.

Reduces the Highest Cost Electricity – Since PV produces during the peak price periods of the day (in Time-of-Use, TOU markets), solar helps customers to avoid the highest costs for power. An important advantage of solar energy is that there are no ongoing fuel and operating costs, which constitutes a solar hedge or protection against rising electricity and fuel costs.

Reduced Cooling Costs – Depending on your facility's roof deck construction and color, a roof-mounted solar PV system will shade your roof and reduce daytime surface temperatures up to 30°F. This can reduce heat transfer through the roof and the cooling load on the building by as much as 25%.

The most important single decision in the solar project process is deciding how to finance the system – either internally or with some type of external financing. Incentives from state rebate programs, federal tax credits, and other tax incentives can add up to over 100% of the system's cost. In addition to the financing mechanisms listed below, there are many federal, state, and local programs – such as grants, low (or even zero) interest loans or bonds (federal Community Renewable Energy Bonds) – that can help finance or buy down the system cost.

Direct Cash Purchase – The customer uses cash on hand to invest in the solar project. This allows the customers to realize the full monetary benefits of the project and own the system immediately without involving outside financing.

Debt/Loan/Capital or Finance Lease – The customer uses the solar PV system and/or the real property as collateral to secure a debt structure on the PV system. This allows system ownership from day one with a known buyout/purchase cost and, depending upon the project economics (due to incentives, system production, avoided electricity costs, tax situation, and interest rate) can lead to a cash flow positive project.

Power Purchase Agreement – The customer's credit rating and long-term facility lease or ownership permits a third-party financier to finance the PV system construction, maintenance, and operation. Similar to tax leases, the buyout cannot occur in less than six years and must be at Fair Market Value (FMV). Solar PPA customers pay for solar power, not for solar equipment or installation. As long-term agreements, PPAs are well suited to customers who own their own site and plan long-term occupancy. This financing structure was introduced in 2005 and is becoming the most popular way for business, government, and non-profits to go solar.

Tax-Advantaged Leasing – The customer's credit rating and long-term facility lease or ownership permits a third-party financier to finance the PV system construction, leaving the customer to operate and maintain the system. While more familiar than PPAs to most customers, the production and O&M risk usually makes a PPA more appealing. For tax reasons the buyout cannot occur in less than six years and must be at FMV.

Click here for a summary of the various financing options and the major differences.

Below is a list of issues that should be reviewed to select the best financing agreement.

Insurance – The PV system should, and depending upon the financing type must, be insured. Sometimes this can be under the customer's existing umbrella policy, but other times the financier will require and/or provide (and charge for) separate insurance (there could be tax/ownership implications for whoever insures the system).

Renewable Energy Credits (RECs) – Renewable Energy Credits (RECs) – Since RECs have a value it is important to decide if your organization wants to retain the RECs for green or speculative purposes, or if it is worth it to give up the RECs in order to lower the PPA or lease rate offered by the financier. Organizations that wish to claim the green power or carbon offsets should retain and "retire" the RECs. Those interested in the speculative value of RECs (as opposed to those strictly interested in the lowest rate possible) may wish to retain the RECs or negotiate an option to purchase them at a specified price at any point in the contract. The premium that the financier places on the value of RECs and the alternative cost of purchasing RECs or carbon offsets from a green power or carbon marketer may dictate a particular course of action.

O&M – As mentioned above, some financing packages will include O&M and others will not. It is important to know who is responsible and what services will be performed in what circumstances. While the price of the O&M may not be specifically broken out in some financing methods (such as PPAs), that cost is imbedded in the financing. Organizations that are willing to accept some responsibility (such as even being willing to have a local employee reset an inverter, if needed) may be able to reduce the costs.

General Contract Terms – PPA and lease contracts can have many clauses that are cause for concern for the customer, such as force majeure and removal costs. It is critical that all aspects and responsibilities of the contracts are clearly understood.

Federal, state and local agencies offer a range of incentives and tax rebates. To get started, North Carolina State University maintains the Database of State Incentives for Renewable Energy (DSIRE) where you can find information about your area. A qualified integrator will be able to explain your options.

While it is not imperative that a customer apply for a rebate before selecting a vendor, it is important to apply for a rebate as soon as the organization can commit to implementing a solar project. Qualified integrators should be able to manage the entire rebate application process by providing the necessary forms and calculations, and even submitting on behalf of the customer. In locations with good solar incentives, no project will be done without a rebate. Therefore, a rebate application – especially those that require a deposit or fee – is a clear indication internally (and to integrators) that the organization is serious about implementing solar PV.

In California, the three investor – owned utilities offer "retail" net metering to customers who generate their own electricity. Under this program, every kWh of electricity you generate that is not consumed on site and is exported to the grid is credited to your account at the amount you would have paid at that moment in time to purchase that kWh of electricity from the utility. In this way, one kWh of expensive peak electricity can in some cases offset the costs of multiple kWh of inexpensive nighttime electricity. Municipal utilities vary in their net metering policies, and we will be happy to assist you in determining which policies apply to you.

While we cannot advise you on tax issues, tax benefits at both the state and federal levels are a critical component of a solar project. They can be subdivided into five categories:

Rebate and tax incentives are usually capped at some dollar value or percentage of system cost (or size), so it is important to understand if there is an optimal system size that will lead to optimal project economics.

There are different tariffs offered by Investor-Owned Utilities (IOUs) and municipal utilities at the behest of customers and the PUC (in most cases). We look to see which would be the best for you, both with and without a PV system.

While your utility would be able to answer that question quickly and easily, we can, too. If we know what tariff you are on, we can walk you through the components.

This varies by tariff and utility, but at least the energy usage (kWh) will be reduced by the power (kWh) produced by the system. Sometimes other charges, such as Air Quality Rider charges (per monthly kWh used), are also offset.

If you are on a Time-of-Use (TOU) tariff, you get charged for electricity at different rates at different times (Peak, Part, Off for summer and winter). Since the PV system produces more during the Peak summer TOU periods than during the less expensive Off peak winter rates, it is often possible to offset the entire electric bill cost ($) by only replacing (offsetting) a large portion of the usage (kWh).

Demand charges (kW) are usually calculated as the maximum power that your property (or a particular meter) draws during the month. It is the maximum of 15-minute averages over the month.

Not necessarily. The level of demand charge reduction is dependent upon the TOU tariff rules for the utility (i.e. peak vs. off peak times), the customer's demand profile, and how demand charges are assessed. For instance, demand charges can be assessed by max of month or max of TOU period. On average, PV systems reduce demand charges by roughly 5-40%. EI Solutions system integrators can determine your demand charge reduction.

Utility rate escalation is often an area of contention, as there are many sources of data that measure different energy indicators over different time periods. However, utility rates have risen over the last 30 years. The US average went up 16% from 8.14 cents in 2005 to 9.46 cents in 2006 – the last year of released data (www.eia.doe.gov), and the energy rates will continue to rise as international demand (driven by China and other areas undergoing high growth or industrial expansion) continues to skyrocket and environmental regulations increase compliance costs.

In addition to increasing raw fuel costs and generating asset installation costs, local, national, and international policies are driving energy prices higher. The US Department of Energy has historical rate data for states and utilities.