What are my financing options and how does it fit in with my financial and tax planning strategy?
If you’d like to install a solar system before California’s net metering deadline — or if you’d like to update your current system — now is the time to start the process. First step is to understand what your options are from a tax and financial planning standpoint. The most frequent vehicles for financing: private financing, operating lease and capital lease.
What do you do if you don’t even know how the process works?
Tom Steinke of Jordan Thomas works with farmers and solar providers like JKB Energy to finance solar installations. “Getting started is easier than you think,” he says, “and will pay dividends in the future.”
“Every single installation we do makes a huge difference,” Steinke says. “And the bigger the farm, the more dollar savings you’ll see. We have some farmers who have saved millions — literally — with solar financing rather than paying to the utility.”
It’s a competitive business, Steinke says, but there are definite differences in quality and capacity to build. When clients ask, Steinke says he recommends JKB Energy. “They’re one of the top-tier solar companies in California, and certainly in agriculture,” he says.
Be sure to get at least two proposals for your project. “With two tier-one solar contractors, often the prices will be very close to each other,” Steinke says. “You’ll need to feel comfortable with your decision.”
You may rely on word-of-mouth for other projects, but Steinke says that’s a bad idea when it comes to solar. Each solar project is unique, and that can translate into wildly different bids from property to property and project to project.
2.) Review your proposals
Be sure to ask a lot of questions if your proposals are vastly different. Are the companies suggesting different materials or building methods? Do the companies have good cash flow so you’re not stuck with a half-completed project? A reputable financing agent like Jordan Thomas will review your proposals for you and complete a cash-flow analysis so you can understand the big picture.
3.) Understand the hidden costs and benefits
Are there interconnection charges? What sort of installation will the solar company provide? Are there rebates and incentives you can take advantage of? How much, in the end, will you really save from solar power? Steinke says to aim for around a 20 percent first-year savings on your bill for short-term savings and benefit, but if long-term savings are your goal, then Solar is a hard investment to beat no matter what.
4.) Line up your financing & know your options
Talk with your accountant and finance company and decide which will work best for you: private financing, an operating lease or a capital lease. In general, for ag-related solar installations, Farm Credit West is one of our preferred lessors for solar installations that are greater than $500K.
“With a loan and a capital lease, the tax benefits go to the customer,” Steinke says. “With an operating lease, the benefits go to the Lessor and they pass a negative interest rate on to the customer. For once in your life it’s positive to think negative!”
As always, talking with your CPA to determine which option will be most beneficial in your situation. Operating leases are the most popular option, he says.
5.) Pull the trigger!
Once you’ve settled on a contractor, your contractor will provide details to your financing agency. And once you sign your financing documents, you’re on your way to saving money.
Remember, the federal tax credit for solar systems reduces to 10% on Dec. 31, 2016, so you have incentive to complete your project before then. Take advantage of net metering 1.0 legislation while you can!