Are Commercial Solar Panels Worth It?

Sharon Lee • Updated on February 20, 2023 • [rt_reading_time postfix=”minute”] read

With electricity costs continuing their steady march upwards, increasing concern over emissions, and customers demanding their favorite businesses demonstrate their commitment to the environment, solar panels are becoming more and more popular with business owners.

Commercial solar panel systems can require a significant investment, both financially and in terms of the time it can take to design a solar system that meets the unique needs of your business. So, if you’re wondering are commercial solar panels worth it, read on.

Table of Contents
Solar panels on roof of a stadium

What is Commercial Solar?

The technology used in commercial solar panels is similar to what you’d find with residential solar panels, but there are differences.

Commercial solar panels are typically larger and produce between 350 and 600 watts of power each.

Residential solar panels are typically smaller and are capable of generating around 300 watts of power each.

While most residential systems are installed on a home’s roof, there are a variety of places where commercial operations can install solar panels:

  • If you have open space on the roof of your commercial building, rooftop panels may be a great way to increase your energy independence.
  • If you have open land on your property, a ground-mounted commercial solar system might be a good option for you.
  • If you have a large parking lot, you might consider solar carports to provide your business with renewable energy and give your employees and guests covered parking.
  • If you want a smaller commercial solar system, solar awnings might be a good option.

What types of businesses can benefit from commercial solar panels?

Because commercial solar panels can be installed just about anywhere, any type of business can reap their benefits. You’ll typically see solar panels at commercial and industrial operations like car dealers, manufacturers, warehouses, schools, government organizations, non-profits, agriculture operations, office buildings, medical facilities, and even shopping centers and retail businesses.

Because your needs will be different from that of a homeowner, it’s always best to work with a reputable commercial solar company like Velo Solar. You want a partner experienced in designing commercial solar installations that will meet the needs of your business.

Benefits of Commercial Solar Panels

Commercial solar panels provide many benefits to business owners. Here are a few of the biggest.

Savings on energy costs

Here are a few ways that solar panels can help you save on energy costs:

Levelized cost of energy (LCOE)

When it comes to solar, what you’re really purchasing is a hedge against future energy costs. That’s why you need to look at the entire financial picture when determining if solar is right for your business. ROI alone won’t show you the real value of your investment.

To understand the real value of solar, you need to compare how much your utility-generated electricity costs are going to continue escalating over time versus the more fixed costs of electricity produced by your solar panels and battery storage system. This is your levelized cost of energy.

Grid electricity costs can escalate 2-5% per year (or more if inflation rates are higher), but if you have a solar system powering your business, even partially, you own all the energy it makes once the system is capitalized, and that protects you from the rising cost of energy. The new tax credits in the Inflation Reduction Act will help you capitalize even faster. If you do not want to use CAPEX, Velo has financing options that can help you integrate solar using OPEX only.

Peak Shaving

You have to pay the rates set by the utility if you want electricity from the grid – including the higher prices they demand during peak hours. Most commercial utility rates are a combination of capacity (kWh-used) and demand (potential kWh you might use), say in the heat of the summer. Often these demand charges can be many times higher than your capacity rate. If you have solar panels powering your business, even partially, you’ll reduce your demand at these peak times, which will reduce operating costs because – you simply won’t have to buy as much energy at peak rates from the utility.

This is especially true once you’ve paid for your system – you already own every kilowatt of energy your solar panels produce. That means you can draw on your own power during peak hours when utility rates are higher to not only lower your energy bills but make them more predictable.

A battery energy storage system can provide additional energy cost savings, especially if your operations run 12-24 hours a day.

Reduced carbon emissions

Installing commercial solar panels can also reduce the carbon emissions of your business as you’ll be replacing grid energy, which is generated primarily by burning fossil fuels, with green renewable energy.

If you replace a diesel backup generator with a solar plus storage system, you can see even greater emissions reductions and hedge against the rising costs of fossil-fuels.

Not only does reducing your carbon emissions have environmental benefits, but your sustainability efforts will attract new customers. A growing number of shoppers are looking to buy from companies that are reducing their carbon emissions.

Plus, many vendor and supplier agreements now include sustainability clauses. The carbon footprint of a product includes the impact of all stops up and down the supply chain, so corporations want to work with vendors that are reducing their own emissions. Going solar can give you a leg up on the competition when you’re bidding for or renewing supplier contracts.

Improved resilience

Think about how much your last major power outage cost you in terms of lost business or lost inventory. Some studies show that for a manufacturer, even a single hour of downtime can cost a company upwards of $5 million. This makes commercial solar panels worth the investment very quickly.

The resilience of a commercial solar installations, when installed with a battery storage system, is a great insurance plan in case of an electricity outage. Combining the two technologies can keep things running without a hitch for days or weeks – and that will keep your employees, customers, and bottom line all happy.

Low maintenance

Routine maintenance is key to keeping your solar energy system in good repair and functioning at maximum efficiency. Luckily, commercial solar systems are pretty low maintenance, especially if you have an operations and maintenance (O&M) agreement with your solar provider.

O&M agreements typically include an annual system checkup for your solar equipment including the solar panels, the racking and mounting infrastructure, the electrical system and wiring components, and the inverter. Your solar provider can repair damage to your solar energy equipment and also alert you to any overgrown vegetation that may be impacting the power output of your system.

Other benefits of commercial solar

A large percentage of commercial buildings aren’t owned by their tenants, which often leads to the question, “is commercial solar worth it if I don’t own my building?” The short answer is yes!

If you’re interested in using a solar panel system for your operation, have a conversation with your landlords. They may allow you to install the system yourself, or better yet they may install it in exchange for you signing a long-term lease. Either way, you’ll reduce your energy costs and their commercial property will increase in value without an increase in property taxes. If your landlord agrees to let you install a solar system on your own, make sure your lease is set up to transfer ownership (and responsibility for any outstanding costs) of that system to the owner should you not renew your lease.

The Real Cost of Installing Solar Panels

So, the benefits of solar energy are all great. But when the rubber meets the road, cost is probably the biggest factor when determining if commercial solar systems are a worthwhile investment.

How much do commercial solar panels cost?

According to data from the Solar Energy Industries Association (SEIA), the cost of commercial solar in the first quarter of 2022 averaged $1.64 per watt. While that number is somewhat illustrative, it doesn’t really paint the whole picture.

There are many other factors that you need to consider when talking about the cost of solar panels, including things like your levelized cost of solar energy, other energy savings, improved resilience in case of a grid outage. A reputable solar installer like Velo Solar can help you run the numbers to determine the true cost of solar for your business.

Paying for your commercial solar panel installation

Like other major business expenditures, there are a variety of ways you can pay for commercial solar installations.

Cash and Loans

Paying cash is the simplest way to pay for a commercial solar installation, but for many, the purchase will need to be financed with a commercial solar loan. Like any other loan you take out, it will either be secured by your company’s real estate or other assets, or it will be unsecured. Secured loans often have more favorable interest rates than unsecured loans.

Like other loans, your business will need to go through a credit approval process, and your rating will impact the terms you’ll be offered. Solar loans are typically set up with a 20-year repayment period.

Whether with cash or a loan, most businesses making a direct purchase of their solar power system are eligible for the Solar Investment Tax Credit, also known as the solar ITC. The Solar ITC is designed to reduce the cost of commercial solar projects by reducing your tax liability with both a tax credit and an accelerated depreciation schedule.

Congress recently passed the Inflation Reduction Act (IRA) which sets the Solar ITC at 30% until 2032. (The rules for residential and commercial projects differ, so you’ll want to work with a reputable commercial solar provider like Velo Solar to ensure your project qualifies and that you maximize your credit).

If your business has high tax bills, buying your system outright and taking advantage of the Solar ITC may provide more financial and tax benefits than leasing your system.

In addition to the federal investment tax credit, your commercial solar installation may also be eligible for state and local tax credits as well as incentives offered by your utility.

Power Purchase Agreement

If you don’t want the upfront costs associated with owning your own commercial solar system, another popular way to reap the benefits is through a power purchase agreement (PPA). With a PPA you contract with a solar developer that pays for, installs, and maintains a solar system on your property.

The developer owns the system but agrees to sell you electricity at a fixed, reduced cost per kilowatt hour (kWh) used, in exchange for you letting them install the array on your property. These types of agreements are usually in place for 10-25 years. There may be a provision for your business to purchase the system at various points during or at the end of the contract.

Lease Agreement

Similar to a power purchase agreement, a solar lease involves a third party owner and can often be structured with no upfront costs. With a lease you’ll pay a fixed rate over the lifetime of the contract (typically 7-25 years), rather than costs being based on how much energy you use.

The downside is that you’re paying a flat rate every month, even if you don’t use all of the energy that’s allowed under the terms of your deal. Of course, that’s offset by your levelized cost of energy, which is significantly reduced, adding tremendous value to your system over time.

The Bottom Line: Are Commercial Solar Panels Worth It?

The benefits associated with reduced energy costs, lower carbon emissions, and improved resilience mean that solar power systems are totally worth the investment. Plus, the reduced upfront costs provided by the solar tax credit make investing in a commercial solar panel system all the more attractive.

If you’re ready to take the next step, schedule an appointment with Velo Solar. They can help design a system that will maximize your investment in commercial solar power.