As a business owner, one of the main concerns is keeping operating costs down. Rising energy costs can have a devastating effect on the budget. With all the talk about solar energy, you may have been asking yourself if solar energy might be the best way to control rising energy costs. For Missouri property owners and business managers, there are many things to consider; the initial capital investment, tax incentives that may be available, and when you can expect to see a return on your investment.
Initial Capital Investment
Of course, the first concern is the initial capital investment. You will not only have to pay for the solar panels, but also storage and certified installers. There are many variables that factor into these costs, including whether you want to go 100 percent solar, or whether you only want to supplement the energy supplied by the power company. Other factors which will determine the initial capital outlay is the size of the roof, and the energy needs of the building. Missouri winters can be cold for extended periods of time, this will have to be considered as well.
Electricity usage is estimated in terms of the annual electricity use per square foot of building space. Most residential systems are estimated as units 5 kWh on average. A commercial installation would be estimated in terms of the number of 5 kWh units for the facility for pricing purposes. The average office uses about 17 kWh of electricity per square foot per year. The average store uses around 49 kWh per square foot per year. Industrial and manufacturing facilities can use considerably more than that. This information will tell you the size of system that is needed for your building.
Missouri pays about 10 cents per kWh for electricity, which is about three cents below the national average. Retrieved March 9, 2018, from https://solarpowerrocks.com/missouri/. A 5KW solar system begins about $20,000. The returns on the system accumulate over time through money that is not spent on electricity costs. Some power companies have a buyback program where you can sell excess electricity back to them.
Tax Credits Help Defray Initial Costs
A tax credit is available under the Investment Tax Credit (ITC) program. This program allows you to deduct 30 percent of the installation costs when you file your return. The best part is that there is no cap on the value that you can deduct, so it even helps when the system you must install is large. This makes it affordable and helps to defray the initial costs of the solar system.
Right now, the tax credit for installing a solar system will remain at 30 percent through 2019, but after that the tax deduction is set to decrease every year. In 2020 the tax deduction will only be 26 percent. In 2021 it will be 22 percent. After 2022, it will only be a 10 percent deduction. This puts a rush on companies who want to take advantage of the maximum federal tax incentive program.
What’s more, you can begin claiming the tax credit as soon as construction begins. The system does not have to be operational until December 31, 2023. You can also rollover the credit for future years. One loophole to consider is that if you lease or sign a power purchase agreement with a solar installer, they are the owner of the system and you cannot take advantage of the tax credit.
There is no statewide rebate program in Missouri, but some of the power companies offer rebates for their customers who install a solar system. Some of the funds are limited, but the companies offering such a rebate include Columbia Water & Light, Empire District Electric, and Kansas City Power & Light.
Unfortunately, the state of Missouri does not offer solar tax credits. They also do not offer performance payments. However, they do offer a property tax exemption. Installing solar panels on your building increases its value by as much as 20 times the annual savings on your electric bill. You can deduct the entire additional value from your property taxes. You do not have to pay any taxes on the value added to your property.
Return on Investment
In the past, purchasing solar power outright was the only way to install a system. However, now there are many financing options available. Power purchase agreements are available where a company leases the equipment and then a third-party owner buys the power that is produced. There are also lease agreements with an option to purchase the equipment at the end of the lease term.
If you take out a traditional loan to finance the project, your energy savings will be offset by the interest rate that you pay on the loan. All these options have different schedules and effects on the return on investment. The fastest return is through direct cash purchase of the system. Using this method, the savings on energy begin immediately and the cost of the system is spread over the coming years.
The average ROI on the solar project is about 20 years to recoup the cost. However, this is just an average and many factors such as the type of financing and size of the system can decrease or increase this average. The net present value of the system is reflected in the energy savings over the years. Money that you do not pay to the electric company can be invested for a high return, compounding the effects of the savings.
Installing solar power is an investment that has the potential for long-term returns. The second the system becomes operational, the savings on your electric bill begin adding up. With electricity costs on the rise and the cost of energy solar energy systems coming down, solar is becoming an excellent choice for controlling operational costs. Right now, the federal government is offering tax incentives which defrays as much as one third of the cost of installing the system, but these incentives will not be this high in the future. If you have been considering a solar energy system, now might be the right time to begin searching for a trusted contractor and start plans for your solar energy project.
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