Leasing the Sun

Solar collection systems mounted on the roofs of commercial and municipal buildings continue to grow in popularity around the country for building tenants and the financial institutions positioned to provide the lease financing for this environmentally friendly energy solution.

The benefits of leasing transactions for roof-mounted systems are growing because installation costs are becoming more attractive, due in part to various state rebate programs and the increasing cost of electrical energy.

The Cost Factor

As of 2006, the average industrial price for electricity in the United States was 6.16 cents per kilowatt hour, with some states, such as Hawaii and Washington, DC, coming in at almost 18 cents per kilowatt hour, according to the Energy Information Administration. While the costs of energy have increased for industrial, commercial and residential consumers, the costs associated with installing a commercial solar collection system have dropped to the point that a system installation is now realistic and financially viable.

Over the last 10 to 15 years, the cost to install a solar collection system has roughly dropped from $10 per watt to $5 per watt today. When factoring in various rebate programs currently offered by each state, the out-of-pocket cost could actually be cut in half.

The current economy is tough enough on commercial businesses without the concern of escalating energy costs becoming an ever-growing drag on their bottom line. With that in mind, the possibility of a building having its own source of clean renewable energy has become more and more attractive as business owners look toward the future. Not only does it help their bottom line, but being known as a business that is pro-active in their utilisation of eco-friendly and renewable energy sources can only increase attraction from consumers.

To obtain the benefits of renewable energy, commercial businesses and other municipal and non-profit entities are looking to banks. Financial participation in the leasing of commercial solar collection systems is currently limited to some of the larger bank leasing companies.

That is not to say that mid-tier and smaller banks and finance companies are not currently involved, but larger banks have typically been the first to take part in these types of transactions because of greater resources and capabilities. Solar, wind and geothermal equipment leasing options are substantial marketing tools that can position banks and finance companies as environmentally friendly institutions.

Cost vs. Benefit

The one downside of building mounted solar collection systems is the cost: they are not cheap. The cost of having one of these systems installed is approximately $5,000 per kilowatt. Some systems can average more than 350 kilowatts, which would require an initial investment of approximately $1.75 million. Compound that by putting the systems on a chain of locations and companies are looking at shelling out some big dollars. The current rebate programs offered by various states do offer some relief against the initial investment (as much as approximately 40 per cent to 50 per cent), but a large initial investment would still be required.

On the other side, companies that use a large amount of traditional electricity will inevitably face an increase in operating costs that will substantially impact their bottom line, and there is very little hope of these operating costs declining any time soon. Since electricity costs will continue growing across the country, companies that purchase solar energy equipment will eventually recapture their initial net investment in a reasonable amount of time.

Depending upon electricity needs and costs, it is common for the system to pay for itself in as little as seven to eight years. Considering that the photovoltaic panels that absorb the energy from the sun degrade at a rate of approximately 0.5 per cent annually, the savings generated by a roof mounted solar collection system can provide substantial savings in operating costs well beyond the point at which the system pays for itself.

Now what?

Business owners can't travel to the corner store to obtain a solar collection system because, obviously, these are not the type of assets sold over the counter. Although the individual components (panels, inverter, racking, wiring, etc.) are relatively the same on a per system basis, the actual system itself will vary based upon overall size and energy requirements. Contacting an expert in the area of installing and maintaining roof mounted systems is the logical first step in to determine how a solar collection system can be designed and installed to help lower energy costs.

There are also alternative energy financing companies dedicated solely to the alternative energy financing and project management for commercial businesses, municipal buildings, schools and non-profits. Businesses may also contact consulting companies to help develop the best alternative energy solutions to fit their needs.

Rick Daubenspeck is a Senior Vice President at Trenwith Valuation, LLC, a leading provider of corporate valuation services.

Designated as a senior machinery and equipment appraiser by the American Society of Appraisers, he has provided value opinions for a broad variety of machinery & equipment assets for lease finance transactions in the United States and internationally. He can be reached at rdaubenspeck@trenwith.com

This article first appeared at Greenbiz.com