Electrifying your company: What you need to know in 2023

As a business or nonprofit company, reducing your reliance on fossil fuels can build a sustainable brand image and save you money. Going solar is one of the best ways to lower your company's operating expenses and carbon footprint; pairing your business's solar panel system with other electrical upgrades can make an even more significant impact. 

Electrifying your company may sound complicated, but you can start with incremental steps, like upgrading your heating and cooling system to heat pumps, installing electric vehicle (EV) charging stations (for your fleet, employees, or customers), and electrifying your commercial vehicles. We'll explain how your business can easily go solar, electrify other components, and reap the benefits. Unable to install solar or make other electrical upgrades at your company? We'll share different ways to benefit from clean energy near you quickly.

Over four million homeowners and tens of thousands of businesses have switched to solar power in the U.S., and with good reason: Solar saves money. This is particularly true for businesses, nonprofits, and large power users. The more you pay your current utility, the more you can save with solar and other clean energy solutions.

Pair rising electricity prices with increasing electricity usage as buildings switch to electric heating and add EV chargers, and the trend towards increasing electric bills seems set to continue. Going solar allows you to avoid increasing energy prices by powering your business with clean energy from the sun. Pretty cool, right? 

Here are the three main reasons why businesses switch to solar and other electric upgrades: 

1. It saves you money

Companies are always looking for ways to reduce operating costs, and some of the highest costs for any organization are its utility bills; According to the National Federation of Independence (NFIB)'s most recent Energy Consumption poll, 35% of small businesses cite energy costs as one of their top three business. Electricity and natural gas prices continue to rise throughout the country, and utilities are finding new ways to generate more revenue from their existing customers, primarily commercial and industrial electricity users. Between time-of-use (TOU) rates, tiered rates, and demand charges, how you pay your utility for electricity is becoming more complex, common, and costly for many businesses. 

Whether you spend $1,000 or $100,000 monthly on utility bills, electrifying your business by switching to heat pumps for your heating and cooling needs, installing EV chargers in your parking lot, and adding solar panels to your roof will help you cut costs. Here's how:

• Heat pumps: Heat pumps use electricity to both heat and cool your business. Switching to heat pumps is a no-brainer if you currently heat your business with oil. If you use natural gas, heat pumps may only be cost-effective if you power them with solar.

• EV chargers: If you have a garage or large parking lot associated with your business, installing EV chargers can be a wise investment. In most cases, you can choose to set the chargers to free or charge users for the electricity they consume. You'll quickly recoup the installation costs with rooftop solar powering these chargers. Also, if your business is a storefront or restaurant, you may even attract customers waiting for their cars to charge.

• Solar panels: The more you pay for utilities now, the higher your potential savings will be with solar. Powering your business with solar costs 60-85% less than powering it with electricity from the grid: The cost of producing a kilowatt-hour (kWh) of electricity from solar is generally 2-5 cents per kWh over the 20+ year lifespan of solar energy systems. In contrast, the average U.S. electricity cost is 12.22 c/kWh for commercial users. 

2. It helps foster a sustainable brand image

Beyond lower costs, clean energy also provides immediate emission reductions for your onsite electricity. In most of the U.S., most electricity on the utility grid comes from fossil fuels, primarily coal or natural gas. In 2021, the average commercial property consumed about 5,795 kWh of electricity each month (likely on par with most small-to-midsize-businsses) and emitted 2.5 metric tons of CO₂ (this number ranges widely depending on the size and type of business you operate), which equates to driving about 6,427 miles. 

When you electrify your business and power it with solar, every kWh of electricity you produce is carbon-free. While the creation and decommissioning of a solar panel system emit some CO₂, the lifecycle emissions from one unit of solar energy are 96% lower than the lifecycle emissions from coal and 91% lower than natural gas, according to the National Renewable Energy Laboratory.

The best part about lowering your business's carbon footprint with solar? Consumers and employees care. In its 2021 Consumer Intelligence Series survey on environmental, social, and governance (ESG) issues, PwC found that 83% of consumers believe companies "should be actively shaping ESG best practices," while 86% of employees "prefer to support or work for companies that care about the same issues they do." This aligns with findings from other McKinsey & Company and NielsenIQ studies that consumers are willing to pay more for sustainable products. 

By switching to clean energy, your company could make its employees happier, attract new customers, and even charge a premium for its products. 

3. It can support your local economy

In addition to being a significant investment, clean energy creates jobs: As of 2022, there are over 250,000 solar jobs nationwide, a 9% increase year-over-year! Installing solar, heat pumps, or EV chargers at your business will support local businesses and your local economy because it will require onsite labor from contractors. Depending on the size and scope of your project, you could provide jobs for multiple crews of contractors for a month or more at a time.

The United States aims to power 100% of its electricity with clean energy by 2035, which means the more we electrify, the cleaner our economy will be. The purpose of electrification is simple: Power everything with electricity, rather than fossil fuels like natural gas, gasoline, propane, and oil. Here are some ways your business can start to electrify:

Switch to heat pumps

You probably cool your business with electric air conditioners, but in parts of the country with a high heating load (like the Northeast where we're based), most companies heat their buildings with a furnace that burns natural gas, propane, or oil. Air-source heat pumps have been common in warmer parts of the U.S. for decades in residential and commercial settings, and they can take on both heating and cooling duties. They're highly efficient and environmentally friendly, and many top models are even eligible for government rebates and incentives. While we don't currently offer solutions for large commercial spaces if you have a small business and need to upgrade your heating and/or cooling system, check out our Heat Pump Marketplace to compare quotes from installers near you. (Please note we are currently only open in a few states but continue to expand across the country). 

Upgrade your transportation

According to the most recent data from the Environmental Protection Agency (EPA), in 2021, transportation contributed more greenhouse gas emissions (29%) than electricity (25%). To help meet emission reduction goals, the federal government and many state governments are providing incentives to switch to electric vehicles and install EV charging stations. For example, if your business or non-profit organization purchases a qualified commercial clean vehicle that isn't powered by gas or diesel, you could receive a credit worth 30% of the vehicle's cost, up to $7,500 for vehicles with gross vehicle weight ratings (GVWRs) of under 14,000 pounds and up to $40,000 for all other vehicles. 

Power everything with solar

If you don't have solar, the electricity you use to power your business is only as clean as the mix available through your utility (unless you've signed up for a clean energy plan). As of February 2023, fossil fuels generate about 60% of electricity across the U.S. Because installing solar is such an integral part of electrifying your business, for the rest of this guide, we'll primarily focus on the benefits, costs, and process of going solar.

Regardless of the size of the solar installation, saving money with solar is very straightforward: It costs less to produce electricity with solar than it costs to purchase electricity from your utility. Your savings will depend on the rates available through your utility company and when and how much electricity your business consumes. 

What to know about electricity rates

Electricity rates are usually more complicated for businesses than they are for homeowners. For the most part, utilities charge homeowners a flat rate for every kilowatt-hour of electricity they consume from the grid, regardless of when they use that unit of electricity during the day, week, or year. 

When it comes to businesses, utilities typically use a more complex electricity rate structure called time-of-use (TOU) rates, which reflect the actual cost of electricity based on the amount of supply and demand. The cost of producing electricity varies significantly from hour to hour, day to day, and season to season, depending on the weather and amount of consumption.

As a result, energy savings from solar can also vary based on your company's specific rate structure. Be sure to take a look at how much your utility charges for electricity and how that changes throughout the day (i.e., peak vs. off-peak hours), throughout the year (i.e., summer vs. winter), and at different levels of usage (i.e., through a tiered rate where you pay different rates for electricity after you've used a certain amount per month). 

How to reduce your peak demand

Similarly, many utilities include electricity rates for non-residential organizations that charge a separate rate for your organization's peak demand during an individual month, called demand charges. These rates are based on your single moment of highest demand over the month, so you'll be charged the same amount regardless of how often you hit your peak demand, whether for five minutes or five hours per day. Your electric bills reflect these charges in dollars per kilowatt ($/kW) instead of dollars or cents per kWh since it's based on power pull, not overall energy usage. They can add up quickly: For many commercial customers, demand charges account for 50% or more of their monthly electricity bill. 

Solar, especially with storage, can shave peak demand, leading to substantial bill savings if your organization is on a demand charge utility rate. Understanding how these rates work can be pretty confusing—we can help you understand your utility rate, your energy usage profile, and how to design the right solar-plus-storage system to optimize your bill savings.

The cost of commercial or non-profit solar installations is much more variable than for residential installations. Given the larger scale of most solar installations for businesses, you should expect to pay a lower price per watt ($/W) for a commercial installation than a residential one—but you'll still pay more overall. Generally, prices for rooftop commercial systems range from $1.90/W to $3.15W, depending on the size of the system. 

Here are a few of the variables that will impact the cost of your system: 

Your system's size

The cost of your solar installation will vary significantly based on the size of the system. For example, the average size of a residential installation on EnergySage is 10 kilowatts (kW). In the commercial space, project sizes range from 100 kW to over 1 MW. The definition of "distributed" solar typically maxes out at 5 MW, or about 500 times larger than the average residential solar installation. 

The larger the project, the lower the price per watt: A 10 kW project may cost $3.00/W, but a 1 MW project will likely be closer to $1.50/W. At the same time, the upfront costs of these two systems are very different, with the 10 kW residential system costing about $30,000 and the 1 MW commercial system around $1,500,000. 

The style of your installation

While over 99% of residential solar installs are on the roof, as a business, you may have more options to consider when selecting the most suitable setup for your property. You can decide whether to put solar panels on your building's roof, over your parking lot in a solar carport canopy or, if you have available land, ground-mounted in an open field on your property. 

Rooftop installations are still the most common for businesses. Still, the cost of this type of system varies based on the height of your building (how many stories the equipment and people have to go up), what sort of obstructions exist on the roof (mostly HVAC units and vents), what style of mounting or racking system you use (primarily ballasted for flat roofs vs. penetrating for sloped roofs), and how much space you have on your roof (which will impact the size of the system).

Suppose you install a solar carport canopy while your system is closer to the ground. In that case, you'll need a lot more raw material to build the carport structure itself, and the primary material used in these structures (steel) isn't cheap. The cost of a carport system will largely depend on the size of the canopy system, both in terms of height (is it tall enough for trucks to safely pass under or just passenger vehicles?) and width (how many of your parking spaces are you covering?). The distance of the carport to your building will also impact cost because you need to send electrical wiring from the solar panels to your building's main electrical panel, which requires trenching.

Ground-mounted solar installations may seem the easiest given their accessibility, but this isn't always true. The high land cost often means ground-mounted systems don't make financial sense. If you already have access to an open field and know that you want to use it for solar, the cost of your ground-mounted system will depend on the racking structure you choose (similar to a carport but much smaller, so a lower raw material requirement) and how easy it is to drive the pylons for that structure into the ground (to develop a solid foundation for the system).

The equipment you select

Premium solar panels are often worth it for residential solar installations, but in most instances, they don't make sense for businesses: While roof space is a limiting factor for homeowners going solar, it's typically less of an issue in commercial settings and you can often save quite a bit by selecting lower quality equipment (primarily panels and inverters, but racking and mounting systems too). 

Businesses typically choose solar panels from the list of Bloomberg New Energy Finance (BNEF) Tier 1 equipment, which indicates that six different banks have underwritten at least 1.5 MW of capacity from the equipment manufacturer in the past two years. In other words, contractors install these products at a high volume, and financial institutions consider them reliable enough to invest in. 

Interconnection requirements

Depending on size, a commercial solar panel system can be like a miniature power plant and impact how the grid operates. Smaller installations (like a 10 kW system on your home's roof) are relatively easy to integrate onto the grid, but the difficulty of interconnection increases exponentially with system size.

When installing a more extensive commercial system, you may need to consider the electrical capacity available on your local feeder substation, which supplies grid-based electricity to your site. If there's enough space for your solar panel system's capacity and no long queue of proposed projects ahead of you, you might have reasonably low costs for interconnecting your system to the grid. However, if you're subject to utility capacity and feasibility studies or required to install transformers onsite to enable interconnection, this could add significant costs to your solar project.

Your location

The location of your business can also influence the price you pay for solar. Given the scale and scope of commercial solar installations, and the resulting labor and hours required to install the system, location-based labor cost requirements can significantly impact the cost of your solar panel system. Under the new guidance for the Investment Tax Credit (more on this below), your ability to claim the total incentive value depends on meeting specific prevailing wage and apprenticeship requirements during project development.

You may also be eligible for additional state or local rebates and incentives depending on your location. Next, we'll explain the best incentives available to businesses.

While the upfront cost of solar may initially appear daunting, several incentives significantly lower it: Between federal tax credits and depreciation benefits available to commercial solar projects, incentives can reduce the cost of your business's system by nearly 50%. 

Investment Tax Credit

For years, the federal Investment Tax Credit (ITC) has been the best incentive for solar, providing a tax credit equal to 30% of the upfront cost of solar. Notably, the ITC is a tax credit, not a deduction. If your solar project costs $100,000, the ITC reduces the amount you owe the federal government by $30,000; it doesn't reduce your taxable income.

When Congress passed the Inflation Reduction Act (IRA) in August 2022, it increased the value and extended the federal ITC's lifetime, making it much more complex for commercial installations. Here's how the new ITC works for businesses:

• Commercial solar projects qualify for a 30% tax credit until 2025. 

• Starting in 2025, the continuation of the ITC for commercial systems will depend on whether the solar and electric sectors meet the U.S. Department of Treasury's goals of reaching a 75% reduction in emissions below 2022 levels. 

• On top of the 30% tax credit, a commercial project can also be eligible for additional credit adders if it meets specific criteria: 

  • An additional 10% if 40% of the manufactured components were produced in the U.S. 

  • An additional 10% if the project is located in an energy community, meaning it has brownfield sites or coal plant closures. 

  • An additional 10% if the project is less than 5 MW in capacity and is located in a low-income community or tribal land. 

  • An additional 20% if the project is less than 5 MW in capacity and is installed as part of a low-income residential building project or economic benefit system.

Notably, the IRA now includes a direct payment option for tax-exempt entities, making it much easier for nonprofit organizations to claim the ITC. Before the IRA, if a nonprofit wanted to go solar, they'd typically have to partner with a company with tax liability for the installation to be affordable. 

Production Tax Credit

Under the IRA, commercial solar systems can now choose the production tax credit (PTC) instead of the ITC, which was only available for wind projects. The PTC compensates system owners based on production (on a $/kWh basis) instead of the system's upfront cost. This credit is especially attractive to owners of projects that produce a lot of energy but are relatively inexpensive to build on a price-per-watt basis (like very large commercial projects). The PTC value varies with inflation: It's currently $0.0275/kWh if prevailing wage and apprenticeship requirements are met and $0.0055/kWh if not. 

MACRS

Modified Accelerated Cost Recovery System (MACRS) is a depreciation benefit that allows you to recover the value of your solar assets over an accelerated time frame. Unlike the ITC, depreciation is a way to lower your taxable earnings, reducing what you owe on your taxes instead of providing credit toward your tax bill. For solar, MACRS allows you to recover the depreciated value of your solar installation over five years.

MACRS is available for federal taxes and state taxes in some states (like California). In areas where you can take advantage of MACRS for both your federal and state taxes when combined with the ITC, you can qualify for tax incentives worth over 70% of your solar panel system's cost. 

Bonus Depreciation

Similar to MACRS, Bonus Depreciation is a depreciation-based tax incentive available to businesses that invest in solar. 

The critical difference between MACRS and Bonus Depreciation is that with MACRS, you allocate the value of the depreciation benefit across five years. In contrast, with Bonus Depreciation, you can take the full benefit in the first year of your investment. Your savings will vary based on your tax rate. Still, in most cases, Bonus depreciation paired with the ITC provides incentives worth about 50% of the cost of the system, which could be hundreds of thousands or millions of dollars, depending on the system size and cost. 

At the federal level, Bonus Depreciation and MACRS are an either-or deal: You take one or the other. Depending on their tax liability and solar panel system cost, many businesses may not be able to take full advantage of bonus depreciation in year one. They may instead opt for MACRS to spread out the tax benefit. If you take advantage of Bonus Depreciation federally, you can still use MACRS at the state level. 

This incentive is a time-sensitive incentive: Bonus Depreciation for solar began to phase out in 2023 and will disappear altogether in 2027, so if you want to take advantage of this incentive, now's the time to start looking at solar for your business.

Net metering

When the sun's shining, your business's solar panel system will likely produce more electricity than it needs. Many states have a solar policy called net metering in which your business will receive credits from its local utility company for the excess electricity it sends to the grid. After the sun sets or on a rainy day when your panels aren't generating enough energy, you'll pull electricity from the grid, which will count against the credits you've banked over time. At the end of your billing cycle, you'll only be billed for your "net" energy consumption (meaning your electric bills could be $0)!

You're interested in powering your business with solar panels, but where do you start? Installing solar at your business can feel overwhelming, so we've broken down the process into easily actionable steps:

1. Determine if your business is a good fit for solar

Most businesses can save a lot by going solar–but unfortunately, not all companies can install solar panels. To determine if your business is a good fit for solar, answer the following questions:

• Do you rent or own your office building? If you're a renter, you'll need to check with the property owner before making concrete solar system plans. If you have a long-term lease (or are negotiating a new one), that may make installing solar easier even if you are still not the building owner.

• Do you share the building with other companies? If you co-own the building with other companies, you'll likely need their permission before installing solar.

• Do you have space for solar? You'll need to ensure you have room to install solar panels on your building's roof, over its parking lot, or in an adjacent open plot of land.

• Is your building's roof suitable for solar? If you intend to install solar panels on your business's roof, you must ensure it's compatible with solar. The ideal roof for most commercial solar installations is wide-open and flat, in good condition, and without obstructions and shading. However, if your business is in a smaller building closer to a house in structure, a south-facing roof with a tilt between 30 and 45 degrees, plenty of open space, and minimal shading is ideal.

2. Gather custom quotes for your business

The best way to get a great deal on your business's solar panel system is to compare quotes based on cost, equipment, and installer reputation. At EnergySage, we walk you through the process with our consultative approach to help your business go solar. We'll provide an initial solar benchmarking estimate to show how many solar panels you can fit on your property, how much electricity they'll produce, and how much you can save with solar. When you're ready, we'll gather custom quotes from up to 3 vetted solar companies in your area.

3. Build consensus internally around the project

Commercial solar projects are more complex than residential ones in many ways, including many more stakeholders involved in the decision-making process. From energy or facilities managers to the finance department to board approval, attaining alignment on a solar project can present a challenge for any business or nonprofit company. 

The best way to mitigate this is to work with an unbiased third party (like EnergySage) who can provide a vendor-neutral comparison of the bids you've received and answer any questions the various internal stakeholders have about the process of going solar. 

4. Choose an installer

Now that you have a consensus on the project and multiple quotes to compare, it's time to choose the best installer for you. EnergySage's mission is to help you choose with confidence. We'll walk you through your quotes and answer your questions so you can pick the system that meets your needs at the right price. Once you've selected an installer, you'll need to sign a contract – make sure to first review it thoroughly for details on costs, incentives, equipment, cancellation terms, and clauses.

5. Decide how to pay for your system

There are many ways to pay for a commercial solar panel system, which allows businesses and nonprofits flexibility when comparing financing options. The appropriate financing mechanism for your organization depends on its corporate structure, goals, and even access to capital. Here are the most common ways to finance your business's solar panel system: 

• Cash purchase: a cash purchase is always the way to save the most by going solar. While the upfront cost of a large solar panel installation can be significant, you'll see the most considerable lifetime savings from a cash purchase: You won't pay any interest and, in most cases, can take advantage of all available tax incentives. Depending on the location of your company, how much you currently pay for electricity, and whether you have enough tax liability to take full advantage of tax benefits, a cash-purchased commercial solar install can pay for itself in as little as three years. 

• Solar loan: while solar loans are less common for commercial installations than residential ones, organizations have recently emerged to provide solar loans to companies of all shapes and sizes. These loans mirror those for residential systems, with terms ranging from 10 to 25 years and rates largely dependent on macroeconomic trends. Ultimately, your monthly loan amount should be lower than what you'd otherwise spend on electricity from the grid. Solar loans are a great way to lock in the cost of electricity for the long term while still ensuring you can take advantage of any tax incentives associated with solar. 

• Power purchase agreement (PPA): another way to lock in your cost of electricity with solar is through a power purchase agreement. Generally, the structure of commercial solar PPAs is a steep discount on your electricity rate (on a per kWh basis) in year one, an annual escalation rate that's in line with or lower than the pace at which your utility's electricity rates are increasing, and a 20- or 25-year term with an option for an early buyout.

• Solar leases: Like PPAs, solar leases are another way to finance your business' solar panel system through third-party ownership. However, instead of paying for your electricity at a set price per kWh, like through a PPA, you agree to pay a fixed monthly lease payment. 

Solar loans, PPAs, and leases are great ways for your business to invest in solar through operational expenditures, effectively keeping installation costs off your balance sheet. These aren't the only ways to pay for a commercial solar installation: From operating leases to prepaid PPAs and CPACE, there's a financing solution for every type of commercial solar project. At EnergySage, we have relationships with top financiers offering all of these different financing mechanisms and can help you to find the right option for your organization. 

6. Prepare for your installation

At this point, you've done most of the hard work on your end. Now it's time to watch it pay off with a brand new solar panel system! Before installation day, you'll want to ensure you understand what access your installer will need to your property and, if necessary, make contingency plans for your employees during the installation days. Your solar installer will begin submitting the paperwork required for installation, interconnection to the grid, and any available incentives so everything is ready for installation!

Is solar worth it for my business?

As long as your business is a good fit for solar, it's worth it. You'll likely save hundreds of thousands of dollars over the lifetime of your solar panel system on avoided electricity costs and could break even on your investment in as soon as three years. 

How many solar panels do I need to power my business?

The number of solar panels your business needs will vary widely depending on the size of your system, where your business is located, and the solar panels you select. You can calculate the number of solar panels your business needs using: Number of panels = system size/production ratio/panel wattage.

Are commercial solar panels different from residential solar panels?

Many solar panel manufacturers offer different panels for residential and commercial applications. While you can use residential solar panels for commercial systems and vice versa, there are differences between the types of panels that make them better suited for their intended application. Residential solar panels typically have 60 solar cells, are smaller in size, tend to have a higher per-cell power output and cost more. Commercial solar panels usually have 72 cells, are larger, tend to have lower per-cell power outputs (but higher outputs overall) and cost less.

Electrifying your business can feel overwhelming, but EnergySage is here to simplify it. Sign up for our solar concierge service and compare quotes from only vetted, reputable solar installers. Unable to install solar on your business's property? Check out our Community Solar Marketplace to view open projects near you. If you have a smaller company and want to electrify your heating and cooling, visit our Heat Pump Marketplace for free quotes. Regardless of your electrification journey, if you have any questions, we'll provide you with tools and resources so you can confidently make decisions.