Arizona: Commercial Solar Financing + Government Incentives 0

Exploring commercial solar financing and government incentives in Arizona can be a transformative step for businesses that want to invest in renewable energy. From attractive tax credits to specialized financing solutions, the opportunities available can substantially lower costs and enhance the feasibility of solar projects.

This guide will cover the main commercial solar financing options and government incentives available in Arizona, equipping business owners with the essential knowledge to make informed decisions and maximize the benefits of solar energy. Whether you run a small business or oversee large commercial properties, understanding these programs can help you achieve sustainability, secure long-term energy savings, and contribute to a greener future.

Main Commercial Solar Financing Options in Arizona

Solar Power Purchase Agreement (PPA) 

A Solar Power Purchase Agreement (PPA) is a financing arrangement where a third-party developer handles the installation, ownership, and maintenance of a solar energy system on a commercial property. The property owner purchases the electricity produced at a predetermined, often lower, rate. This setup allows businesses to use solar energy without any initial expenditure and with minimal financial risk.

Types of C&I Projects a Solar PPA Is Good For 

Solar PPAs are particularly advantageous for large-scale operations like manufacturing facilities or extensive office complexes. In Arizona, businesses can bypass upfront costs and benefit from reduced energy rates, making PPAs an attractive option for those looking to mitigate financial risks associated with solar investments.

Solar Lease 

A solar lease operates similarly to renting, where a business pays a fixed monthly fee to use a solar energy system installed by a third-party provider. The payment remains stable regardless of the energy produced, and the third-party provider is responsible for system upkeep.

Types of C&I Projects a Solar Lease Is Good For 

Solar leases are ideal for medium-sized commercial properties, such as retail stores, small manufacturing units, or multi-tenant buildings. These businesses can benefit from solar energy without needing to invest in system purchases and without taking on maintenance responsibilities.

Solar Loan 

A solar loan is a financing option where a business borrows money to purchase and install a solar energy system. The business owns the system and can take advantage of tax credits and incentives, with the loan repaid over time, typically with interest.

Types of C&I Projects a Solar Loan Is Good For 

Solar loans are perfect for businesses that prefer ownership to leverage tax benefits, like the Investment Tax Credit (ITC) or Production Tax Credit (PTC). They are suitable for commercial entities with strong credit profiles, such as corporate offices, hotels, or hospitals, planning to stay on the property long-term.

Commercial Property Assessed Clean Energy (C-PACE) 

C-PACE financing enables commercial property owners to finance energy efficiency and clean energy improvements through a voluntary property tax assessment. State or local governments provide the financing, which is repaid over an extended period, usually matching the system’s lifespan.

Types of C&I Projects C-PACE Is Good For 

C-PACE financing is ideal for commercial properties undergoing significant renovations or retrofits, including sustainability upgrades. This can apply to shopping malls, older office buildings, or hospitality venues seeking to enhance energy efficiency and property values through sustainable improvements.

Energy Service Agreements (ESA) 

An Energy Service Agreement (ESA) involves a service provider installing and maintaining an energy system on a property with no upfront cost to the property owner. The property owner pays for the energy consumed at a rate typically lower than the local utility rate. ESAs may include performance guarantees, linking payments to energy savings compared to a predetermined baseline.

Types of C&I Projects an ESA Is Good For 

ESAs are suitable for energy-intensive businesses like data centers, large supermarkets, or industrial facilities that aim to reduce energy costs without upfront investment or maintenance hassles. These agreements help stabilize energy expenses, allowing businesses to focus on core operations.

Commercial Solar Financing Companies in Arizona

Watt Masters

Watt Masters has been a leader in the commercial solar industry in Arizona, offering comprehensive solutions including design, installation, and financing. They offer flexible financing plans for businesses of all sizes and offer solar panel grants for non-profit organizations. 

AVANA Capital

AVANA Capital specializes in renewable energy loans, including solar financing. They offer flexible financing options tailored to the needs of businesses, aiming to improve environmental and community growth through sustainable energy projects.

Sun Valley Solar Solutions

Sun Valley Solar Solutions offers custom-engineered solar energy systems for commercial properties. Their financing includes solar PPA programs exclusively for qualified 501 (c)(3) non-profits, municipalities, and schools.

Sustainable Capital Finance (US-Wide)

They offer Power Purchase Agreements (PPAs) and takeout financing for commercial and non-profit solar projects exceeding 100 kW nationwide. Their services have facilitated solar installations for municipalities, tribal entities, non-profits, religious organizations, and educational institutions.

Greentech Renewables (US-Wide)

Their team manages reliable financial solutions for commercial solar projects nationwide. They oversee the procurement of products and materials, handle loan origination and upkeep, and ensure effective communication with financing partners.

SunRenu (US-Wide)

SunRenu provides businesses with financing solutions to support their solar energy system installations, whether they need partial or full funding. Their commercial solar financing options enable clients to adopt solar energy with minimal or no upfront expenses. The company offers non-recourse solar loans to commercial customers, which are fully amortized for up to 20 years and come without prepayment penalties, available across all 50 states.

Commercial Solar PPA in Arizona

Here are some key benefits of leveraging a commercial solar PPA in Arizona

1. No Upfront Costs A solar PPA allows businesses to go solar without any initial investment. The third-party developer covers the costs of installation, equipment, and maintenance, enabling businesses to access solar energy with no upfront financial burden.

2. Long Term Hedge Against Inflation: PPAs provide price predictability with fixed energy rates for the duration of the agreement, typically ranging from 10 to 25 years. This helps businesses avoid the volatility of utility rates and better manage their long-term energy expenses.The electricity generated by the solar system is sold to the business at a predetermined rate, often lower than the current utility rates, leading to immediate savings on energy bills

3. Maintenance and Performance Monitoring The third-party developer is responsible for the operation and maintenance of the solar energy system. This includes regular performance monitoring, ensuring the system runs efficiently and effectively throughout its lifespan. Businesses can focus on their core operations without worrying about the upkeep of the solar system.

4. Sustainability and Corporate Social Responsibility Adopting solar energy through a PPA helps businesses reduce their carbon footprint and contribute to environmental sustainability. This aligns with corporate social responsibility goals and enhances the 

5. Flexibility and Scalability PPAs offer flexibility and scalability, allowing businesses to size their solar energy systems according to their current and future energy needs. As businesses grow, the solar system can be expanded to accommodate increased energy consumption.

6. Enhanced Property Value Installing a solar energy system can increase the value of commercial properties. Prospective buyers or tenants often view solar-equipped properties favorably due to the associated energy savings and sustainability benefits.

UVcell Solar Hassle-Free PPA Solution for Arizona’s C&I Projects

Your commercial property in Arizona may be eligible for a solar system to be installed at zero up front cost. If you become our solar Power Purchase Agreement partner, you will:

  • Secure lower electricity rates for 20 years
  • Experience utility savings in the first year
  • Not be responsible for any costs associated with solar system maintenance and operation

Contact us to see if you qualify for a free solar system. 

Commercial Solar Loan Rates

When considering financing options for commercial solar projects in Arizona, understanding the current commercial loan rates is crucial. These rates can significantly impact the overall cost and financial feasibility of your solar investment. By understanding and leveraging current commercial loan rates in Arizona, businesses can make informed decisions that optimize their solar energy investments and promote long-term financial sustainability.

Factors Affecting Commercial Loan Rates 

  • Credit Score: Businesses with higher credit scores are often eligible for lower interest rates.
  • Loan Term: Shorter loan terms usually come with lower interest rates, while longer terms may have higher rates.
  • Loan Amount: The size of the loan can affect the rate, with larger loans sometimes securing lower rates due to better collateral.
  • Economic Conditions: Interest rates are influenced by broader economic factors, including Federal Reserve policies and inflation rates.

Types of Commercial Loans 

Different types of commercial loans come with varying interest rates and terms:

  • Fixed-Rate Loans: These loans have a constant interest rate throughout the term, providing predictable monthly payments.
  • Variable-Rate Loans: The interest rate on these loans can fluctuate over time based on market conditions, which might offer lower initial rates but with potential for increases.
  • SBA Loans: Small Business Administration (SBA) loans, such as the 504 and 7(a) programs, often provide competitive rates and longer terms, making them an attractive option for solar financing.

Benefits of Competitive Loan Rates 

Securing a competitive commercial loan rate can offer several benefits:

  • Cost Savings: Lower interest rates reduce the overall cost of borrowing, making your solar investment more affordable.
  • Improved Cash Flow: Predictable and manageable loan payments can improve your business’s cash flow, allowing for better financial planning.
  • Higher ROI: Lower financing costs can increase the return on investment (ROI) for your solar project, enhancing its financial viability.

How to Secure the Best Rates 

To secure the best commercial loan rates for your solar project in Arizona:

  • Improve Your Credit: Ensure your business credit score is as high as possible.
  • Shop Around: Compare offers from multiple lenders to find the most favorable terms.
  • Negotiate Terms: Don’t hesitate to negotiate interest rates and loan terms with lenders.
  • Consider Incentives: Look for federal, state, and local incentives that can reduce the effective interest rate or overall loan cost.

How Does C-PACE Financing Work in Arizona? 

Commercial Property Assessed Clean Energy (C-PACE) financing in Arizona is a unique and innovative funding mechanism designed to help commercial property owners finance energy efficiency, renewable energy, and water conservation projects. 

Here’s how it works:

  1. Assessment-Based Financing: C-PACE financing is repaid through a special assessment added to the property tax bill. This assessment is tied to the property, not the owner, and stays with the property if it is sold.
  2. Long-Term Repayment: The financing terms typically align with the useful life of the improvements, often ranging from 10 to 25 years. This long-term repayment structure ensures that the annual energy savings from the improvements outweigh the annual repayment amount.
  3. No Upfront Costs: Property owners can finance up to 100% of the project costs with C-PACE, eliminating the need for initial capital outlay.
  4. Eligibility: Projects must meet specific criteria, such as demonstrating energy savings and complying with local C-PACE program guidelines.

How is C-PACE Repaid? 

C-PACE financing offers a unique repayment structure that differentiates it from traditional loans:

  1. Property Tax Assessment: Repayment is made through an additional line item on the property’s tax bill. This special assessment is collected by the local government and then forwarded to the C-PACE lender.
  2. Fixed Annual Payments: Payments are usually fixed and made annually or semi-annually, providing predictability and ease of budgeting for property owners.
  3. Transferable Upon Sale: Since the C-PACE assessment is tied to the property, the repayment obligation transfers to the new owner if the property is sold before the financing is fully repaid.
  4. Non-Recourse Financing: C-PACE financing is typically non-recourse, meaning the repayment is secured by the property itself and not by the personal or business assets of the owner.

C-PACE Financing in Arizona Requirements

To qualify for C-PACE financing in Arizona, projects must meet specific requirements, including:

  1. Eligible Properties: C-PACE is available for commercial, industrial, agricultural, and multi-family properties with five or more units. Residential properties with fewer units are not eligible.
  2. Qualifying Improvements: Projects must involve eligible improvements, such as energy efficiency upgrades, renewable energy installations (e.g., solar panels), or water conservation measures.
  3. Energy Savings: The proposed improvements must result in measurable energy savings, often verified through energy audits or assessments.
  4. Compliance with Local Programs: Property owners must adhere to the specific guidelines and requirements of the local C-PACE program, which may include application processes, documentation, and project approval steps.
  5. Property Valuation and Equity: The property’s current valuation and equity play a role in determining eligibility. Typically, the total amount of the C-PACE assessment plus any existing mortgage debt must not exceed the property’s market value.

C-PACE Lenders in Arizona

These lenders provide essential financial support for commercial property owners looking to implement energy-efficient and renewable energy projects through C-PACE financing in Arizona. Each offers unique benefits and tailored solutions to fit various project needs.

Nuveen Green Capital is a leading provider of C-PACE financing, offering funding for energy efficiency, renewable energy, and resiliency projects. They provide flexible financing terms and have extensive experience in the industry.

Bayview PACE offers comprehensive C-PACE financing solutions, including long-term and fixed-rate financing. They support various projects, from new construction to retrofits, and are known for their competitive rates and expert structuring.

Greenworks Lending by Nuveen, now part of Nuveen Green Capital, provides accessible and affordable C-PACE financing for commercial properties. Their focus is on making clean energy improvements financially viable for property owners.

C-Pace Financing Pros and Cons

By weighing these pros and cons, commercial property owners in Arizona can better determine if C-PACE financing is the right fit for their energy efficiency and renewable energy projects.

Benefits of C-Pace Financing

  1. No Upfront Costs: Property owners can finance 100% of the project costs with no initial cost. This makes it easier to start energy efficiency and renewable energy projects without needing significant cash reserves.
  2. Long-Term Repayment: The repayment period typically matches the useful life of the improvements, often ranging from 10 to 25 years. This alignment ensures that the energy savings generated can cover or exceed the annual repayments.
  3. Improved Cash Flow: Since repayments are made through property tax assessments, they can often be passed on to tenants in triple-net lease arrangements, thus not affecting the owner’s cash flow significantly.
  4. Transferable Upon Sale: If the property is sold, the C-PACE assessment remains with the property, transferring to the new owner. This can make the property more attractive to buyers who value energy efficiency upgrades.
  5. Non-Recourse Financing: C-PACE financing is generally non-recourse, meaning the property itself secures the financing, not the personal or business assets of the property owner. This reduces financial risk for the owner.

Cons of C-PACE Financing

  1. Complex Approval Process: The approval process for C-PACE financing can be complex and time-consuming, involving multiple steps such as energy audits, compliance with local program requirements, and coordination with mortgage lenders.
  2. Higher Interest Rates: C-PACE loans may have higher interest rates compared to traditional financing options, potentially increasing the overall cost of the project over time.
  3. Limited Availability: Not all regions or municipalities offer C-PACE programs, and availability may be limited based on local government participation.
  4. Mortgage Holder Consent: Property owners often need consent from their existing mortgage holders to participate in C-PACE financing, which can be a significant hurdle if the mortgage lender is not supportive.
  5. Increased Property Tax Burden: The special assessment added to the property tax bill increases the property tax burden. While the energy savings are intended to offset this, it can still be a concern for some property owners.
  6. Potential Impact on Property Sale: While the assessment is transferable, it may complicate the sale process. Potential buyers must be willing to take on the additional property tax burden associated with the C-PACE financing.
  7. Program Specificity: Each C-PACE program may have specific eligibility criteria and procedural requirements, making it necessary for property owners to thoroughly understand and comply with local program guidelines.

Arizona Commercial Solar Incentives

Arizona offers a variety of incentives to encourage businesses to invest in solar energy. 

1. Solar Equipment Sales Tax Exemption

Arizona provides a 100% sales tax exemption for eligible solar equipment. This exemption applies to the retail sale and installation of solar energy devices, significantly reducing the upfront cost of solar projects.

Benefit

Businesses don’t have to pay sales tax on solar panels, solar batteries, solar water heaters, and other qualifying equipment, resulting in substantial savings.

Claiming the Solar Equipment Sales Tax Exemption

The Arizona Department of Revenue offers a sales tax exemption for solar energy devices and their installation when performed by approved contractors. This exemption specifically covers the solar panels and essential components of the initial solar power system but does not extend to solar battery storage or additional accessories.

To benefit from the sales tax exemption, your solar installer must be registered with the Arizona Department of Revenue (ADOR) by submitting Arizona Form 6015. As the customer, you do not need to take any additional steps to claim this exemption.

2. Solar Energy Property Tax Exemption

This incentive exempts the added value of a solar energy system from property taxes. Even though the installation of a solar system increases the property’s value, the property owner will not face higher property taxes due to this improvement.

Benefit

This exemption helps maintain lower property tax bills, making solar investments more attractive.

Claiming the Solar Energy Property Tax Exemption

  1. Eligibility: Ensure your solar energy system qualifies for the exemption, covering the value added by renewable energy installations.
  2. Assessment: Contact your local county assessor’s office to inform them about your new solar energy system.
  3. Documentation: Provide necessary documentation, including proof of installation and system details.
  4. Application: Complete any required forms as directed by the county assessor’s office.
  5. Approval: Once the assessor reviews and approves the application, the added value of the solar system will be exempt from property taxes.

3. Commercial/Industrial Solar Energy Tax Credit

This program offers a tax credit to businesses that install solar energy devices in their facilities. The credit is equal to 10% of the installed cost of the solar energy device, up to a maximum of $25,000 per building per year, with an overall limit of $50,000 per business annually.

Benefit

This tax credit reduces the overall tax liability for businesses, making solar investments more financially feasible.

Claiming the Commercial/Industrial Solar Energy Tax Credit

  1. Install Solar Energy Devices: Ensure the installation of eligible solar energy devices for commercial or industrial use.
  2. Collect Documentation: Gather all necessary documentation, including proof of installation, costs, and compliance with eligibility requirements.
  3. Complete Arizona Form 336: Fill out Arizona Form 336, which is specific to the Solar Energy Tax Credit.
  4. Submit Tax Return: Include the completed Form 336 with your annual corporate or individual income tax return.
  5. Maintain Records: Keep all records and documentation for verification and future reference.

4. Net Billing

While Arizona replaced traditional net metering with net billing, businesses can still earn credits on their electricity bills for unused solar energy sent back to the grid. These credits are applied at a rate slightly lower than the retail rate but still provide a valuable return on excess energy.

Benefits

Helps offset energy costs, improving the financial returns from solar energy systems.

How to Enroll in Net Billing

  1. Assess Eligibility: Verify that your business qualifies for net billing through your utility provider.
  2. Choose a Solar Installer: Select a certified solar installer to design and install your solar energy system.
  3. Complete Application: Submit a net billing application to your utility company, which may include system design specifications and an interconnection agreement.
  4. Install System: Have the solar energy system installed by your chosen installer.
  5. Inspection and Approval: The utility company will inspect the installed system to ensure it meets all requirements and standards.
  6. Activation: Once approved, the utility company will activate the net billing arrangement, allowing you to start earning credits for excess energy produced.

5. Renewable Energy Production Tax Credit

  • Overview: This state tax credit is available for solar energy systems that generate electricity for sale to an electric utility. The credit amount is based on the energy produced and sold, encouraging businesses to maximize their solar energy output.
  • Benefits: Provides a long-term financial incentive tied to the performance of the solar energy system.
  • More Information: Renewable Energy Production Tax Credit

Federal Solar Tax Credits for Arizona Commercial Property Owners

Businesses can take advantage of two federal solar tax credits to reduce the financial burden of solar energy installations: 

  1. Investment Tax Credit (ITC)
  2. Production Tax Credit (PTC)

Investment Tax Credit (ITC)

The Investment Tax Credit (ITC) is a federal tax credit that allows businesses, including commercial property owners, to deduct a percentage of the cost of installing a solar energy system from their federal taxes. The ITC is a crucial incentive designed to lower the cost of solar energy installations, thereby promoting the adoption of renewable energy.

Key Features

  • Percentage of Deduction: For solar systems installed from 2022 through 2032, the ITC offers a 30% tax credit.
  • Eligibility: The ITC applies to both residential and commercial solar systems, including those installed on commercial properties, industrial buildings, and more.
  • Cost Coverage: The tax credit can be applied to various installation costs, including equipment, labor, and system design.
  • Carryover Provisions: If the tax credit exceeds the business’s tax liability for the year, it can be carried forward to future years.

Example of Savings from the ITC

Let’s say there’s a business in Arizona planning to install a solar energy system on its commercial property. The total cost of the solar installation is $500,000. Here’s how the business can save by claiming the Investment Tax Credit (ITC).

  • Total solar installation cost: $500,000
  • ITC Savings: $150,000 ($500,000 x 0.30 = $150,000)
  • Net Cost of the solar installation after ITC: $350,000 ($500,000 – $150,000 = $350,000)

Additional Savings from the Solar System

  • Annual Energy Savings: $96,000 (assuming the system generates 800,000 kWh per year and the current electricity rate is 0.12 per kWh)
  • 10-Year Energy Savings: $960,000 ($96,000 x 10 = $960,000)

Production Tax Credit (PTC)

The Production Tax Credit (PTC) provides a per kilowatt-hour (kWh) tax credit for electricity generated by qualified energy resources, including solar energy systems, for the first ten years of the system’s operation. The credit amount is adjusted annually for inflation.

Key Features:

  • Per kWh Credit: The PTC currently offers a credit of 2.75 cents per kWh of electricity generated by solar systems that meet specific requirements.
  • Duration: The tax credit applies to the first ten years of a system’s operational life.
  • Inflation Adjustment: The credit amount is adjusted annually to account for inflation.
  • Eligibility: Systems must meet certain labor and wage requirements set by the Treasury Department to qualify for the full credit amount.

Example of Savings from the PTC

Let’s consider a business in Arizona planning to install a solar energy system on its commercial property. The total cost of the solar installation is $1,000,000. The system is expected to generate 1,500,000 kWh of electricity annually. 

Here’s how the business can save by claiming the Production Tax Credit (PTC): 

  • Total Cost of Solar Installation: $1,000,000
  • Annual Energy Generation: 1,500,000 kWh
  • PTC Rate: 2.75 cents per kWh
  • Annual PTC Amount: $41,250 (1,500,000 x $0.0275 = $41,250) 
  • Total PTC Savings Over 10 Years: $412,500 ($41,250 x 10 = $412,500)

The business can reduce its federal tax liability by $41,250 each year for the first 10 years of the system’s operation.  

Additional Savings from the Solar System

Assume the business currently pays $0.12 per kWh for electricity.

  • Annual energy savings: $180,000 (1,500,000 kWh x $0.12 = $180,000)
  • 10-year energy savings: $1,800,000 ($180,000 x 10 = $1,800,000)

Leveraging MACRS to Lower Taxes for Solar System Installations

The Modified Accelerated Cost Recovery System (MACRS) is a tax depreciation framework in the United States that enables businesses to recover the costs of certain capital investments over a specified period through yearly deductions. Businesses installing a solar energy system can use MACRS to significantly decrease their tax obligations.

How MACRS Works

Depreciation Timeline 

Solar energy systems are eligible for a five-year depreciation schedule under MACRS. This allows businesses to depreciate the cost of the solar installation over five years, providing a significant tax advantage during the early years after the installation.

Bonus Depreciation 

Alongside the standard MACRS depreciation, the Tax Cuts and Jobs Act of 2017 introduced a 100% bonus depreciation for qualifying properties placed in service between September 27, 2017, and December 31, 2022. This provision allows businesses to deduct the entire cost of the solar system in the first year itself.

Eligible Expenditures 

The expenses that qualify for depreciation under MACRS include the total installed cost of the solar energy system. This encompasses all costs related to equipment, labor, and installation.

Conclusion

Arizona has a variety of commercial solar financing options and government incentives designed to make solar energy more accessible and affordable for businesses. From tax exemptions and credits to innovative financing solutions like Power Purchase Agreements (PPAs) and C-PACE financing, businesses have several options to reduce the upfront costs and improve the financial feasibility of solar installations. These incentives also enhance the return on investment by providing long-term savings through reduced energy costs and favorable tax treatments.

By leveraging these financial tools and incentives, commercial property owners in Arizona can significantly benefit from the transition to solar energy. Not only do these measures contribute to substantial cost savings and improved sustainability, but they also align with the state’s broader goals of promoting renewable energy and reducing carbon emissions.  

Melissa brings over 20 years of communications and marketing experience, consistently delivering impactful contributions that strengthen organizational relationships, optimize operational efficiency, and increase sales. With a deep-rooted interest in environmental solutions, she loves applying her skills to increase the adoption of solar technology globally.
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