What do faith-based organizations, charter schools, health care facilities, public schools, affordable housing, and other non-profit offices all have in common?
They use electricity, and they don’t pay income taxes.
Electricity is a huge part of any business’s operating budget, but for non-profits, paying out these high monthly utility bills means less money for your mission.
For-profit businesses are taking advantage of solar energy to cut these costs, but non-profits have a harder time justifying the investment. With no income tax liability, non-profits are not able to take advantage of solar’s tax benefits. In addition to that, finding funding to finance the project can be difficult. However, solar energy can create great opportunities for non-profit companies.
Benefits of Solar for Non-Profits
Less Money on Energy, More Money for Your Cause
It’s pretty much a given that as long as your company is in business, you’re going to be using electricity. Bill after bill, month after month, you watch as more and more of your cash flies out the door with rising electricity costs. All businesses find this frustrating, but with oftentimes tighter budgets, this is even harder for non-profits.
Solar can help you eliminate or reduce this monthly expense. If you opt for solar ownership, you could generate free electricity for decades once you pay off the initial investment. The average solar system will last about 30 years (learn more about the lifespan of a solar system), leaving plenty of time to rack up those savings and invest it in your mission instead.
If making the upfront investment required for solar ownership is not practical for your business, you still have options through third-party ownership. WIth Power Purchase Agreements (PPAs) and solar leases, you can reduce your electric rates and start saving on day one with little to no money invested upfront. More on this in the next section.
Net Energy - Net Good for the Environment
The more electricity you use, the larger your system, and the greater your environmental impact. Solar energy doesn’t require anything to run, except for the clean-burning and dependable sun. As one of the most abundant and cleanest renewable energy sources, the sun will keep your business going so you can do good, without harm to the environment.
Get Noticed in the Community
The added benefit of the emissions-free energy source? You’ll be getting noticed in your community. Almost anyone can get behind solar, which will help mobilize donors. Whether your mission aligns with preserving natural resources or not, the less money you spend on energy, the more money you can put towards doing good and fulfilling your mission.
Primary vs. Third-Party Solar Ownership
One of the biggest deterrents for nonprofits looking to go solar is financing. When it comes down to it, you have two major options: primary ownership and third-party ownership.
Primary ownership is when the non-profit pays for the complete upfront cost of the solar project, whether through out-of-pocket cash or loans. They are responsible for the system and any maintenance or repairs (though these should be minimal and often covered under warranties). The owners will also receive all the financial benefits (like SREC income if available in your state and all the electricity savings). In addition, you’ll be investing in a tangible asset that will increase the value of your property. The challenge for non-profits is that the significant tax benefits which help justify going solar are not available to them because they don’t pay taxes.
Third-party ownership is a popular choice for many non-profits because of the tax issue. If you’re looking to lower your electric bill but don’t want to make the large, upfront investment, and cannot use the tax incentives, then solar leases and power purchase agreements (PPA) often offer no-money-down options, though some do require an upfront investment.
Instead of owning the system yourself, an investor will pay for and have the system installed. You’ll buy back the electricity generated by the system at a reduced rate from the investor. Basically, instead of paying your utility electric bill, you’ll be paying the investor/owner of the system. This electricity is typically less expensive than utility electric because the investor will be taking advantage of the tax incentives, and some offer a fixed-price plan that keeps you safe from rising electricity rates.
However, you’re agreeing to make these payments for the length of the contract, which could be up to 20-25 years. Unlike owning solar, the third-party owner will be responsible for service and maintenance of the system. But this means that they will have full access to your roof during the lease. Another important thing to note is that selling your property with a solar lease or PPA could be more difficult. You’ll have to find a credit-worthy buyer willing to assume the lease agreement.
A creative and engaging way some non-profits have executed third-party ownership is through their donors. If your donors set up an LLC to purchase the solar system, they’ll be able to use the 26% tax credit and depreciation to lower the installation costs. The LLC would then have a PPA with the non-profit which would then pay them for the electricity at a reduced rate, just as you would with any other third-party owner. .
Non-Profit Solar Financing and Incentives
One of the most significant incentives for primary ownership is the Solar Investment Tax Credit (ITC) offered by the federal government. It gives 26% of the solar installation cost back to the project owner in the form of a tax credit. But if you’re a non-profit, you don’t have tax liability and you won’t be able to take advantage of this incentive. However, there are still non-profit solar incentives and financing options available if you’re looking to install solar electricity.
State and Utility Rebates and Incentives
One source of financing that may be available to your organization is Property Assessed Clean Energy (PACE) financing. PACE programs offer financing for renewable energy projects and energy efficiency upgrades. Depending on the program, non-profits may be able to take advantage of this financing.
Currently, there are 20 states plus Washington D.C. where PACE programs are now active, with many more in the process of developing programs of their own. To find out what PACE financing is available in your area, visit PACENation’s website.
In addition to PACE financing, your state and/or utility may have other incentive programs available to help make solar ownership a viable financial option.
One state in the Mid Atlantic stands out for its efforts in making installing solar possible for non-profits - New York. The Energize NY PACE program offers financing for renewable energy and energy efficiency projects for both for-profit and non-profit businesses in New York. However, participation is based on the municipality. Find out if your business qualifies for PACE here. New York also offers low-interest financing options for not-for-profits.
To learn more about incentives available in your community, check out the Database of State Incentives for Renewables and Efficiency.
Solar Renewable Energy Credits (SRECs)
SRECs are certificates granted to solar system owners for every 1 MWh of electricity generated. You can sell these certificates at an auction or exchange platform at the market rate, or have your solar installer do it for you. SRECs are available in 5 states and the District of Columbia. Their rates are determined by many factors, including local legislation and how much solar energy your state produces. To learn where SRECs are available and how much you could make, read our Guide to SRECs.
While fundraising is never easy, raising funds for a solar power project comes with a great hook - you’re asking for money now to ask for less money later. Solar energy is an investment - one that will pay your organization back over the years with free electricity. And even though your non-profit can’t take advantage of the tax benefits from solar, your donors may be able to through a standard charitable deduction, or the 26% Federal Tax credit if a lease or PPA can be set up!
Whether it’s to slash your operating costs, reduce your carbon footprint, or a little bit of both, installing solar panels for non-profit organizations can be a great way to get your company recognized and super-charge your mission.
Hear how other non-profits started saving money with solar: