3410 Buck Owens Blvd, Suite 140, Bakersfield, CA 93308
Money
Five ways to pay for it
The structure decides who owns the asset, who takes the tax benefits and what appears on your balance sheet. Those three questions matter more than the interest rate.
Structures
Five
Key question
Do you have tax appetite?
Public agencies
Usually PPA
All figures
Samples, not advice
Side by side
The comparison, in one table
Sample comparison for a demonstration site. Accounting treatment depends on your auditor and on current standards.
You buy the system outright and keep everything it earns.
The simplest structure and, for a profitable taxpaying entity that owns its building, usually the best lifetime return. There is no financing cost, no counterparty and no escalator.
The tax position does most of the work. The federal investment tax credit and accelerated depreciation together can recover a large share of the installed cost in the first years, and both require a tax liability to offset.
If the capital is available and the building is not being sold soon, this is the structure we recommend by default.
Best for
Taxpaying businesses with capital available and a long horizon in the building
Watch out for
The tax benefits are worth nothing if the entity has no tax liability to offset
Balance sheet
Capitalised asset
Equipment loan
Borrow against the system, own it, and keep the tax benefits.
An equipment loan keeps the ownership benefits of a capital purchase while spreading the cost. You still claim the credit and the depreciation, which is the main reason this beats a lease for most taxpaying entities.
Lenders familiar with solar will underwrite against the modelled energy savings as well as the balance sheet, which can make terms better than a general equipment facility.
The structure works best when the annual savings comfortably exceed the annual debt service, so the project is cash positive from year one.
Best for
Businesses that want ownership and the tax benefits without the capital outlay
Watch out for
Interest cost extends payback; compare total cost against a capital purchase carefully
Balance sheet
Asset and matching liability
C-PACE assessment
Long-term financing repaid through the property tax assessment.
Commercial Property Assessed Clean Energy financing attaches the repayment obligation to the property through a special assessment collected with property taxes, rather than to the company.
The long term is the attraction. Amortising over twenty years or more usually makes the annual assessment smaller than the annual energy saving, so the project is cash positive immediately.
Because the obligation runs with the property, it can transfer on sale, which suits owners who are not certain of their holding period. Existing mortgage lenders generally have to consent, and that conversation should happen early.
Best for
Property owners wanting long amortisation and an obligation tied to the building
Watch out for
Requires lender consent where a mortgage exists, and programme availability is county by county
Balance sheet
Property assessment rather than corporate debt
Power purchase agreement
A third party owns the system; you buy the output per kWh.
Under a PPA a third party finances, owns, operates and maintains the system on your roof or land, and you buy the energy it produces at an agreed rate per kilowatt hour, usually below your current utility rate.
The owner takes the tax credit and the depreciation, which is exactly why this structure exists: it lets entities with no tax liability capture the value of benefits they could not otherwise use.
Read the escalator carefully. A rate that rises 2.5 percent a year for twenty years ends up well above where it started, and whether that still beats the utility depends on assumptions about utility rate inflation that nobody can guarantee.
Best for
Public agencies, non-profits and tenants with no tax appetite or no capital
Watch out for
Escalators compound; a 2.5 percent annual rise over 20 years is a substantial increase
Balance sheet
Operating expense, subject to your accounting treatment
Operating lease
Fixed monthly payments for the system, with a purchase option at the end.
A lease gives you a fixed, predictable payment for the equipment rather than a variable payment tied to production. Some finance directors strongly prefer that certainty.
The trade is risk. Under a PPA you pay for kilowatt hours delivered, so underperformance is the owner's problem. Under a lease you pay the payment regardless, so performance guarantees and O&M terms matter more.
End-of-term options vary widely: fair market value purchase, fixed buyout, renewal or removal. Know which one you have before you sign, not in year fourteen.
Best for
Entities wanting predictable fixed payments rather than a per-kWh rate
Watch out for
You pay the same whether the system performs or not, unlike a PPA
Balance sheet
Depends on accounting treatment; discuss with your auditor
How to choose
Three questions, in order
Do you have tax liability to offset? If yes, ownership structures keep the credit and the depreciation with you. If no, a third-party structure exists precisely to monetise benefits you cannot use.
Do you have capital, and is this its best use? A solar system competes with every other capital project you could fund. Financing is not a failure; it is a comparison of returns.
How long will you hold the building? A twenty-five year asset and a seven year hold is a mismatch, and it points toward C-PACE, which transfers with the property, or a PPA the buyer can assume.
We do not originate finance and we take no commission from any lender. We will model each structure honestly against your position and then get out of the way.
Answers
Financing: questions
Not covered here? Our engineers answer directly, not through a call centre.
For a profitable taxpaying entity that owns its building and has capital available, a straight purchase almost always wins, because there is no financing cost and you keep the credit and the depreciation. Everything else trades some of that value for cash flow, balance sheet treatment or access to benefits you could not otherwise use.
A power purchase agreement is the usual answer. A taxable third party owns the system and monetises the credit and depreciation, and that value comes back to you in a lower rate per kilowatt hour than you currently pay the utility.
Commercial Property Assessed Clean Energy financing. The repayment obligation attaches to the property through a special tax assessment rather than to the company, and terms can run twenty years or more. Availability is county by county, and existing mortgage lenders usually have to consent.
The escalator. A rate that rises 2.5 percent a year compounds substantially over twenty years. Also check the buyout schedule, the performance guarantee, who carries the O&M obligation and what happens if you sell the building.
Yes. It is common to purchase the array outright and finance the storage separately, or to take C-PACE for the generation and a shorter equipment loan for the charging infrastructure. The right split depends on which asset carries which incentive.
We will model all five against your position
No commission, no lender relationships, no preference. Just the numbers for each structure with the assumptions written down.
