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Should Your Company Consider Installing Renewables?
As recently as a decade ago, investing in solar panels, wind turbines, geothermal and other forms of renewable energy rarely made sense from a business perspective. The ROI on renewables was so low that it made such purchases cost prohibitive and hard for companies to justify.
But the math on renewable energy resources has improved greatly. In recent years, the cost of installing solar panels on the roof and other types of renewable power supplies has fallen significantly thanks to improving technology, government production credits and intensifying competition. According to the Solar Energy Industries Association, the average price of photovoltaic solar panel systems fell to less than $3 per watt in 2014 from about $8 per watt in 2005 — a more than 60% decline.
Federal and state governments and many utilities have also been handing out rebates and other subsidies to businesses that generate renewable energy.
But the question remains: has the price come down far enough to make renewables worthwhile for businesses?
Many large companies certainly have invested more in renewable energy resources in recent years. Office Depot, Coca-Cola and Kohl's are among the many corporations that have installed solar panels on their buildings and made other significant investments in renewables in recent years.
But for other businesses, it’s not always a clear-cut decision. Here are some factors a business should consider before installing renewable energy resources:
1. What incentives are available?
While the price of solar and wind power have certainly have come down, other incentives can make the price even more attractive. Through Dec. 31, 2016, the U.S. government offers a 30% tax credit for businesses that install qualified solar photovoltaic systems, small wind turbines and fuel cells. Businesses can also receive a 10% federal tax credit for installing geothermal systems, microturbines and combined heat and power (CHP).
Many state and local governments, as well as utility companies, also provide financial incentives such as tax credits and rebates to businesses. Illinois, for example, gives commercial rebates of $1.25 per watt for businesses that install photovoltaic systems and $1.75 per watt for those that install small wind systems — up to a maximum $20,000 rebate.
You can find commercial incentives for renewables in your area on the DSIRE database, which is run by the N.C. Clean Energy Technology Center at North Carolina State University.
Some states and utilities also have “net metering” rules, allowing businesses to sell any excess renewable energy they generate back to the electric grid.
2. Does the ROI make sense?
At the end of the day, businesses will want to make sure the return on investment is worth the upfront cost of installing renewables. They'll want conduct a thorough financial analysis to make sure renewable energy is a smart investment. For example, solar panels’ cost effectiveness largely depends on the climate and sunniness of where they’re installed. They will typically pay back much faster in warm and sunny climates of the U.S. southwest than they will in, say, Seattle or Cleveland.
3. Are there alternative ways to save energy?
Before looking at renewables, businesses should look for “low-hanging fruit” such as reducing energy use in their facilities, upgrading inefficient lighting systems (which often have a fast financial payback) and encouraging employees to be more energy efficient.
Some utility companies also now offer their commercial customers programs in which they can pay slightly more for electricity sourced from wind and other renewables rather than buying standard coal-generated electricity. Commercial customers of Xcel Energy’s popular Windsource program, for example, pay rates that are about 10% more than electricity standard rates, according to the St. Paul Pioneer Press.
If businesses want to promote renewable energy but are unsure of whether now is the right time to invest in renewables, paying for it through their utility might be a better solution — at least for the time being.
Kelly Spors is a freelance writer and editor based in Minneapolis. She previously worked as a staff reporter for The Wall Street Journal, covering small business and entrepreneurship.