Going solar has endless benefits for your business. With a commercial solar system, you can produce your own electricity, cutting operating costs and saving your business money. Commercial solar also reduces your business’s impact on the environment, which allows you to position yourself as a green business and can enhance your brand equity.
One of the greatest benefits of commercial solar installations, however, is incentives. The government wants businesses to go solar and offers a number of incentives to encourage commercial solar installations.
Here are the best solar incentives for businesses in California in 2023:
30% Commercial Solar Tax Credit
You might have heard of the residential solar tax credit, but did you know that there is also a solar credit for businesses? The commercial solar energy tax credit (also known as the investment tax credit or ITC) reduces your business’s federal corporate income tax liability by 30% of your total solar installation costs.
The ITC was recently expanded by the Inflation Reduction Act. The new Inflation Reduction Act solar tax credit will be available at its 30% value until 2034. To claim the credit in 2023, however, your commercial solar project must commence construction before the end of the year.
Production Tax Credit for Commercial Solar
Most commercial solar projects are eligible for the production tax credit (PTC). The PTC is a per kWh tax credit that’s calculated based on the amount of electricity your commercial solar panels produce during the first 10 years of operation.
ITC vs PTC: Which Is Right For Your Business?
In most cases, you cannot claim the investment tax credit and the production tax credit for the same property. Large-scale commercial solar projects in sunny locations like California will likely gain more value from the PTC, which provides ongoing incentives over time but is based on system performance. Smaller-scale commercial solar projects typically gain more value from the ITC, which reduces upfront costs.
MACRS for Commercial Solar Installation
MACRS (modified associated cost recovery system) is a depreciation system that allows businesses to recover the cost of an asset over a specified period of time via annual tax deductions. Commercial solar energy systems are eligible for a five-year cost recovery period. Solar projects that claim the ITC must reduce the project’s depreciable basis by one-half the value of the 30% tax credit. This means you can deduct 85 percent of your business’s tax basis with MACRS.
Net Metering for Commercial Solar in California
California’s three investor-owned utility companies are required to offer net billing to their residential and commercial customers. Under a net billing agreement, utility companies will buy the excess power your solar system generates and credit your account. Your credit can be used to offset the cost of the grid-generated electricity you need to buy when your solar panels are not producing power.
In 2023, California’s net metering laws changed significantly. Under the new net energy metering (NEM) 3.0 law, utility companies pay less for the solar energy they purchase from solar customers than they did under NEM 2.0, but incentives remain. The best way to save under NEM 3.0 is to install solar battery backup, which allows you to store the surplus electricity generated by your solar panels for later use—like when peak electricity rates switch on.
Take Advantage of California Commercial Solar Incentives in 2023
Solar panels are a smart investment with long-term financial benefits for your business. If you’re ready to make the switch, Premo Solar is the best commercial solar company to call. We are a local California solar installer and we can help you get the most out of the state and federal incentive programs available to you. We install solar for businesses of all types and sizes in the Monterey Bay area.
