When to Use Commercial Solar Energy System？

Commercial solar is something of an enigma. Falling between the better-known residential and utility-scale solar industry sectors, commercial solar — or C&I solar as it’s often called, referring to commercial and industrial scale — encompasses a wide variety of customer types, solar designs, and project sizes. It also differs from residential solar in some key ways.

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As Ian Clover, Manager of Corporate Communications for Hanwha Q Cells explains, “In the jargon-heavy world of solar-speak, C&I handily condenses Commercial and Industrial into a snackable sub-section of the PV industry. But as subsections go, the C&I space has perhaps the greatest scope for flexibility, offering a raft of possibilities from ground-mount through to ingenious use of rooftop space.”

What This Article Covers

For a variety of reasons we’ll touch upon in this article, commercial solar has been slow to take off, but there are signs that this sector is poised for significant growth. And, for those who learn to navigate the complexity of these projects, the rewards can be big.

This article is part of a series, in which we delve into a variety of aspects of commercial solar to help solar professionals understand the dynamics of this unique sector.

In today’s article, we offer a brief intro on what commercial solar is, the scale of this sector, and some of the factors that have constrained its expansion, as well as forecasts for future growth. 

In other articles, we discuss the different players involved in commercial solar projects, how to sell a commercial solar project, and what financing for these projects may look like.

What Is Commercial Solar?

Commercial solar may seem straightforward — solar for businesses as opposed to residential solar for homes. However, commercial solar encompasses a variety of different types of customers and projects. In addition to businesses of different sizes, from large corporations to local small businesses, “commercial” solar customers can also include governments, schools and universities, and even nonprofits.

Commercial solar projects may take the form of rooftop arrays on buildings or ground mounts, and can range widely in size from kilowatts to megawatts. According to Joe Naroditsky, Director, Solar & Operations at the Community Purchasing Alliance (CPA), an organization that connects nonprofits with solar bids, the C&I solar projects his organization facilitates can range in size from 50 kilowatts (kW) for small churches and synagogues to 300-400 kW for large schools.

And that’s just the tip of the iceberg.

Commercial Solar Opportunity

With the help of Aurora solar software, researchers at UC Davis have examined the real-world solar potential of some of the largest commercial buildings in the United States. 

Their review of the largest commercial building in the U.S., a Texas-based aerospace company with 770,000 square meters of rooftop, found that it could generate 88 million kilowatt hours (kWh) of clean energy! As explained in the Washington Post, “That’s enough to power nearly 5,200 homes for a year, offset 47,800 metric tons of CO2, and spare up to 388 acres of land.”

Obviously, this is the extreme end of the spectrum, where building rooftops rival the scale of utility-scale projects, and this site has not been developed with solar. However, it serves to illustrate the variation in potential project sizes in a sector where the buildings and customers differ widely.

Constraints on the Commercial Solar Market

As you begin to read up on the commercial solar sector, one of the common refrains you’ll see is that this market has not grown nearly as rapidly as residential or utility-scale solar. As noted in PV Magazine, “The commercial and industrial (C&I) solar markets have been a relative challenge for solar developers to exploit.”

Cost of Commercial Electricity vs Residential

There are a number of factors that have contributed to C&I lagging behind residential solar. For one, commercial electricity prices are historically lower, which can make the economics of solar a little trickier. 

As Mark Berger explains in PV Magazine: “The C&I sector has trouble competing against an average 15% or more lower price per kilowatt-hour rate than residential electricity prices, according to the U.S. Energy Information Agency. ”

According to the U.S. Energy Information Administration, in February of the average cost of electricity for U.S. residential customers was 13.3 cents per kilowatt hour (kWh), while the cost for commercial customers was 11.9 cents per kWh.

Convincing building owners to purchase

Another barrier relates to the fact that in many commercial buildings the occupant is not the building owner. This “split incentive” means that the building owners who would make the decision to install solar are often not the ones paying the utility bills, making solar energy savings less of an incentive for them.

Complex commercial financing

Financing is also more complex in the C&I solar space, and according to some contractors we’ve spoken with, less accessible. That is beginning to change, however, as financing mechanisms for this space become better understood by financial actors and there are more successful projects for financiers to look at to assess risk.

Financial viability is the first major hurdle in solar sales, as any solar installer knows. Commercial solar systems can therefore be a trickier sell. 

However, as explained in Solar Power World, “Commercial solar and now community solar are advancing beyond bureaucratic budgetary boundaries by systemizing structures for the private sector, consumers and third parties to partner and invest in energy infrastructure assets.”

One of the major things easing financing is the introduction of power purchase agreements (or PPAs). PPAs have allowed investors to take on the pressure of large upfront commercial solar costs, with the consumers paying off the system a little bit at a time.

Other barriers

Other barriers include, “contracting challenges, the mismatch in building lease and PV financing terms, and high transaction costs relative to project sizes,” according to a National Renewable Energy Laboratory (NREL) report.

Solutions to Commercial Solar Barriers

Many of the challenges in this sector are already being surmounted. A white paper by the Solar Energy Industries Association (SEIA) and SolarKal highlights the fact that commercial solar projects can be structured in a variety of ways that split the costs and benefits across building owners and tenants to meet different criteria. They also emphasize the variety of financing structures available to fit the needs of the parties involved, and the fact that solar is cost-competitive with utility energy.

As discussed above, commercial PPAs are a great option for small businesses and nonprofits that want the benefits of solar but are unable to cover the upfront costs — despite the fact that the upfront cost is often almost negligible considering the offset of reduced energy bills. 

Schedule a demo to learn more about Aurora’s commercial solar capabilities.

Commercial Solar’s Current Scale

According to a Solar Energy Industries Association report, 1,286 megawatts (MW) of commercial solar were deployed in , with two-thirds of all corporate capacity installed just since .  The report now tracks more than 8,300 megawatts (MW) of commercial solar projects in the U.S. — over 38,00 projects across 43 states — representing approximately 70% of all installed commercial capacity.

Put another way, there is enough installed commercial solar to power 1.6 million homes. 

Still, commercial trails behind the residential market, despite larger project sizes, and is even far behind the utility-scale market. As of , NREL reported that non-residential solar (another term often used for this market) comprised 24% of the total installed capacity in the U.S. 

In March , SEIA reported that the pandemic affected commercial more than residential solar installs, with the numbers coming in at 4% less than in . 

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Despite this relatively slow start, there are a number of indications that this market is poised to take off.

Potential for Growth in Commercial Solar

Given the scale of many of the buildings in this sector, you can imagine that as barriers are knocked down, the potential for installed commercial capacity is significant.

In a report, NREL examined the potential size of the C&I solar sector if certain challenges were overcome. They concluded that, at the U.S Department of Energy’s “SunShot targets,” the “techno-economic” potential for offices was 54 GW, for hotels 16 GW, and for warehouses 34 GW for a combined potential across these building types of 104 GW in the U.S.!1

For context, at the end of , the DOE reported that the combined capacity of all installed solar PV and wind power in the country was 144 GW.

Commercial Solar Benefits

Commercial solar can offer many benefits — to building owners, commercial tenants, financiers, installers, and the environment. 

For building owners, benefits include increased operating income and cash flow and longer lease terms, as the SEIA/SolarKal white paper notes. 

For tenants, reduced operating costs through utility bill savings are an obvious, and very real, benefit.

Of course, there are also benefits for solar contractors that successfully navigate this sector. Commercial solar projects are often a tough sell, but they can have a great impact on overall numbers for solar companies.

The economies of scale at play in these larger projects can make them more lucrative, and that’s on top of the significantly larger total project price tags compared to residential projects.

Be sure to check out the other articles in this series to learn more about the ins and outs of the C&I space. Whether you’re already actively involved in commercial solar, interested in transitioning into this space, or just want to increase your understanding of the industry, our goal with this series is to provide helpful perspectives on how the commercial solar sector works. 

In our other posts, we delve into the various players involved in commercial projects, how to sell C&I solar projects, and some of the financing structures for commercial solar projects.

We’re excited for the potential of C&I solar as another key pillar in the growth of solar energy more broadly and hope you are too!

The energy transition away from fossil fuel electricity generation towards sustainable energy sources is becoming increasingly vital in our journey to combating climate change. Within this green revolution, commercial solar energy emerges at the helm, offering businesses an opportunity to not only support the environment, but to also benefit financially. This article aims to explore the multifaceted world of commercial solar energy, delving into the technology of commercial solar, its applications, and the various financial incentives available for commercial solar systems. If you own or operate a commercial or industrial organization and are looking for ways to reduce energy costs for your business, uncover the benefits of solar energy for your operation. 

What Is Commercial Solar Energy?

Commercial solar energy, also known as photovoltaic (PV) energy, utilizes solar panels and systems to generate electricity for commercial, industrial, or municipal applications. Commercial solar systems are specifically designed based on a business’s energy consumption and/or available space to install PV panels. While some businesses might have rooftops with much sun exposure, others could be limited and it may not be profitable to install solar panels on the entire roof. Some commercial solar applications utilize parking lot space through the construction of parking canopies, while others try to utilize extra land that they might own at or near their business.

Commercial Solar vs. Residential Solar

Commercial solar and residential solar vary quite differently. While homeowners purchasing residential solar applications are looking to offset their home’s energy usage, business owners are often attempting to offset much more energy consumption. Because commercial energy consumption is drastically higher than residential energy usage, it is important for a business owner to calculate his business energy consumption prior to looking at a solar project. Oftentimes, the solar arrays will not be able to produce enough energy to offset 100% of the business energy consumption. This is an important factor to consider when evaluating your commercial solar options. The average residential solar system produces 10,000 watts of electricity, while commercial solar systems can be millions of watts of power. This causes the costs of commercial solar to outweigh residential solar and make the projects more difficult to finance and engineer. 

Is Commercial Solar Profitable?

The answer: it depends. The profitability of a commercial solar system depends on several factors. And, many times these factors are predicated on the location of the system due to state-specific incentives. When looking at the numbers, it is important to be aware of the costs, benefits, and financial perks associated with commercial PV. The best way to do this is to transform your solar project into a financial statement with income, expenses, assets, and liabilities. Let’s explore this in more detail in the example below. 

For this illustration, we will assume the following:

• the size of the commercial solar system is 500 kW, or 500,000 watts
• the purchase price is $3.50 per watt
• the customer’s local utility rates are $0.20/kWh
• The 500 kW system will produce 600,000 kWh annually
• The location of the project is in NJ where SRECS are valued at $40
• 1,000 kWh of solar project equates to a single SREC
• Annual maintenance costs are $4,000
• Standard depreciation rate of 3.6% for 27 years

Now, there are several ways to look at the profitability or return on investment with this example. One school of thought says that the business is earning $77,000 per year on a $1,225,000 investment (purchase price after tax credit). This gives the business owner a 6.2% annual rate of return.

Another school of thought is to take the annual benefit from the SREC income and energy savings, less maintenance costs ($140,000) and divide it into the total system cost after the tax credit ($1,225,000). In this scenario, the business owner recoups his investment in 8.75 years and then gets free power from the solar system (less any maintenance costs). 

Another scenario, that we will discuss in more detail below, is bonus depreciation. The IRS allows businesses to depreciate 100% of the solar project cost in year one. This allows the owner to offset all of the income generated by the system as well as other business income he might have in that year. Remember, depreciation is not a one-to-one benefit as the total cash value is based on your tax rate.

In each scenario, this appears to be a profitable deal for the business owner. Now, remember, the SREC inventive income is a state-based incentive and will change based on the project’s location. It’s best to evaluate each commercial solar project on an individual basis to determine its profitability.

Best Solar Systems For Commercial Use

There are several ways to construct a commercial solar system. While most private businesses are concerned with the financial aspects of the solar project, other organizations are more driven by environmental benefits. All of these factors play a role in determining how much solar to install on a property. Let’s explore some of the more uses of commercial solar below and their advantages. 

Rooftop Solar System

A rooftop solar system consists of photovoltaic (PV) panels installed on the roof of a building to convert sunlight into electricity. This setup is designed to seamlessly integrate on the building’s roof and electrical system, making it the most popular commercial solar system use. If the business’s roof has a lot of sun exposure, this is often the very best and most affordable way to install solar.

Carport Solar System

A carport system is another type of solar system for commercial use. This design involves the construction of carport canopies in a business’s parking lot. The carport is designed in such a way that cars can park underneath while solar arrays are mounted on top of the structure. This is often implemented when the building’s roof cannot get enough sunlight or hold enough solar panels. While carport solar systems are a great way to produce more electricity, they can be costly to construct and often affect the profitability of the solar project. 

Ground Mount Solar System

A ground mount system involves installing ground-mounted steel and/or other structures that can support the installation of solar panels in an open area, such as a field. Like the carport systems, ground-mounted solar systems can be more costly to install when compared to rooftop systems, as the cost of steel and construction can outweigh the benefits from the energy production. However, businesses that have limited rooftop space or lots of open land often take advantage of this commercial solar installation option.

Who Is Eligible For Commercial Solar?

While most businesses in all states are eligible for commercial solar, individual state incentives play a role in determining the profitability of each project. For example, in Pennsylvania, solar renewable energy credits (SRECS) are not fixed in value. So when a Pennsylvania-based business installs solar panels, they have to project the future value of their SRECS to forecast the project’s ROI. In New Jersey, however, SRECS values are fixed. This allows NJ businesses to have more certainty when it comes to their investment in solar.

Other factors also play a role in determining a business’s solar eligibility. For example, in some states, there is limited solar capacity based on the location of the solar system. Because the electricity grid is not designed to be able to handle an unlimited influx of solar energy production, electric grid operators limit the total amount of solar that can be installed at specific locations on the electric transmission lines. Another factor has to do with sun exposure. If your business is located in a very shady area, they may need to consider cutting down trees in order to allow solar panels to produce the desired amount of electricity. This can be a challenge in some areas or with certain landlords. 

The Benefits Of Commercial Solar Energy Systems

The adoption of commercial solar energy systems offers a myriad of benefits that extend beyond environmental effects to include substantial economic and operational advantages. Below, we highlight the key benefits that businesses can leverage by integrating solar power into their operations.

• Reduced business energy expenses based on solar system production
• 30% federal investment tax credit based on total system cost
• Solar renewable energy credit (SREC) income paid by utility companies
• Bonus depreciation allowed by the IRS
• Increased public image of brand through a commitment to clean energy
• Positive environmental impacts promoting sustainable energy
• Energy security with on-site electricity generation
• Energy independence and less reliance on the electric grid
• Energy production during peak hours to offset electricity costs
• Low maintenance costs
• Long term energy production as most systems have 40+ year life spans
• Increased property value and business value 
• Support for local solar and electrical contractors

The Challenges Of Commercial Solar

While installing a commercial solar system has many benefits, it also comes with some challenges. Let’s explore some of the top challenges faced by our customers today when considering a solar option.

• High cost of installation
• Sometimes can be hard to secure financing for large projects
• Interests rates are high and eat into project profitability
• Unsecure financial incentives in certain states that have the potential to go away
• Inability to get project approved by utility due to over saturation in a specific area of the electric grid
• Lack of sun exposure at your business or facility
• High construction costs if located in union-controlled area
• Complex solar legal agreements and contracts
• Roof replacement costs if roof is dated
• Liability for damage during solar system installation. Who is responsible?
• Complex permitting process in certain jurisdictions

How Commercial Customers Can Get Started With Solar

If you are thinking about a solar system at your business, the best place to start is with a free solar consultation. During this stage, a solar expert will evaluate your building, your roof, its sun exposure, local rules and regulations, available solar incentives, your building’s energy production, and more. At this step of the process, you can even design a solar system virtually to see how it will look on your building and to project its energy performance. This will give you a good idea of the potential of solar at your business and whether it’s worth taking the next step.

Thinking About Exploring Solar?

At Diversegy, our team of energy experts has a deep understanding of the solar energy industry and how to engineer commercial solar systems for our customers. In fact, through our parent company, we are part of a conglomerate of energy companies that manufacturers, engineers, and installs solar panels for commercial businesses. Want a free quote to see how solar might work for your business or organization? Contact our team today!