How to Finance Solar Projects for Agriculture
A growing number of farms and ag businesses are going solar, and for good reason. Over the last few decades, innovations in technology have made solar much more efficient and affordable. While utility prices continue to increase, solar pricing has declined significantly, making it viable for ag operations to experience true energy independence and benefit from low energy costs for years to come.
Thanks to a range of financing options, solar is easier to finance than ever. But before you make the decision to go solar, it’s important to understand the various financing approaches.
Solar Financing Options
There are three basic ways to finance your solar installation, compared below:
The simplest way to finance a solar project is to purchase the system outright. Paying for the system upfront means you own the system and can take direct advantage of federal tax credits available for 30 percent of the system’s cost,
as well as any state or local rebates. And just like farm and ranch equipment, solar systems are capital expenses with accelerated depreciation benefits. Cash purchases can also be financed with third-party loans, and many ag businesses
take advantage of low-interest financing available through farm credit bureaus or other local banks.
Once your system is up and running, you start saving on electricity costs immediately. The more electricity your system generates, the less you have to rely on electricity from the grid—giving you energy independence and better control over your electricity costs for years to come.
Power Purchase Agreement (PPA)
Another option for ag businesses is to enter into a Power Purchase Agreement (PPA) with a third-party PPA provider. In essence, your land or facilities act as a “host” for the solar system, and you pay only for the electricity the system
generates at predetermined rates, lower than what you currently pay the utility. There are low or no upfront capital costs, and the PPA provider pays for the cost of installation and assumes all responsibility for ownership, operation
and maintenance of the system.
A well-structured PPA lets you immediately reduce electricity costs and increase savings over time as grid electricity prices rise. Once the PPA contract expires (typically 20-25 years) you can purchase the system at a reduced cost, initiate another PPA or have the solar installation removed.
Like traditional farm equipment leases, solar leases provide an immediate use of the solar equipment in exchange for a lease payment. The electricity your system generates offsets your electric bill, lowering your utility payment.
The combination of lease payments and lower utility bills typically provides for an immediate reduction in electricity costs and increased savings over time as grid electricity rates rise. At the end of the lease term (10-20 years), you can purchase the system at a reduced cost, renew the lease or have the system removed. The tax credits typically get passed along to you in the form of lower lease payments.