Thinking of taking your company solar but aren't sure the timing is right?
Worried about what a potentially imminent recession is going to look like and don't want to make any big business decisions right now?
Solar might be an exception to consider.
High energy prices traditionally herald a recession. The last recession the US endured was in 2008-2009 when gas prices topped $4 a gallon, a price that we surpassed in March 2022 according the US Bureau of Labor Statistics data.
Inflation has risen almost 36% from the last recession in 2008, making $100 in 2008 the equivalent of $135.76 today. (https://www.officialdata.org/us/inflation/2008?amount=100).
Similarly, the cost of electricity in most locales will continue to go up over time. Rising costs of oil and gas products, used to fuel many power grids, will continue to be reflected in rising electricity costs.
In the Puerto Rico electricity market, LUMA customers saw an increase in electricity rates in July 2022 that raised their rates to $0.33 per kWh from $0.29 per kWh. In comparison, the average rate in the contiguous USA is $0.14 per kWh.
The US government recently agreed to pass legislation called the Inflation Reduction Act of 2022 that would extend the solar Investment Tax Credit (ITC) of 30% until 2033 and to pass a bill that reforms the permitting process to make it easier to gain renewable energy permits later in 2022.
Even if the economy is able to hold off a recession right now, chances are good that we enter a recession or economic downturn in the next 15-25 years, which is the length of a standard Power Purchase Agreement or PPA, the contract an entity purchasing power from the solar array enters into with the owner of the solar system.
So what are the benefits and the potential liabilities of going solar now, knowing that a recession is potentially looming?
Knowing the rate you'll pay for electricity for the term of the PPA.
Whereas the future rates utility companies will charge for electricity are unknown, entering into a PPA means locking in an electricity rate for the term of the contract.
Something to watch for - an escalator that raises the electricity rate every year or few years. This is a common practice, and also a negotiable term.
Responsibility for paying for the electricity used for the full term of the contract.
Ensure there is an option in your contract that allows for the transfer of the PPA to another power purchaser if your location changes. Most solar power generation arrays are not easily transferred from one location to another, and signing a contract
Increase your property value.
Adding solar to any property increases the value without increasing taxes. Partnering with a company who will finance the solar and either own it outright for the term of the PPA or allow you to buy it over time or during certain time periods such as contract renewals or at the end of the PPA term allow you to increase your property value without any upfront cost.
Begin investing in your business through solar.
Investing in a solar power generation system by financing the purchase and beginning to make monthly payments while lowering your electricity bill allows your operating expenses to go towards an investment in the business, not just the utility company. Choosing to allow an investor to build and own a solar power generation system on your property and paying less for electricity now also allows you to lower your monthly operating expenses, freeing up cash flow for other business investments. Put money aside monthly or annually to purchase the solar array outright at the end of the PPA term or invest in new equipment, a bigger building, more people, etc. to grow your business or make it more efficient.
Take steps before going solar to ensure the right sized solar system is built for your electricity needs, including steps to save money on electricity now and in the future. Most businesses pay a large percentage of their operating costs towards their electricity bill every month, and purchasing electricity from a solar array built for your needs is a great way to reduce business operating expenses up to 40%.
Even if we enter into a recession, entering into a solar PPA contract is often a better option than continuing to buy electricity from a utility company. The choice you make for your business should depend upon your risk tolerance, cash position, and preference.
Photo credited to DepositPhotos.com
