The clean energy revolution is at a tipping point. Energy costs are increasing to unprecedented levels, more stakeholders are demanding that their dollars only support sustainable businesses, and legislators are starting to match their policy actions to the severity of the threat climate change poses.
These prevailing tailwinds are positioning solar to be the renewable energy standard. And it’s easy to understand why: the amount of sunlight the earth’s surface sees in an hour and a half is enough to handle world-wide energy consumption for a full year without emitting a trace of CO2.
Transitioning to solar is a simple and cost-effective way companies can improve their ESG performance while benefiting their bottom line. Here, I’ll go over three reasons to incorporate solar into the ESG plan for your business.
Economic Benefits: Tax Incentives and Decreased Costs
Businesses that adopt solar power realize both immediate and long-term economic benefits. Tax incentives recently passed through the Inflation Reduction Act promise to increase the bottom line for business owners who adopt solar power. Add in the reductions to your utility bill, and the result is a virtuous circle.
Here’s a quick overview of the federally-available tax incentives:
- Investment Tax Credit (ITC): The ITC is a federal tax credit meant to empower businesses that adopt solar power. How? By allowing the deduction of a percentage of the cost of installing solar panels from their federal income taxes. In 2023, the available deduction increased from 26 percent to 30 percent for most businesses, and there are other added incentives for businesses that meet certain criteria.
- Depreciation: Through the Modified Accelerated Cost Recovery System (MACRS), businesses are able to recover their investment in solar for tax purposes over an accelerated time period.
It is important to note that businesses should consult with their own tax, legal and accounting professionals to understand how these incentives could benefit them before engaging in any transaction.
These federal tax incentives make adopting solar power a financial boon for businesses even before including any available state and local tax and rebate programs. What’s more: since producing your own solar energy costs less than paying a monthly utility bill, the savings will continue through the life of the solar system.
Sustainability Attracts Customers, Investors, and Lenders
From international brands like Patagonia to local, eco-friendly soaps sold at farmers’ markets, customers are often willing to pay a little bit more to buy from a company they believe supports their values. So it’s no surprise investors and lenders recognize the value in this trend.
To further explore ways consumers, investors, and lenders alike consider ESG plans a make-or-break indicator for where to put their dollars, let’s look at how each may view a hypothetical business, Dave’s Sustainable Store’s adoption of solar power:
- Customers may appreciate Dave’s commitment to reducing his business’s carbon footprint and reliance on fossil fuels. Oftentimes consumers struggle with how their own individual actions can have a meaningful impact on sustainability, but choosing to support businesses that make sustainable choices is an easy way to make a difference.
- Investors often have ESG commitments to their own investors and want to make sure that their portfolio companies have plans in place to meet these goals. By adopting solar, Dave’s Sustainable Store shows investors they are serious about sustainability. Additionally, investors who view ESG as a way to stand apart from competitors may see Dave’s adoption of solar energy as a way for the business to attract sustainability-minded customers and lead to a larger future return on their investment.
- Lenders like banks have their own customers and investors to answer to, and therefore many have made pledges to commit large amounts of capital toward sustainability. By embracing clean energy, Dave’s Sustainable Store has made itself a more attractive client to the bank for this reason. Not to mention that going solar means more cash flow to Dave’s Sustainable Store, which any lender would also like to see.
Soon, the easily recognized and increasingly attainable benefits of going solar will be widespread. The result? The coming solar standard won’t help businesses stand out from the crowd. In the meantime, however, going solar as an early adopter can convert more customers and help raise capital – and set businesses up for greater energy independence, too.
Going Solar Helps Power Energy Independence
The U.S. grid is aging, which caused the average American to experience over 7 hours of power outages in 2021. In a state like Louisiana which is prone to extreme weather, the average was a jaw-dropping 80 hours – or almost 15 minutes every day. If the grid your business is connected to goes down, an independent energy source – like solar panels backed up by battery storage – is crucial to continuing business as usual for as long as possible.
By installing solar panels plus battery storage, small businesses can generate their own electricity, reducing their dependence on the grid and increasing their energy independence. During times of high demand or power outages, brownouts, and blackouts, solar panels will continue to generate electricity which is then stored in the battery, ensuring that the business can stay open when they want to without interruption.
Imagine being the only restaurant or hardware store on the block with power during an outage and you start to understand why solar and battery storage can be such a good investment. Additionally, the certainty that you won’t be financially upended by sudden events like an ice storm or exploding transformer gives you greater control of your business’s overall finances.
To put it another way: greater energy independence leads to greater financial independence. That allows you to more confidently plan for financial outlays like renovations or expanding to a new location.
Solar Works More Places than You Would Think
Many business owners think: where I live, there’s no point in going solar. Energy is cheap through much of the southeast, for example, while sunlight is hard to come by during long northern winters. But in reality, the benefits of solar can be enjoyed in more places than you’d expect.
Sure, energy is cheap in the Southeast. But like California, that’s where sunlight is plentiful. Conversely, where the light is a bit dimmer, such as New York, energy is particularly expensive. So, to determine whether solar might make sense for your area, you must consider three questions:
- How much sunlight is available?
- How much does traditional power cost?
- What state and local incentives can I leverage (in addition to the robust federal incentives)?
An honest assessment will lead you to conclude that solar can work almost anywhere.
Susan Tanski is Co-founder and Head of Strategy for Sunstone Credit, a technology-enabled clean energy financing platform that helps businesses go solar. Susan has over 15 years of experience in financial services and climate technology, including at Sustainable Opportunities Acquisition Corp., Capital One and Goldman Sachs.