Solar panel considerations and funding options

This natural advantage is especially pronounced for the agricultural industry, which occupies locations with high solar radiation availability, limited sunlight obstacles and virtually no shadow cover.

In recent years, clean energy has become more effective and affordable, becoming a genuine opportunity for agricultural businesses. Throughout this blog we discuss the various ways of funding solar panels and things you should consider.

Things to consider before installing solar panels:

From our experience in assisting agribusiness clients to analyse and fund solar panel installations, we have put together several questions you should ask yourself and the stakeholders of your business before commencing.

• How much energy does your operation require?
• Will I require a solar battery to accompany the system?
• Where will you place the solar panels? There are several options here which need to be considered.
• What level of panel efficiency will you require?
• Who should you get the install the panels?
• How will ongoing monitoring and maintenance occur?
• What will the life of my proposed system?

If you require assistance with any of the framed questions mentioned above, please reach out to one of the experts listed at the bottom of this article. 

If you have a robust understanding of your energy requirements and plan in place, you may be wondering what your funding options are? Outlined below are the top 3 typical ways to fund a solar installation.

Purchase outright:

The first option of funding a solar panel installation is to purchase the system outright.

Benefits of purchasing outright:

• No interest is paid on the panels;
• All energy savings are taken directly the purchaser;
• Cheapest option overall.

Disadvantages of purchasing outright:

• Solar panels can be expensive especially if a battery is required. As such, purchasing outright can put significant pressure of the cashflow of the business.
• Purchasing the system outright may require you to monitor the performance of the system.

Bank funding:

The second option to fund a solar installation is through a bank loan. There are currently concessional loans available for the funding of solar panels, offering a discounted interest rate.

Benefits of debt funding:

• Less capital is required from the outset, reducing cashflow pressure on the business;
• Debt funding may enable you to access panels with high efficiency ratings.

Disadvantages of debt funding: 

• Depending on the facility enacted upon interest payments may be high;
• Depending on the price of the panels, an incumbered facility may be required;
• Often the bank will want you to pay for the system and then finance the system once installed, this can lead to a costly gap in funds during the construction phase;
• Typically, only your incumbent Bank will fund due to being a semi fixture on your property, ruling out alternate Banks in many situations.

Power Purchase Agreements (PPA)

Power Purchase Agreements can be used to finance solar panels, where companies acting in this space will install the solar panels and sell you the power under contract. From a landholder’s perspective you pay a discounted electricity bill, these payments pay off the equity provided for the solar panels over a specified term.

Benefits:

• No upfront costs;
• PPA is off balance sheet;
• Savings from day the panels are operational;
• No payments in addition are required only savings; and
• The equipment will generally be owned by the landlord at the end of the contract.

Disadvantages:

• You do not own the solar panels until the end of the specified period;
• The PPA provider gets the depreciation;
• The true benefit is a metric of current energy usage and energy cost during various daily time periods. To determine potential savings analysis is required; and
• If your property is encumbered, the mortgagee will need to consent;

It is advantageous to discuss various solar panel considerations and funding options with an expert. Forvis Mazars Agribusiness team is well placed in the market to delivery practical and actionable advice. Contact your usual Forvis Mazars advisor or our specialists John Kotzur and Matthew Beasley for a confidential discussion via the form below or on:

Published: 06/06/2022

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