You get it. You’re bought into and believe the benefits of transitioning your farm from traditional power sources to solar polar. How could you not? With the cost-savings alone – solar powering farms is very attractive. But, like all things in life (and business) affording the attractive solution is very different than simply wanting it.
If you’re interested in what it looks like to bring solar to your farming operation, likely the first and biggest question on your or your accountant’s mind is how you’ll pay for the initial set up and installation. In this article, we’ll break down the three most common ways that farming businesses finance their solar power. We also provide a bonus tip, not commonly known about solar and farming.
Your first option is to make a cash purchase. This is the most direct and arguably the most beneficial for your ROI. With a one-time, upfront purchase you’ll be eligible to take advantage of federal tax credits for 30% of the system’s cost. You can also qualify for any state or local rebates and initiatives in your area.
Aside from the tax-benefits, you could be eligible to depreciate the costs because just like your traditional farming equipment, solar power is considered capital expense.
Many farmers have chosen to finance their solar systems through third-party loans. Farm credit bureaus and local banks often offer low-interest loans that are more cost-effective than other financing options we share.
Making a substantial cash purchase requires a lot of consideration. If you have any questions about how solar power works on farms or for real-life examples of farmers who have made the jump and are reaping the rewards, contact us!
A Power Purchase Agreement (PPA)
If purchasing your system out-right through a traditional cash purchase isn’t a viable option for you, you could consider financing and operating solar power through a Power Purchase Agreement (PPA).
In a PPA, your land or facility acts as the host for the system but do you do not own it outright. Instead, you pay only for the electricity that you draw from the system – usually at a lower rate than traditional electric companies.
The benefits of a PPA is that it requires little to no upfront cost and the maintenance of the system is not your responsibility. While the cost of the energy will be higher than if you purchased the system outright, the cost-savings vs. traditional energy is still considerable.
It’s also important to consider that in this option, you will not be eligible for any direct or in-direct federal, state, or local tax benefits, including depreciation.
One last, very important thing to consider when reviewing your financing options is the Rural Energy for America Program (REAP). REAP is grant funding provided by the USDA, offering agriculture enterprises and small rural business a chance to offset up to 25% of the cost of going solar. There are two submission times during the year.
To learn more about REAP and if you qualify, contact your states’ USDA Rural Development Energy Coordinator or www.dsireusa.org.