Property Assessed Clean Energy (PACE)
Commercial financing called PACE is available in many areas. While it is a relatively new form of Financing for energy-related projects, it uses a very established way of funding improvements in a municipality. Pace financing creates an energy special improvement district or ESID to fund the solar improvement or other energy-related improvements. The district is restricted to just the building(s) getting the improvement. More traditional special improvement districts (SIDs) have long been used to fund projects like sewer upgrades that benefit a specific district or area. The tax that pays for the improvement is spread out across all building owners in the district. With the ESID again, it. is just the building(s) getting the solar. Bonds finance the project and those bonds are paid back with a special property tax that is applied to any property affected by the improvement. With the ESID, the special improvement district can apply to just one building instead of a full district. The special tax is also applied to just the one building and is attached to the building itself. This means that if the company sells the building with the attached solar system, the tax remains with the building for the new owners until the 20-25 year payment period is done.
Beyond Pace Financing – Other Financial Benefits of Commercial Solar
If you are looking at solar for a commercial business, remember that the ITC tax credit will reduce the overall cost of the solar improvement and that system will qualify for accelerated depreciation, which varies based on the date the system was put in service. The Guide to the Federal Investment Tax Credit for Commercial Solar Photovoltaics by the U.S. Department of Energy, Office of Energy Efficiency & Renewable Energy says,
“A taxpayer who claims the commercial ITC for a solar PV system placed in service can typically also take advantage of accelerated depreciation (Modified Accelerated Cost-Recovery System, or MACRS) to reduce the overall cost of a PV installation” and that “Systems placed in service between September 9, 2010 and December 31, 2011 or between January 1, 2018 and December 31, 2022, can elect to claim a 100% bonus depreciation. Starting in 2023, the percentage of capital equipment that can be expensed immediately drops 20% per year (e.g., 80% in 2023 and 60% in 2024) until the provision drops to 0% in 2027” …The Guide to the Federal Investment Tax Credit for Commercial Solar Photovoltaics, January 2021, Page 2.