How to build zero-cost on-site solar and storage projects
Download our guide to leveraging financing and incentives to access energy solutions that cut energy costs, generate revenue, and meet decarbonization goals.
12 18, 2023
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In today’s energy landscape, on-site solutions like solar panels and battery storage systems offer major benefits to both the grid and energy users. Commercial and industrial energy buyers can use these systems to access programs and incentives that will create significant energy savings and even generate new revenue. Yet many organizations hesitate to explore these projects, because they are concerned that they lack the capital to invest in these solutions upfront.
Fortunately, even for organizations that want to completely avoid investing capital, there are a wide variety of no-cost energy projects available that offer vast benefits. But to understand why these financing options work, we first need to understand the true lifetime value of these on-site energy resources and how they can best be captured.
Why are on-site energy resources like solar and storage valuable?
On today’s grid, high demand levels can create cost and reliability issues, leading to challenges for utilities and grid operators. As part of their efforts to manage these challenges, energy providers impose charges for using energy from the grid at times of high demand, encouraging the shift of energy usage away from times of peak demand. On-site energy solutions – often referred to as distributed energy resources (DERs) – help you simplify the process of avoiding these additional charges.
Demand charges, for instance, are one way grid operators and utilities encourage organizations to use energy flexibility and shift their energy usage to different times of the day. Demand charges sit in contrast to supply charges on your energy bill. Energy charges are straightforward – they are simply based on how much electricity your organization consumes over a billing period. The more kWh you consume, the higher the charges. In contrast, demand charges are based on when you use that electricity. Demand charges grow as a percentage of energy bills – in some regions, summer demand charges alone can represent 40% of annual energy spend.
Demand charges are just one reason why energy solutions that allow you to be flexible are so valuable. Consider solar and battery storage, for instance, which enables flexibility in a variety of ways. Solar can allow you to use less energy from the grid during times of peak demand, while storage enables you to charge your battery when the price of energy on the grid is low, then discharge and use that energy when prices are high.
When co-optimized together, distributed energy resources can enable major savings and can even generate new revenue for businesses by participating in demand response programs. And while many businesses worry about the upfront spend, many of these projects require no upfront capital at all, depending on what financing options are available.
My organization doesn’t have upfront capital for on-site energy solutions – what are my options?
1.) Begin by focusing on incentives that are available to organizations interested in renewable energy solutions and battery storage. Thanks to the Inflation Reduction Act of 2022, we’ve witnessed the emergence of new market opportunities spurred by these incentives. One of the incentives within the Inflation Reduction Act is the Investment Tax Credit (ITC), which reduces upfront investment costs for a solar PV system or battery storage system that is installed during the tax year.
The ITC is structured as a tiered credit system. At the minimum, project owners are eligible for a base rate of 6%. But if they meet additional requirements, they unlock the full credit of 30%. Bonus adders are also available that, when stacked, means that a project could achieve a maximum 70% ITC.
Inflation Reduction Act incentives
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2.) For certain projects, Enel can finance the project so that your organization will not need to spend anything upfront on the project. Instead, Enel will simply share the project’s revenue with you.
The actual valuation of the energy projects is based on the system operator’s ability to capture future value streams. To capture the project's maximum value, the operator should:
- Accurately predict peak events
- Curtail during peak events
- Optimize tariff structures
- Accurately predict facility consumption
- Orchestrate multiple DERs
- Plan against future tariff rates, and more
This is complex to do, and because DERs are a fairly nascent technology, most projected cash flows are not bankable. But at Enel, our team’s deep understanding of these value streams allows us to finance no-cost energy projects. We underwrite the cash flows and make investment decisions that create value for our customers. Our expertise in analyzing the unique value streams associated with each project allows us to structure financing solutions that meet your specific needs and create maximum value.
Under an Enel financing agreement, Enel puts up the upfront capital cost for the battery energy storage system – meaning that your organization can retain your capital on your core operations, while still benefiting from battery storage. Through the life of the contract, you split the benefits (energy bill savings and grid revenues) with Enel, according to a pre-determined split. As a result, your organization shares in the value created by the battery energy storage system, with no downside risk to you, as Enel recoups its original investment with its split of the generated value. So it’s a win-win.
The main advantage of a benefit share structure is that it aligns the incentives between the end user and Enel. Because our compensation hinges on the performance of the system, we are incentivized to provide the best quality service and delivery. For you, this also serves to limit your downside risk. If the system is not performing, you are not liable for its under-performance – but if it is performing, you get a split of the total value created.
In our November 2023 webinar with GreenBiz, “How to build no-cost on-site solar and battery storage projects,” we dive deeper into this topic. We discuss why energy flexibility is valuable, how the Inflation Reduction Act pairs with zero-CapEx project financing to unlock access to affordable solar and storage projects, and walk through case studies showing zero-CapEx financing mechanisms in action. Watch the webinar now.
How should we determine the best benefits split for our organization?
Many organizations are familiar with a solar PPA – in which the end user pays the developer a flat rate for solar power created ($/kWh). The solar portion is typically offered at a discount to utility rates, so the customer gets to both save on energy costs and advance their sustainability goals.
But because energy storage doesn’t “generate” new energy, but rather moves energy from one time period to another, this structure doesn’t fully apply. Hence, a benefit share – in which the end user pays a flat monthly fee ($/month) to receive a pre-determined split of the total value generated by the system.
With a possible range from 0% to 100%, how should a customer determine its preferred benefit split? What are the trade-offs between benefit split and PPA rate? Below, we outline some common considerations and benefits of each.
1. Power Purchase Agreement (PPA) rate
A PPA is a straightforward financing option for solar and battery storage projects. Under this arrangement, your organization agrees to pay a predetermined rate per kWh for the electricity generated by the system over a specified contract period, typically 15 years or more.
This structure allows you to benefit from the clean energy generated without the burden of upfront capital costs. It also provides a predictable and stable energy cost that can protect your organization against future electricity price fluctuations.
2. Battery storage benefit share
This innovative financing model allows you to enjoy the advantages of battery storage without the need for significant capital investment. With this approach, you and your project partner agree on a baseline for your site’s energy consumption.
As the system helps you optimize energy usage, curb demand charges, and tap into demand response revenues, the savings and additional revenue generated are shared between you and your partner, typically in a predetermined split like 50:50. This structure ensures that both parties have a vested interest in maximizing the system’s benefits, aligning incentives for success.
3. PPA rate + battery storage benefit share model
This financing option offers flexibility and cost-effectiveness. Your organization pays a fixed rate per kWh for the clean energy generated by the system, much like a traditional PPA. Simultaneously, you share in the benefits and cost savings derived from energy optimization, demand management, and demand response programs, following an agreed-upon split.
This hybrid approach provides a balanced solution, offering predictability in energy costs while still allowing you to capitalize on the value-added benefits of energy flexibility and optimization.
How do I get started?
The potential of solar and battery storage technologies to deliver extensive financial, sustainability, and resilience benefits is both promising and exciting. Leveraging incentives provided by the Inflation Reduction Act makes these energy solutions more attractive. What’s even more exciting is that choosing the right financing can make on-site energy projects accessible without initial investment or additional financial risk for your organization, while also helping maximize your returns.
If you are wondering where to start, partner with a trusted energy provider who can help you make the right decisions for your organization. As one of the world’s largest renewable energy developers and innovators, Enel has the right expertise, experience, and suite of energy solutions to help you maximize opportunity. By analyzing your organization’s unique needs and energy usage patterns, we’ll help you take advantage of available incentives and tailor financing that opens the door to zero-CapEx energy projects that offer reliable, positive returns.
Read our guide, “How to build zero-cost on-site solar and storage projects,” to learn more about how your organization can leverage financing and incentives to access energy solutions that cut energy costs, generate revenue, and meet decarbonization goals.
