Riley Adams
CFO Central

Tax Breaks, a Hiring Edge and a Green Story? Win, Win, Win

By Riley Adams, CPA
February 20, 2020

In short:

  • Powering your company with renewable energy delivers both financial incentives and good PR
  • Use of solar energy is on pace to grow 6,500% between 2016 and 2050
  • Gen Z customers and employees are keenly aware of how companies are addressing climate change

Brainyard’s latest survey asked how respondents will measure success in 2020. Out of 13 options, “corporate social responsibility” landed twelfth.

Could be worse, you say? Well, at No. 13 was “increase stock price,” and most responding companies are private.

I’ll bet that most of those respondents don’t think they can tackle corporate social responsibility without spending money they would rather allocate elsewhere. But what if I told you that market forces, incentives (tax and otherwise) and industry developments are supporting the buildout of solar energy in your facilities, across the United States and more broadly, the globe? And that your company can in fact do good for the planet, have a great story to tell potential hires and investors who ask about ESG strategy and save money?

Let’s start with the financial incentives.

For companies that add solar panels to their buildings, these include tax breaks all companies enjoy on 1231 property, like MACRS depreciation, the Section 179 deduction and bonus depreciation. Companies that commit to clean energy may also qualify for:

These along with state-level portfolio renewable standards and solar renewable energy credits have helped the solar industry mature and stand on its own two legs.

The U.S. Department of Energy, with partners, maintains an up-to-date database of state-level policies and incentives on use of renewables and increasing efficiency.

Many companies have found ways to contract directly with utilities for long-term renewable power purchase contracts, through devices like virtual power purchase agreements and other instruments, which show a lower net-present cost than if the company purchased traditional power under a status quo arrangement. In other words, over the life of the virtual PPA, a company could come out ahead financially without having to put steel in the ground — or panels on the roof.

However, as an economist by training, I still rely on the most common principle for reducing the average unit cost of a product: Build it bigger, and build it better. As a general rule, as projects scale in size, fixed costs diminish in relation to the total output or productive use of an asset. In short, bring down costs by leveraging economies of scale.

Absent this phenomenon, the electric industry might not have become the basic utility accessible to the masses that it is today. When Thomas Edison first electrified J.P. Morgan’s house, at considerable cost, to demonstrate the potential of electricity as a commercial application, he installed an on-site generator in the basement. After unveiling the stunning scientific achievement to wealthy party guests, several demanded similar projects at their own homes. Edison’s first inclination was to replicate exactly what he had already done and use localized generators to power each of these homes.

J.P. Morgan, Edison’s primary investor, sensed the technical debt this would incur and decided to think bigger. He realized the cost-savings potential of building a central generating facility with a supporting power grid infrastructure.

The same concept holds true for solar power today. With the advent of large solar farms, developers have slashed per-unit costs and dramatically ramped up efficiency. Commonly, solar resources compete for consideration when new generation needs present on account of their rapidly decreasing costs.

The Motley Fool, hardly a tree-hugging outfit, says use of solar energy could grow 6,500% between 2016 and 2050. Prices have dropped by more than 70% over the last decade, with more improvements coming online that will push costs lower. For instance, bifacial solar modules can provide a 5% to 15% bonus in power output with only a 2% to 3% price premium. Further, since fewer modules are needed to produce the same amount of electricity, bifacial technology could reduce balance-of-system costs by as much as 7%.

At a basic level, larger wafers allow modules to have more space for photoelectronic reactions, increasing the electricity generation per panel while reducing the need for wires, junction boxes and other balance-of-system components. Solar modules begin to have improved performance and lower degradation, producing more electricity over a project’s lifetime at a lower levelized cost of energy.

Stated succinctly: Scale matters.

Why Green Is Even More Keen Now

As I mentioned at the start of this column, in Brainyard’s Winter 2020 Outlook survey, corporate social responsibility came in pretty low on executives’ chief measures of success. While I’d argue that increasing your use of renewable energy is a painless and potentially cost-positive entree into corporate social responsibility, it will take time and effort.

However, here’s another stat: In an Ipsos poll where researchers asked 10,000 18-to-25 year-olds to rank 24 issues facing the world, climate change was No. 1, with related topics pollution at No. 2 and loss of natural resources at No. 4.

What that says to me is that, for companies that expect to hire in this age group and are not sure where to invest effort in CSR, a renewable energy initiative is a pretty smart place to start.

As Brainyard points out, there’s also a growing pool of investors in sustainable funds, and managers of “green bonds” are actively seeking companies looking to keep a healthy balance sheet while also helping the environment.

Small steps lead to major change over time. How you source your energy, organize supply chains and assess the potential for investments in energy efficiency will eventually result in savings to the bottom line. Add in better employee morale and a positive message for new hires and customers and you have a sound fiscal argument for investing in renewables.

Riley Adams, CPA is an economist working as a senior financial analyst at Google. He previously focused on solar energy at Entergy Corporation as a regulatory and financial analyst, preparing policy summaries for regulators and company executives, presenting at industry conferences and representing the company in regulatory proceedings. As a project-bid coordinator for an innovative commercial rooftop solar effort, Riley helped launch a renewable energy project of a scope never before seen prior to this effort. He worked on cutting-edge projects to find new ways of integrating grid-edge solutions, renewable energy resources, energy storage and energy-efficiency investments. Got thoughts or questions on this column? Drop me a line.

  

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