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By William Homza

William Homza is a Solutions Engineer for Enel North America’s Distributed Energy Solutions team. Over his career, Willy has established an extensive background working on behind the meter load flexibility products across residential, commercial, and industrial sectors. At Enel, he currently focuses his efforts on commercial and industrial PV and energy storage business case development across the United States, including ISO-NE and PJM.

In today’s dynamic landscape, several powerful trends are reshaping how organizations approach their energy and sustainability strategies. Climate change risk looms large, propelling a collective drive toward more sustainable and resilient energy practices. Stakeholders, from investors to consumers, are increasingly vocal about sustainability, impacting the decisions made in corporate boardrooms. Government efforts are making energy solutions like solar panels and battery storage not only accessible but highly attractive. 

All these trends are increasing demand for clean energy solutions, such as on-site solar and storage. However, despite these projects’ numerous advantages, many organizations hesitate to explore them, because they lack upfront capital. 

The good news is that there are mechanisms making energy solutions more affordable and valuable than ever before. The Inflation Reduction Act’s substantial tax credits and incentives are significantly reducing upfront costs. Moreover, smart financing options are available, enabling zero-capital projects to become a reality.

Let’s explore the financing mechanisms and incentives that can help your organization advance your energy strategy.

The value of battery storage and clean energy projects

Solar panels and battery storage offer substantial benefits to the grid and energy users, enabling organizations to access incentives for cost savings and revenue generation – all while advancing their decarbonization strategy. To grasp financing for zero-capital solar and battery projects, we must first understand their lifetime value by investigating the components of a typical energy bill.

Your energy bill consists of key components impacting the potential savings from solutions like solar and battery storage:

1. Energy charges (supply charges) are straightforward, tied to your total electricity consumption over a billing period. You can reduce energy charges by lowering your overall consumption.
2. Demand charges (capacity charges) are more nuanced, based on when you use energy. Utilities levy these charges during specific time windows, often peak hours, to manage cost and reliability. Reducing peak usage during these windows helps cut demand charges.

What is energy flexibility – and how does it create value? 

Energy flexibility is the ability to shift the existing electricity load around, thus improving the economics of your energy use. It is a simple, straightforward way for your organization to address demand charges, realize energy cost savings, and earn new revenue.

Demand charges are just one reason why energy solutions that allow you to be flexible are so valuable. On-site energy resources – like solar and battery storage – help you leverage flexibility to avoid these charges and reduce your utility bill. They can also increase revenues if you participate in demand response.

How battery storage delivers value

Technologies like battery storage enable you to optimize your organization’s energy use to provide significant bill savings and earn new revenue. A well-designed and optimized behind-the-meter (BTM) battery energy storage system unlocks the opportunity for value stacking – leveraging the same equipment, system, or process to deliver multiple benefits that maximize the total financial impact. Battery storage shifts an organization’s energy usage to provide three value streams: 

1. Demand charge management – with battery storage, organizations can reduce costly demand charges that account for a significant amount of annual energy costs by reducing demand at the right time.
2. Time-of-use charge management – when you consume energy matters. Battery storage can enable organizations to avoid daily peak prices by reducing grid demand in line with energy providers’ time-of-use periods.
3. Demand response – organizations can leverage battery storage to create revenue by participating in demand response programs, while minimizing disruption to business operations when asked to reduce consumption during a demand response event.

How solar delivers value  

Generating renewable energy on-site with a solar photovoltaic (PV) system installed on a rooftop, parking lot, or unused land enables your organization to unlock value from existing infrastructure and property – and monetize those assets.

In many geographies, organizations that install on-site solar PV systems experience a dramatic decrease in their overall energy costs – because they are drawing less electricity from the grid. 

In addition, solar PV systems deliver sustainability value by generating clean energy, helping organizations advance decarbonization goals.

How integrating solar and storage creates additional value

An integrated solar and storage system is the go-to solution for many organizations because of the synergy that is key to capturing the most financial and sustainability benefits. Solar allows storage to charge primarily from the sun rather than the grid. Battery storage systems strategically charge and discharge solar energy, storing excess solar energy generated when the sun shines and ensuring that this renewable energy is not wasted but rather utilized when needed most, like during peak price times on the grid.

Solar and storage benefits extend beyond sustainability and flexibility:

• Long-term power purchase agreements (PPAs) lock in $/kWh energy prices, reducing exposure to future price changes and making long-term strategic planning easier. 
• While the Inflation Reduction Act offers incentives on the federal level, many local jurisdictions provide additional storage incentives when storage is paired with solar – including property tax reductions, performance payments, or additional solar renewable energy credits (SRECs) for on-site generation.
• In traditionally non-solar friendly markets with high solar PPA prices, adding storage to solar may help reduce PPA prices.

Financing and incentives are key to enabling affordable projects

Taking advantage of existing incentives and financing opportunities, including benefit sharing with your project partner, can unlock access to transformative energy solutions. 

Step 1: Reduce upfront costs with the Inflation Reduction Act incentives

To get started, focus on incentives that are available to organizations interested in renewable energy solutions and battery storage. As we mark the one-year anniversary of the Inflation Reduction Act of 2022, we’ve witnessed the emergence of new market opportunities spurred by these incentives. 

The Inflation Reduction Act allocates nearly $400 billion in federal incentives for the advancement of clean energy and energy technologies. 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. 

Step 2: Finance the balance with a range of financing options 

The Inflation Reduction Act incentives, while they reduce upfront costs drastically, won’t fund the entirety of the system cost. That’s where financing comes into play, so you can decide how to fund the balance of the system costs after incentives are considered. The three primary financing options that we typically see in the market include:

1. Direct purchase means your organization funds the project internally, essentially investing from your balance sheet as capital expenditure (CapEx) to gain full project ownership.
2. Third-party financing involves seeking external lenders to finance the project and making payments over its lifespan. 
3. Developer financing means your project partner handles the upfront capital, and you collaborate to share project benefits, often through a Power Purchase Agreement (PPA) or a benefit-share model.

The advantages of choosing a developer option with a benefit share

Choosing a developer option with a benefit share is crucial for maximizing asset value and minimizing risk. The benefit share rate (e.g., 50:50 split) should remain stable throughout the agreement, though the actual benefits can fluctuate based on performance and market dynamics. In this model, you consistently receive your share of generated revenue without upfront costs, ensuring a positive financial position.

This structure incentivizes your energy partner to proactively pursue new opportunities, aligning both parties’ interests. For instance, at Enel, we actively collaborate with partners to seize emerging opportunities, working with regulators to ensure market reliability and protect long-term asset investments.

Work with a trusted partner to select energy solutions that optimize your energy and sustainability strategies

Solar and storage technologies hold significant promise, providing financial, sustainability, and resilience benefits. Leveraging investment tax credits from the Inflation Reduction Act makes these solutions even more appealing. What’s even more exciting is that zero-CapEx energy projects make these benefits accessible without upfront capital or added financial risk for your organization.

Enel North America has the expertise and financing options to enable the implementation of integrated energy solutions that will generate long-term value for your organization. By assessing your organization’s unique energy requirements, consumption patterns, and sustainability and decarbonization goals, we can tailor financing solutions that open the door to zero-CapEx energy projects. Read our guide, “How to build zero-cost on-site solar and storage projects,” to learn more about leveraging financing and incentives to access solutions that cut energy costs, generate revenue, and meet decarbonization goals.