Solar: A New Outside Of The Box Financial Planning Tool
In what seems like an instant, solar panels are popping up everywhere. In your neighborhood, at your local schools, libraries and businesses. The last 5 years have been transformative for a reshaped solar industry. In 2015, the Solar Power Free-Market Financing Act introduced legislation that enables more readily available access to homeowners looking to invest in solar energy by authorizing financing arrangements with private solar companies based on solar output. This legislation reduces, and eliminates in most cases, the high upfront costs of solar panels and installation. As the cost of systems have decreased, panel efficiency has continued to increase and a change in lender sentiment has given an increasing number of business owners and homeowners the access and confidence to make the switch to on-site self-generated renewable energy.
As a financial professional and trusted advisor to your clients, you may have already been asked if going solar makes financial sense. If you haven’t yet, it is coming. One way to get out ahead of this is to start discussing solar, and all of its potential tax and financial benefits, as a strategy on your planning tool belt. Paired with a conversation around Impact or ESG investing, or other green related tax opportunities, this can have a powerful affect for your practice in the form of client engagement, increased referrals and tons of new business acquisition opportunities.
How is Solar Going to Help?
Year after year utility rates continues to increase to the tune of 3.7% annually on average in the US. Businesses and consumers are perpetually reliant on large electric monopolies to provide their rapidly increasing demand for electricity. Not to be morbid, but as it sits, your clients will pay this cost until the day they die. You know what they say, there are only three things that are certain in life - Death, Taxes, and an Electric bill. Oh, nobody says that? Maybe they should start.
In addition to the cost savings and inflation protection, there are additional financial benefits that every financial professional should be helping their clients take advantage of.
Tax Planning
The federal government is incentivizing businesses and homeowners with a 26% Renewable Energy Investment Tax Credit (ITC) on the total cost of the system installation. As current legislation stands, this FTIC for residential and commercial systems will be reduced to 22% in 2023. By 2024, this will be phased out entirely for residential systems and reduced to 10% for commercial installations without a current phase-out date designated. The ITC and its limited-time nature present a unique planning opportunity for tax and financial advisors looking to wow their valued clients with outside-of-the-box ideas that provide results. Even if presented as an idea to explore, tremendous relationship capital will be built with a client seeking to reduce business or personal federal income tax liability. Bonus points if they have an affinity for environmentalism. Bringing the Renewable Energy ITC, in addition to the potential 1 or 5 years accelerated MACRS depreciation benefits, to your client’s attention is just another way to prove your acumen and reinforce the continued value you provide.
2. Retirement Planning
Going solar offers your clients the opportunity to eliminate one of their largest expenses during retirement. Many of us have never quantified just how much we will spend on electricity in a 30 year period. For homeowners in a 2000 square foot home, this number can be as high as $200,000 over a 30 year period when considering the average historical electric rate increase in the US is 3.7%. An owned solar system can generate 100%+ of your annual electricity usage in many markets, thus eliminating traditionally unavoidable costs and freeing up cash flow for other retirement expenses.
3. Investment Planning
There are many aspects of investing in a commercial or residential solar system that can bring short and long-term investment returns to clients. These returns come in the form of increased property values and increased cash flow via savings and potential for income from excess generation (commercial/solar farm).
Research has shown in nationwide studies, that solar adds 4.1% value to a home or property and that these properties sell 17% faster.
Clients with farms could benefit from the income-generating potential of a solar farm by leasing a portion of their land to a Solar company for development. Solar groups are paying big dollars, offering annual rents of $300 to $700 an acre. That’s more than triple the average lease for crop and pasture land inside the country, which levels from $27 to $102 an acre, consistent with the U.S. Agriculture Department.
How To Implement
Implementation ideas:
Virtual Client event around green or impact investing (ESG) and green tax benefits.
Engage clients with a conversation discussing topics that can range from Impact investing, Tesla Vehicles to Radiant Barriers depending on what will be of most value to your book of business. *Bonus Idea for after COVID-19 - Do all of this over dinner after a few hours at a local test track and a fleet of Teslas for your customers to try out from a local Tesla dealer partner.
2. Make it as simple as an icebreaker for your next quarterly, or semi-annual review.
“Have you all ever had any affinity to Going Green or having your investments reflect that sentiment? There are some awesome tax advantages you could take advantage of.” Or “What do you think of all this Go Greenstuff going on?”. Simple, yet likely a unique conversation to the client who will remember it next time they’re out to dinner, or on a zoom wine night, with their friends. You get mentioned for something seemingly unrelated, yet extremely sexy to many consumers currently, to traditional financial planning.
3. Send out a newsletter or email with your regularly scheduled communication to your clients about these topics.
This will spark some good conversations and at best an opportunity for you to uncover some potential additional assets or referrals from your client, and worst case they give you crap for acting like a tree hugger once for the sake of Financial Planning.
So, whether it be the tax benefits, increased property value, monthly savings, or increased cash flow financial professionals and their clients have a unique opportunity to take advantage of. But, does solar make sense for your client’s properties specifically? The answer to this question lies behind a number of variables specific to each business or homeowner’s property, financials, tax situation, and energy consumption habits. A reputable solar professional will work with clients and their team of advisors to sort through all of these considerations to determine if the solution will be worthwhile.
If you would like to learn more about solar and how you can leverage this opportunity in your practice connect with me on LinkedIn, or email brennan.mccloud@caibersolar.com . We still have limited availability for virtual or in-person client events for financial professionals and private consults in 2021. Pairs especially well with ESG Investing related events.
*We are not financial, legal or tax professionals. Any information given is meant to be for informational purposes only and should not be construed as tax or financial advice. Please consult your financial professional for guidance and confirmation of the information here.