Interest Rates Reduced Again

In the face of high and rising utility costs, particularly in California where energy rates have surged by more than 100% since 2019, recent interest rate reductions present a valuable opportunity for businesses and nonprofits to lock in savings with commercial solar.

The consecutive interest rate cuts by the Federal Reserve in September and November 2024 means businesses now have an ideal chance to secure lower-cost financing for solar projects, easing the path to predictable energy costs and significant financial savings, before things are likely to change following the 2024 Presidential Election.

Why the Recent Rate Cuts Matter for Solar Investments

With the Fed’s recent reductions totaling 0.75% in the federal funds rate, financing for commercial solar installations has become more affordable. For organizations facing high utility rates, especially in California where rates continue to soar, this means potentially lower monthly loan payments for solar projects, and the combination of utility savings and lower financing costs creates a unique, high-value opportunity for organizations looking to stabilize their budgets while supporting environmental goals.

Solar power provides greater energy independence and reduces dependency on fluctuating utility prices, giving businesses and nonprofits control over long-term energy expenses. For those financing their solar systems, lower interest rates further accelerate the payback period, allowing organizations to enjoy positive cash flow from energy savings faster than ever before.

The average project payback period currently is 2-3 years.

Potential Policy Changes and Tax Credit Reductions

In addition to low interest rates, businesses and nonprofits should be aware of looming policy changes that may affect solar tax credits. The current 40% tax credit under the Inflation Reduction Act (IRA) — which includes a 30% Solar Investment Tax Credit (ITC) and a 10% Energy Communities Bonus — could soon be reduced or eliminated depending on upcoming policy decisions. The recent election has introduced a possible shift in environmental policies, with the new administration signaling intentions to revise or cut parts of the IRA to reduce federal spending. This change may impact the “direct pay” mechanism, which currently allows nonprofits to benefit from tax credits as if they were tax-paying entities.

By moving forward on solar projects in 2024, organizations can lock in this 40% tax credit and secure additional benefits, such as carrying forward the credit for up to 20 years to offset future tax liabilities. Delaying action, however, means organizations risk losing out on these valuable incentives should they be reduced or eliminated next year.

Act Now for Immediate and Long-Term Benefits

For businesses and nonprofits in California and beyond, the current financial landscape makes this a golden, albeit short, period to invest in solar. By combining reduced financing rates with the existing tax credit structure, organizations can position themselves for substantial cost savings, predictable energy expenses, and a positive environmental impact.