Whether or not people regularly attend their churches, some three-quarters of Americans identify as religious, and there are hundreds of thousands of churches, synagogues and mosques in the country, all of which need electricity for lights, HVAC and charging the pastors’ electronic gadgets, among other things. So it’s no surprise that more and more churches are turning to solar power to keep the lights on and protect God’s/Allah’s/The Flying Spaghetti Monster’s green earth.
WHY DO CHURCHES WANT TO GO SOLAR?
There are as many reasons for churches to go solar as there are for ordinary people, but churches and other faith-based organizations tend to be motivated by a couple of reasons:
First, and most obvious, is that leaders of many churches feel they have a spiritual obligation to preserve the environment. GreenFaith, an interfaith organization dedicated to environmental leadership, writes as part of their mission statement: “Protecting the earth is a religious value, and environmental stewardship is a moral responsibility.” They go on to say “religious traditions see the sacred in nature, and people grow spiritually through a strong relationship with the earth.”
Discussion of the spirituality of environmental stewardship can be found in many places in the religious world. There’s even a renewable energy company called Interfaith Power & Light that holds, as their mission, “to be faithful stewards of Creation by responding to global warming through the promotion of energy conservation, energy efficiency and renewable energy.”
PROTECTING THE COFFERS
Simply put, running a church costs money, and more and more churches are putting their often large and shade-free roofs to good use by installing solar panels, which can reduce their electric bills and even turn into a source of profit. After all, an investment in solar offers financial returns of over 10 percent on average in the U.S. right now, and churches could use some solid financial footing so they can focus on the flock instead of the fiscal outlook.
But there are complications there, too. Because churches are classified as nonprofit entities, they can’t take advantage of solar incentives like state and federal tax credits. So they often have to turn to their congregants to find creative solutions to the problems that arise. That’s where the fun starts!
HOW CAN CHURCHES GO SOLAR?
Like we said above, churches are nonprofit entities, so they can’t take advantage of the tax breaks that exist to make solar cheaper for individuals and businesses. That means the upfront cost of solar is higher, and it’s often not economically viable to pay out of pocket.
Most churches rely on contributions from their members, too, and using those contributions to add panels to the roof can bring the cost to the institution down considerably. Still, this may not be the best route from a financial standpoint. If you’re a church leader thinking about solar for your building, you’ll want to be sure you’re getting the most for your congregants’ hard-earned money.
CONSIDER THE FOLLOWING OPTIONS:
- Taking contributions and paying up front for solar
- Signing a Power-Purchase Agreement with an established solar company
- Having congregants band together to form an LLC that can take advantage of tax breaks
OPTION 1: CONTRIBUTIONS
If your congregation is into tithing, and you can get a good deal from a local solar company (around $3 per watt installed is good), this can be a great way to keep things simple. After the purchase, your church will own a rooftop solar system, and accrue all the future financial benefits thereof.
Here’s how the return-on-investment for that installation looks:
That’s not too bad, as payback goes. You’re looking at a first-year cost (the big negative bar in 2016) of about $27,500 — that’s the $30,000 initial investment for a 10-kW solar panel installation minus one year’s worth of energy savings. As time goes by, the energy savings pile up, paying the cost of the system back after year 15. After that, the panels are under warranty to keep making electricity until year 25 (where our estimates end), but could continue to operate for years after.
All-in-all, as an asset the church will own that guarantees lower costs for the next few decades, this kind of investment hits both the goals above: environmental stewardship and protecting the coffers. The problem is finding the cash to buy the system up front, which is why a Power-Purchase Agreement can sometimes make more sense. To wit:
OPTION 2: SIGNING A POWER-PURCHASE AGREEMENT (PPA) WITH A SOLAR COMPANY
A PPA is another relatively straightforward way to go solar, and it usually doesn’t require any money down. Under the agreement, a solar company installs panels on the church roof and sells the electricity to the church. The starting per-kilowatt-hour (kWh) rate is usually a little below the price you pay the utility company, but it’s also usually designed to go up by a certain percentage each year (1-3 percent is common). A typical PPA contract runs for 10 years.
The upside is you know exactly how much you’ll be paying for electricity for the next 20 years, and the solar output is guaranteed by the PPA company. They do all the work and put all the materials on the roof, and you pay the money.
The downside is this kind of arrangement only works if your state allows third-party solar financing (four states don’t) and whether your state has good net metering rules. For example, there’s a relevant solar horror story in one of those states that doesn’t allow PPAs: A church in North Carolina had solar panels installed by a local solar advocacy group called NC WARN, and began to purchase the energy from those panels under a PPA, but an April 2016 ruling by the state’s Public Utilities Commission found that NC WARN was breaking the law and resulted in a $60,000 fine against the group. The case is now working its way through the court system.
Long story short: make sure your state allows this kind of solar billing arrangement unless you’re prepared to take on the utility company, the state and the courts to win this moral battle. Here’s how the numbers shake out for a 10-kW solar PPA in the average state:
Here’s how all that works: The church signs a PPA agreement with a solar installer for energy at the cost of $.11/kWh, which is $.0125/kWh cheaper that the utility company charges (seriously, fractions of a penny matter here). So buying 12,480 kWh of electricity from the solar company saves the church $156 (12,480 times $0.0125) in the first year.
The PPA stipulates that the cost of the solar electricity will increase by 2 percent per year over a 20-year contract. But the percentage increase of electricity across the country has historically been about 3.5 percent, so the church starts to save more money as the years go by.
If these numbers hold true, the church will save about $10,000 in electricity costs over the 20-year PPA contract. That’s not a huge “if,” but the price of utility company electricity could rise by less than 3.5 percent, which would make these numbers change.
The net present value of the $10,000 over 20 years is about $6,000. That’s pretty good, but here’s why it isn’t the best: The church is still paying a lot for electricity, and to a company that cares little for its mission and values. That’s where the congregation comes in. Get a few people together who’d love to offer a long-term benefit to the church, and you might find just the right way to finance your solar installation. Here’s why:
OPTION 3: HAVING CONGREGANTS ESTABLISH AN LLC
If your church has a few parishioners with means, having them set up an LLC to purchase a solar installation and sell the electricity is a brilliant idea. That’s because the LLC qualifies for the Federal government’s direct grant of 30 percent of the costs of installing a solar array (under section 1603 of “the stimulus” of 2009).
So that means the $30,000 10-kW installation would result in a direct cash payment of $9,000 to the LLC, reducing the year-1 cost to just $21,000. At that point, the LLC could sell the solar energy to the church at a flat rate of 8.5 cents/kWh for the next 20 years, which would allow the investors to break even while helping the church benefit to the tune of $22,000 in energy cost savings. Check it out:
Looking at that chart, you can see how this kind of PPA can result in amazing savings for the church. And it’s not like we’re talking about a pipe dream here. People have done almost this exact thing before, with excellent results. In fact, depending on your state, there can be other ways to profit from solar — like SREC sales — that can change the payback numbers for the better.
WHAT CAN GO WRONG WITH SOLAR FOR A CHURCH?
The list here is about the same as the list for a homeowner — the roof could need reconstruction before the system can be installed, the price of electricity could rise by less than 3.5 percent per year, or the state laws about net metering could change sometime in the future, making the installation less profitable.
The good news (no pun intended) here is that many churches have gone down this path, and they love to share what they’ve learned. Here are a few inspiring stories and articles that may be helpful if your church is thinking about solar:
- Nine churches in a Massachusetts diocese using solar energy
- Solar ideas for nonprofits• Brotherhood Mutual Insurance FAQ on solar for churches
- Interfaith P&L page for churches
- New York Catholic church goes solar