How and why our church paid for solar panels — and why yours should too

I’m hoping other churches will find some helpful insights from our recent experience.

The bottom line:

• How: Rather than asking for donations, or borrowing from the outside, we borrowed from members.
• Why: We’ll save $300,000 or more over 25 years, which can be redirected for other purposes.

How we did it:

We have a medium-sized Christian church in sunny southern California. We’re planning several building improvements which we will fund via a “capital campaign”, i.e. asking for donations above and beyond regular offerings. We decided that installing a solar energy system could be done independent of the other projects. Unlike the other projects, it will save money, so we decided to fast-track it. We had a small committee led by a retired electrical engineer, our Vice Moderator, Assistant Treasurer (me), Senior Pastor, and a couple of other interested members. Early on we decided we wanted to own the system outright, not enter into an energy agreement as some vendors offer.

We sized our solar energy system at 111% of our current energy usage, 150 panels, for two reasons:

• We plan to add air conditioning to the largest building, so our needs will go up.
• Solar panels’ output degrade by 10% to 20% over the 25-year warranted lifetime. At the end of life, we’d like to be at 100% of our anticipate needs, not 80% and paying the electric company again.

Electric companies don’t like customers to install systems larger than their current usage, but with written justification they allow it.

Knowing that we will be asking people for several hundred thousand dollars in the capital campaign next year, we didn’t want to overtax people’s generosity too soon with this one that would cost about $100,000. So we looked into borrowing the money from a development agency within our denomination. Their interest rate would be 4.25% to 6% depending on several factors.

Instead, we decided to ask some members to loan us the money at 2%. This seemed to be an attractive and balanced offer for several reasons:

• The church would save half or more on interest vs. an outside loan.
• Members would earn twice what they could get on a CD from a bank. Yes, there are higher rates on line, but traditional banks are offering 1% for the term we had in mind.
• Savings accounts are paying essentially 0%, so if anyone had money they had not invested, 2% sounds pretty good.
• The church is stable and has no other debt, so it’s a safe investment.

We set a minimum loan amount, and incremental amount, of $5,000. Why? Because we’d rather track 10 to 20 sizable loans rather than 100 tiny ones. (Would you like to sign and mail 100 checks every quarter?) 

We currently pay an average of $1,100 per month for electricity. We did not want that to go up, so we set that as the maximum amount we’d like to pay on the loans. We were not sure whether members would sign up for the full amount, so we planned to borrow any remaining amount from the denomination agency as a fallback. With some uncertainty about the mix of 2% and 4.5% loans, and the possibility that some people might donate outright for tax reasons, we did the math on several scenarios and settled on a loan term of 9 years.

A note about rebates: because churches don’t pay taxes, the 30% Federal tax credit on solar energy systems is useless to us. Our electric company offers a different rebate for nonprofit organizations. It varies but in our case worked out to about 27%. Some churches set up a separate legal entity (an LLC) to purchase the system, take the Federal tax credit, sell the power to the church, and eventually give or sell the system to the church. We decided that the complexity and some annual corporate fees negated the 3% difference. Plus, not all members who might be interested would qualify for the kind of tax benefit that the LLC would provide, which might limit our list of lenders. So we didn’t go that way. The downside is that the rebate will be paid to us over 5 years, which complicates the financing a bit.

So we needed to raise about $130,000, though the net cost after the rebate would be closer to $100,000. Would that work? Would enough people step up? We thought so, because a few years ago we did a loan program to quickly raise $100,000 for a different project (with no financial benefit). We paid that loan off early, so we should already have credibility in the minds of many members.

We knew that the $5,000 minimum and/or the 9-year term would exclude some people from participating. Some of those people chose to make outright donations instead - which was great, and those people said the will still donate to the larger capital campaign.

After getting Board approval, we announced the loan program in our weekly electronic newsletter that goes to all members, repeat visitors, and friends. We provided a 3-page PDF outlining the terms and including a bunch of questions and answers. The Vice Moderator and I approached a few members directly and gave them the brochure. We got a few commitments and several interested parties right away. Two weeks later, I explained the program and the progress so far during the stewardship moment during worship. That day we got several more commitments and interested people.

Several families chose to loan $5,000, a few $10,000, and one $15,000. Then I was approached by an “angel investor” (pun intended) who offered to loan whatever the balance turned out to be, so we would not need to invoke the outside loan at the higher rate. So about 2-3 weeks into the program, it was fully funded! We did not announce that big loan commitment, because we wanted as many families as possible to participate, and in fact several more did sign up. That fallback loan amount came down to  just about what the member was hoping for.

We provided each lender with a Promissory Note signed by officers of the church and a payment schedule. (We have a couple of attorneys on the finance committee who were happy to draft a simple note.)

In all, 13 families made loans, and several people made donations adding up to about 10% of the total. A couple of families had said to let them know if we needed more. A month after the first announcement went out, 100% of the amount was promised, and 95% of the money was already received, enough to make the initial payment for the system. I had to turn away one latecomer. 

So the whole process went very smoothly due to the great support of the members. They really wanted to see the solar energy system become a reality! The panels went up last week, and we hope to be generating power by early November. And we think we did it without impacting members’ ability to contribute to the major campaign, because they know they will be getting this money back.

Why we did it - and you should too

Until I looked into solar for my own home, I had not thought much about the financial side of it. Sure, maybe it would save on the electric bill, but is it really worth it? The part I was overlooking was how energy costs have historically increased over time. Residential rates (at least in our area) have been going up about 6% per year. Year after year. Installing a solar energy system that meets 100% of your energy needs is a one-time cost that locks in a $0 net monthly bill. When you compound the electric rate increases over the 25-year stated life of a solar energy system, the savings are staggering.

I’m oversimplifying, of course. The amount of electricity generated vs. the amount used will vary seasonally. You build up credit in months when the sun is high in the sky, and draw it down in the winter months or when you need more power such as for air conditioning. In the peak of the summer, although it’s plenty sunny, it’s probably not enough to run our A/C without some help from Edison. So it’s important to properly size the system. (Also, there is a minimal bill from the electric company for “delivery” charges, but they’re tiny.) But still, the savings are immense.

In the case of the church, several factors went into the potential payback calculation:

• The initial cost of the system
• The mix of donations and loans
• The 27% rebate, paid to us over the first 5 years
• The principal and interest on the loans for the first 9 years
• I found records indicating our electric bill went up an average of 2.4% for the last 10 years. (But it varied widely, maybe based on when we had tenants, when we implemented energy-saving lighting, when we installed air conditioning, etc.)

Essentially we are locking in our current monthly energy payment for the first 9 years. So there’s really no net cost to the church, because all this money would have gone out in electric bills anyway. Assuming electric costs continue to rise, we start avoiding some costs nearly right away, in the second year. After the loan is paid off, we avoid 100%, and have essentially zero electric bill for years 10 through 25. In our case, depending on how conservatively we estimate those rising costs, the system should save us $300,000 to $350,000. Wow! Our kids and our successors in the church leadership will be grateful. Those funds can be used for so many other great purposes such as education and outreach.

Aside from the financial savings, there’s a growing realization that churches should be part of - indeed should be doing more to lead - conservation of resources, and stewardship of what we have all been given. In our case, this project coincided with a denomination-wide “green chalice” initiative, so there was tremendous support for the project. (Some of us thought about arranging the solar panels in the shape of a cross on the roof of the sanctuary. We opted to put them on the  south- and west-facing roofs of other buildings instead. But wouldn’t that have made an interesting statement…)

I hope your organization’s solar energy project goes as well as ours did!