Church solar panels are becoming more common on church roofs, and for good reason — the electricity bill at any given church can be astronomical, especially in summer. Churches are often looking to cut costs and be good stewards of their property and finances. Saving money, and possibly profiting from church solar panels, may be a good alternative, but there’s real risk involved, and the financial picture has changed significantly in recent years.
The Real Cost of Church Solar Panels
Cost is always the primary concern: taking advantage of a large roof area to generate enough energy to justify the expense isn’t cheap. Churches, as tax-exempt nonprofits, qualify for Direct Pay (also called Elective Pay) under Internal Revenue Code §6417 — a federal program that pays tax-exempt organizations, including churches, the value of the 30% federal solar tax credit as an actual cash payment from the IRS, even with no tax liability. To use it, a church must complete a mandatory pre-filing registration with the IRS before claiming the payment — see the IRS’s official registration page for Direct Pay for the current process.
Depending on the size of the system, the up-front cost can still start around $40,000. With Direct Pay’s 30% cash payment factored in, the effective net cost drops meaningfully — but the church still has to front the full amount initially and wait for the IRS payment afterward, which can take months after filing. Unless your church has the financial wherewithal, either in savings or via a church loan, to front that cost and wait for reimbursement, this may not be a viable option. You’re also responsible as the owner for monitoring, maintaining, and repairing the system.
Financing Church Solar Panels: Lease
Similar to leasing other property, you don’t own the system. Under a lease, you pay a fixed monthly amount calculated from the system’s estimated electricity production, in exchange for the right to use it. The solar company typically monitors and maintains the system under a lease. At the end of the initial term — usually 20 years — you can buy the system outright, have the leasing company remove it, or renew the agreement.
Financing Church Solar Panels: Power-Purchase Agreement
Similar to a lease, the solar company installs and maintains the system, but under a Power-Purchase Agreement (PPA) the company sells the electricity the panels generate directly to the church. These agreements typically run at least 20 years, starting at a per-kilowatt-hour rate below the local utility’s — though that rate will likely increase annually over the agreement’s life. Think of it as creative financing: it’s a bet that your PPA rate will rise more slowly than the utility’s, so your savings grow year after year. Over 20 years, a church could realize net savings in the $5,000–$10,000 range.
This type of agreement is permitted in California, and so is net metering.
Net Metering for Church Solar Panels
Net metering is a billing arrangement with the utility provider ensuring each kilowatt-hour your panels generate offsets a kilowatt-hour of your bill at the full retail rate, whether you use the electricity or send it to the grid. This matters especially for churches, since far more electricity is typically generated during the week — when the building sees little activity — than on the day it’s actually used.
If your panels produce 20 kilowatt-hours on Sunday and the church uses that same amount, they cancel out. But if 100 kilowatt-hours are produced during the week and only 10 are used, the remaining 90 are sent to the grid for a net credit — provided, of course, that net metering isn’t later removed or modified by legislators.
Without net metering, cost savings from solar may not keep pace with the wholesale cost utilities pay. This is especially true if a PPA doesn’t reduce your rate when utility rates fall, and the unused energy your panels send to the grid no longer earns the full retail rate net metering provides.
Time-of-Use Billing
California’s Public Utilities Commission updated net metering rules to let utility providers recover some of the profit lost to the solar boom. Under an “Interconnection Agreement,” your system is connected to the grid for a connection fee, and time-of-use billing applies — electricity consumed from the grid costs more during peak hours and less during off-peak hours, with the same structure applying to the credit for energy you send back.
At year’s end, a “true-up” invoice settles the difference: each kilowatt-hour sent to the grid through the year is subtracted from what you used. If you used more than you sent, a balance is due; if you sent more, you’re credited a few cents per excess kilowatt-hour. Each utility has its own Interconnection Agreement, so terms vary.
Considerations Before Installing Church Solar Panels
Before signing anything, a few practical issues around church solar panels deserve real attention:
- Contractors: confirm they’re licensed with the State Contractor’s Licensing Board, provide a certificate of insurance naming the church as additional insured on general liability and workers’ compensation policies, and provide a written contract with a construction schedule tied to payment.
- Damage: determine who’s responsible for the equipment after a power surge. Many insurance policies won’t cover panel replacement.
- Liability: agreements to sell excess power to a utility sometimes carry a penalty if the array underperforms.
- Placement: roof, parking canopy, or ground mount — higher placement generally reduces theft and vandalism risk.
- Tax issues: a church earning money from selling energy or excess power to a utility may need to report the proceeds as Unrelated Business Income.
Property Tax Exemption and Church Solar Panels
A common concern about church solar panels is whether installing them jeopardizes an existing property tax exemption. Nonprofits that receive a Church, Religious, or Welfare property tax exemption can generally keep that exemption, in whole or in part, even if they enter an agreement with a for-profit company to install and operate solar panels on their property — as long as the system produces electricity for the nonprofit’s own use.
A core requirement of the Church, Religious, or Welfare Exemption is that the property be used exclusively for a qualifying exempt purpose. The California Supreme Court, in Cedars of Lebanon Hospital v. Los Angeles County (1950) 35 Cal.2d 729, held that “used exclusively” doesn’t require a literal reading demanding the property serve only the stated purpose to the total exclusion of anything else. Instead, the exemption extends to any use that’s incidental to and reasonably necessary for accomplishing the exempt purpose.
So a nonprofit that doesn’t own the solar system, and instead allows an installer to place it on the property to generate electricity for the nonprofit’s own use, doesn’t lose exemption on any portion of the property — including the area the system occupies. That use isn’t inconsistent with the nonprofit’s exempt purpose.
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Disclaimer: Every situation is different and particular facts may vary thereby changing or altering a possible course of action or conclusion. The information contained herein is intended to be general in nature as laws vary between federal, state, counties, and municipalities and therefore may not apply to any given matter. This information is not intended to be legal advice or relied upon as a legal opinion, course of action, accounting, tax or other professional service. You should consult the proper legal or professional advisor knowledgeable in the area that pertains to your particular situation.
