The decision to go solar requires a significant upfront investment. Instead of utility customers renting their energy (and paying for it monthly), households with solar power essentially own their energy-generating capabilities. Federal, state, and regional government incentives for solar panels reduce the total cost, so it is critical to understand how they work.
These government incentives for solar panels commonly take the form of solar tax credits, rebates, and performance-based renewable energy incentives. In fact, they can reduce the total cost of a solar PV system by 30% to 50%. Understanding the local and federal government incentives for solar panels available to your potential customers can be invaluable during the sale process. Thus, providing accurate information can help turn leads into sales.
Government Incentives for Solar Panels
There are various solar panel incentive programs for residential and commercial projects.
Federal Investment Tax Credit (ITC) / Federal Solar Tax Credit
This is a dollar-for-dollar tax credit for federal income taxes owed to the federal government, and it can even come back in the form of a tax refund. Tax credits can be more valuable to the taxpayer than a tax dedication because instead of merely reducing the taxable income by a certain amount, they offset the amount owed. To qualify for the solar energy tax credit, the homeowner or business must have an adequate tax liability or appetite. Recommend customers speak with a tax expert to ensure they can utilize the tax credit.
The tax credit is 30% of the total system cost, including labor and materials, through the end of 2032. This government incentive for solar panels has helped promote growth across the PV industry.
To calculate the solar tax credit, multiply the total system cost by the credit percentage. Thus, a $15,000 solar energy system is eligible for a $4,500 tax credit ($15,000 x .30 = $4,500). This incentive lowers the total system cost to $10,500.
To qualify for this government incentive for solar panels, the taxpayer must own the solar system. Thus, leased solar systems do not qualify. Off-grid and grid-tied solar power systems with batteries are also eligible. The home can either be a primary residence or a vacation property.
State-Level Government Incentives for Solar Panels
State incentive programs vary considerably and are nonexistent in many states. In many cases, utility or state rebates are available on a first-come, first-served basis, while funds last. In other states, the incentive is in the form of a tax credit, like the federal solar tax credit, except the amount varies by state. Some states or utilities may have incentives specifically intended for low-income residents.
It is essential to know if state-level government incentives exist for solar panels in your area and understand how your customer could qualify. Sometimes, the solar installer will need NABCEP certification to participate. The DSIRE database of state incentives is a great place to learn about local government incentives for solar panels. In addition, most states offer net metering, allowing customers to get credits on their utility bills for excess power they supply to the utility grid.
Let’s explore a couple of the state-specific government incentives for solar panels.
California Solar Rebates
To increase the deployment of solar batteries, California’s Self-Generation Incentive Program (SGIP) rewards households with solar panels and battery storage together. The exact solar rebate varies by the utility company and solar battery capacity.
New York Solar Panel Incentives
The state offers a 25% income tax credit for residential solar systems on primary residences up to $5,000. To qualify for the credit, the homeowner must either purchase or lease solar energy equipment or enter into a Power Purchase Agreement for at least ten years.
Also, residential and small commercial installations may be eligible for the Sun MegaWatt Block program. Project funding varies depending on the solar system capacity and applies a dollar-per-watt ($/W) format until the program reaches its full capacity and the state phases it out.
Oregon Solar + Storage Rebate Program
This government incentive for solar panels is administered by the Oregon Department of Energy and offers rebates for solar electric systems and paired solar and storage systems for residential customers. Homeowners can receive up to a $5,000 solar panel rebate and an additional $2,500 solar battery. Low to moderate-income households qualify for $1.80 per watt of installed solar capacity, further enhancing the affordability of renewable energy solutions.
Solar Renewable Energy Certificates (SRECs)
Some states have renewable portfolio standards and must generate or procure a certain amount of renewable energy. Often, utilities purchase SRECs to comply with clean energy standards. For every 1,000 kilowatt-hour (kWh) of solar electricity generated, an SREC is issued. The exact SREC generation process varies by region and market. The SRECs are registered and tracked in an electronic registry, often administered by a regulatory body or a third-party organization.
SRECs can be bought and sold in a marketplace, typically through auctions or bilateral contracts. The value of this solar panel incentive can vary depending on factors like market demand, state regulations, and renewable energy goals. Because the solar renewable energy credit market varies by state, so does the price of the credits, and many states do not utilize this approach.
In some states, selling these certificates can bring in hundreds or even thousands of dollars in income each year, making it a popular solar panel incentive. Some of the leading states for SRECs are Illinois, Ohio, Pennslyvania, Virginia, Maryland, Massachusetts, and Delaware.
Performance-Based Incentives (PBIs)
These incentives compensate solar system owners for a fixed price per kilowatt-hour produced. Therefore, the incentive is tied to the production of the solar panel system. PBIs work differently than SRECs because they aren’t sold through a market, and the compensation rates are determined when the solar electric system is installed.
Solar Tax Exemptions
Numerous states have created solar panel incentive programs that offer sales tax or property tax exemptions. Some states even offer both types of tax exemptions as government incentives for solar panels.
Solar Property Tax Exemptions
Installing solar panels on a home will likely raise its property value because homes with dramatically lower utility bills are attractive to home shoppers. However, 36 states have created property tax exemptions from the added home value the solar panels provide. The details of this solar panel incentive vary by the state or even municipality.
Solar Sales Tax Exemption
A solar sales tax exemption is a benefit offered by 25 states in the US, excluding or reducing state sales tax on the purchase of solar energy systems. This incentive aims to lower the upfront costs of installing solar energy systems, making renewable energy more financially accessible for individuals and businesses. The exemption varies by state and may apply to the retail sale and installation of solar energy devices, ultimately promoting the adoption of solar power.
Net Metering & Solar Buyback Programs
Net metering and solar buyback programs are utility-run initiatives that allow customers with solar systems to sell excess energy back to the grid, usually in exchange for bill credits. While these programs are not direct government incentives for solar panels, they are often influenced by state policies or mandates encouraging renewable energy integration. By making solar installations more financially attractive, these utility programs play a key role in supporting clean energy adoption without direct government funding.
Programs like Direct Energy Solar Buyback, Green Mountain Energy Buyback, and Chariot Energy Solar Buyback offer customers the option to earn credits for excess solar energy sent back to the grid. However, programs like Direct Energy Solar Buyback, Green Mountain Energy Buyback, and Chariot Energy Solar Buyback are typically available in states with deregulated energy markets.
Government Incentives for Solar Panels For Businesses
Many businesses that install solar panels can benefit from a variety of solar incentives. Like residential solar, companies can take advantage of the federal tax credit. In addition, companies can also get a tax write-off (Modified Accelerated Cost-Recovery System, or MACRS) or bonus depreciation for solar equipment.
With MACRS, the value of the depreciation is calculated by taking the depreciation amount multiplied by the business tax rate. Refer to the 5-year MACRS depreciation schedule by the IRS to determine the portion of the solar system that can be deducted in a given year. With bonus depreciation, businesses can apply 100% depreciation for the cost of a solar PV system in year one, instead of spreading it out over 6 years.
FAQs on Government Incentives for Solar Panels
Many solar shoppers will have questions related to the solar incentives and rebates.
What types of government incentives for solar panels are available?
Incentives for solar panels range from federal tax credits that reduce upfront costs, to state rebates offering direct savings, to property tax exemptions and performance-based incentives. The DSIRE database is an excellent resource for finding available regional incentives.
How can clients qualify for solar panel incentives and rebates?
Your residential customers should complete and submit IRS Form 5695 with their federal tax return to apply for the federal solar tax credit. Homeowners and businesses must have an adequate tax appetite to take advantage of the credit and fulfill all the requirements.
Recommend that your solar clients speak with a tax expert to ensure they qualify. Solar companies should not give financial or tax advice unless they specialize in this area.
How do clients apply for government incentives for solar panels?
Because there are various solar incentives, how to apply for them varies by program. Federal tax incentives are offered through the IRS. Some local utility companies and states offer their own programs, so we recommend visiting your utility company’s website for more application details.
Government Incentives for Solar Panels Promote Renewable Energy Adoption
It’s essential to be familiar with the solar PV incentives in your area. Remember that the qualifications and availability of funds are often changing, so conducting timely research is the best way to stay current.
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