The decision to go solar involves a significant upfront investment, but instead of paying utility companies for energy, homeowners can own their own energy-generating capabilities. Federal, state, and regional solar incentives help reduce the overall cost, making it important to understand how these incentives work.
These solar incentives typically include solar tax credits, rebates, and performance-based renewable energy incentives, which can reduce the total cost of a solar PV system by 30% to 50%. However, with the new administration and Congress, there is concern that changes to the solar tax credit may be on the horizon. Knowing the local and federal solar incentives available can be a valuable selling point, as providing accurate information can help convert leads into sales.
Government Solar Incentives
There are various solar panel incentive programs for residential and commercial projects.
Federal Investment Tax Credit (ITC) / Federal Solar Tax Credit
The ITC, also known as the Federal Solar Tax Credit, provides a dollar-for-dollar tax credit for federal income taxes owed. This solar incentive can even result in a tax refund. Unlike tax deductions that simply lower taxable income, tax credits directly reduce the amount owed, making them more valuable. To qualify, homeowners or businesses must have sufficient tax liability. It’s recommended that customers consult with a tax expert to ensure they can fully utilize this solar incentive.
The tax credit covers 30% of the total system cost, including labor and materials, through the end of 2032. This government solar incentive has been instrumental in driving growth across the solar industry.
For example, a $15,000 solar system could qualify for a $4,500 tax credit, reducing the system's overall cost to $10,500. To qualify, the taxpayer must own the system, and both grid-tied and off-grid systems with batteries are eligible.
However, there is concern that these solar incentives may change under the new administration and Congress, making it even more important to act while the current incentives are in place.
State-Level Government Solar Incentives
State solar incentives vary greatly and may not be available in all states. Some states offer utility or state rebates on a first-come, first-served basis, while funds last. In other states, the incentive may come in the form of a tax credit, similar to the federal solar tax credit, though the amounts can differ. Certain states or utilities may offer solar incentives specifically for low-income residents.
It’s crucial to understand whether state-level solar incentives are available in your area and how your customer can qualify. Sometimes, solar installers may need NABCEP certification to participate. The DSIRE database is a helpful resource for finding local government incentives for solar panels.
California Solar Rebates
California’s Self-Generation Incentive Program (SGIP) encourages the use of solar batteries by offering rebates for households that install both solar panels and battery storage. The rebate amount varies based on the utility company and the capacity of the solar battery system.
New York Solar Incentives
The state offers a 25% income tax credit for residential solar systems on primary residences up to $5,000. To qualify for the credit, the homeowner must either purchase or lease solar energy equipment or enter into a Power Purchase Agreement for at least ten years.
NY Solar Tax Credit
Also, residential and small commercial installations may be eligible for the Sun MegaWatt Block program. Project funding varies depending on the solar system capacity and applies a dollar-per-watt ($/W) format until the program reaches its full capacity and the state phases it out.
NY-Sun Solar Incentive Program
The NY-Sun program offers additional solar incentives to make residential renewable energy more accessible. Through this program, residents can receive rebates that further reduce the upfront costs of solar installations. The exact rebate amount varies based on system size and location.
Property Tax Exemption
To encourage solar adoption without increasing property taxes, New York offers a property tax exemption for the added value of a solar energy system. This means that installing a solar system won't increase your property tax assessment, allowing clients to benefit from the energy savings without additional tax burdens.
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 Exemption Incentives
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 Solar Incentives
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 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 solar incentives?
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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