Solar Incentives: Investing In A Brighter Future

Solar incentives are an excellent way to reduce the cost of investing in solar energy systems. The most prominent incentive is the federal solar Investment Tax Credit (ITC), which offers a reduction in taxes owed for installing a new solar energy system. This credit is available for both residential and commercial customers and applies to all three major types of solar technology: photovoltaic, solar heating and cooling, and concentrating solar technology. In addition to the ITC, there are also state, local, and utility incentives that can help reduce the cost of solar panels. These include rebates, tax credits, and renewable energy certificates. Net metering programs allow customers to sell excess solar electricity back to the grid, further reducing costs. With the high upfront costs of solar energy systems, these incentives can make investing in solar energy a more attractive option for homeowners and businesses.

Federal solar tax credit

The federal solar tax credit, commonly referred to as the investment tax credit or ITC, is a valuable incentive for homeowners and businesses alike. It allows you to claim a percentage of the cost of your solar energy system as a credit against your federal tax bill. This credit is a dollar-for-dollar reduction in your federal income tax liability, directly reducing what you owe in taxes. Importantly, there is no cap on the value or income limit for claiming this credit.

The ITC was set to expire in 2022, but was extended until 2034 as part of the Inflation Reduction Act. The percentage of the cost that can be claimed has also increased from 26% in 2020-2021 to 30% for installations between 2022 and 2032. This means that if it costs $10,000 to install your solar panel system, you will receive a $3,000 credit. The credit will remain at 30% until 2033, after which it will decrease to 26% in 2033 and 22% in 2034 before expiring in 2035 unless Congress renews it.

To be eligible for the federal solar tax credit, you must meet certain criteria. Firstly, your solar photovoltaic (PV) system must be installed between January 1, 2017, and December 31, 2034. Secondly, the system must be located at a residence in the United States, which can include a house, mobile home, houseboat, condominium, or cooperative apartment. Additionally, you must own the solar PV system, either through purchasing it with cash or financing it. Leasing the system or paying a solar company to purchase the electricity generated by the system disqualifies you from the credit. Finally, the system must be new or being used for the first time, as the credit only applies to the original installation.

When claiming the ITC, it is important to note that you must file for it during the year your system is installed and you receive permission to operate from your utility grid. You will need to fill out IRS Form 5695 and attach it to your federal tax return (Form 1040 or Form 1040NR). The ITC can be used against either your federal income tax or the alternative minimum tax.

In addition to the federal ITC, there are also various state-sponsored rebates and incentives that you can take advantage of, depending on your location. These include net metering credits, state tax credits, and payments from renewable energy certificates (SRECs). However, it is important to note that these incentives may impact your taxable income, so it is advisable to consult with a licensed tax professional when claiming these incentives.

State solar tax credits

• State tax credits for solar systems work similarly to the federal ITC. The credit amount is deducted from any state taxes owed, and it applies to the cost of the solar system and installation.
• State government rebates for solar energy are typically a set amount given to those who purchase a solar system or other qualifying technology, such as solar water heaters and solar batteries. These rebates are often available regardless of whether the homeowner owes federal taxes.
• Solar Renewable Energy Certificates (SRECs) are another state-level incentive. In states with SREC markets, homeowners and businesses can sell SRECs to utility companies to lower their energy costs. The value of SRECs varies by state and is determined by supply and demand.
• Local utility companies may also offer rebates for installing solar energy systems, and these subsidies are typically excluded from income taxes.
• Property tax exemptions are allowed in some states, where homeowners and businesses can exclude the increased value of their solar system when assessing property taxes.
• State tax credits can affect federal tax liability. Claiming a state tax credit may increase reported taxable income on federal taxes due to reduced state income tax deductions.
• It's important to note that state tax credits, like federal tax credits, are non-refundable. Any unused credit amount can be carried over to future tax bills.
• To claim a state tax credit, it's essential to file the initial claim in the same year the solar panels are installed.

Net metering

Benefits of net metering

• Converts Solar Generation Into Power Bill Savings: Net metering policies ensure you receive compensation for unused solar generation.
• Makes Home Solar Systems More Affordable: Since net metering uses the local grid as your “solar battery”, purchasing your own battery becomes optional. An energy storage system can double the cost of a solar installation in some cases, which means your payback period can become twice as long.
• Reduces Transmission Costs for Utility Companies: Home solar systems generate electricity at the point of use, meaning energy does not travel through power lines and substations before reaching your home. When one home has excess generation from a solar panel system, the power company can purchase that energy and resell it to neighboring homes without solar panels.

Limitations of net metering

• Some Utilities Offer Reduced Tariffs: Most net metering and solar buyback programs do not issue credit at the full retail rate of electricity.
• Credits Cannot Exceed Your Annual Consumption: Most net metering programs will not let you accumulate credits higher than your annual energy consumption.
• Net Metering Availability: There are still some parts of the U.S. where net metering is not available for solar panel owners, and storing excess energy in batteries is the only option.

Solar feed-in tariff

The feed-in tariff scheme (FITs) includes two separate tariffs: the generation tariff and the export tariff. The generation tariff is a rate paid for each unit of electricity generated, and the export tariff is a rate paid for each unit exported to the electricity grid.

The generation tariff depends on several factors, including the type of technology installed, its capacity, and the tariff period. For example, the higher rate tariff for solar panels with a capacity of less than 10 kilowatts and an eligibility date between 1 July and 30 September 2016 is 4.25p per kilowatt-hour.

The export tariff is paid for each excess unit of energy generated and exported back to the grid. Installations with an eligibility date on or before 31 March 2017 will earn 4.91p per kilowatt-hour. Energy suppliers estimate that 50% of the electricity generated is exported, or 75% for hydro installations. However, if you have a smart meter, the export tariff is based on the actual amount exported.

It's important to note that the Feed-in Tariff scheme closed to new applications on 31 March 2019 in the UK. However, if you already have an eligible installed system and are receiving FITs payments, you will continue to receive them.

Solar rebate programs

• Federal Investment Tax Credit (ITC): The ITC is a federal tax credit available to residents and businesses in the United States. It provides a 30% tax credit on the cost of a solar PV system until 2032. The credit will then decrease to 26% in 2033 and 22% in 2034 before expiring in 2035. The ITC can be claimed on federal income taxes and covers equipment, labor, and other project costs.
• State and Local Rebates: Many states, counties, and municipalities offer rebates and incentives for solar energy technologies. These rebates can come from state or local governments, utility companies, installers, or equipment manufacturers. The biggest rebates often come from local governments or utility companies and can provide savings of over $5,000.
• Installer and Manufacturer Rebates: Some installers offer seasonal rebates and promotions to encourage sales during slower periods. Equipment manufacturers may also offer rebates or promotions to make their products more attractive.
• Sales and Property Tax Exemptions: Some states exempt solar installations from sales and property taxes, reducing the overall cost of owning a solar energy system.
• Solar Renewable Energy Certificates (SRECs): In some states, homeowners can earn and sell SRECs for the electricity their solar system produces. The value of SRECs varies depending on supply and demand within the local marketplace.
• Performance-Based Incentives (PBIs): PBIs provide a flat-rate payout for every kilowatt-hour of solar energy generated. These incentives are governed by net metering agreements with utility companies.
• Subsidized Loans and Grants: Some states, non-profits, and utility companies offer grants or subsidized loans to make solar energy systems more affordable. Grants are typically awarded to lower-income individuals or larger-scale solar projects, while subsidized loans may have lower interest rates and longer repayment periods.

It's important to note that solar rebate programs can vary by state and utility company, and rebate levels may change frequently. Homeowners interested in taking advantage of solar rebate programs should research the specific incentives available in their area and stay up to date on any changes to those programs.

Frequently asked questions