Incentives like solar rebates, tax credits, and low-interest loans can drastically reduce your solar costs
States, local governments, and utilities offer a huge variety of financial incentives – from lump-sum solar rebates to SREC markets to property tax exemptions. And all these different incentives are designed to encourage homeowners and businesses to install solar panels.
Solar energy isn’t just good for the environment and your bank account. Installing solar also helps build a new local industry, so it’s great for your city’s and state’s economies as well. Local governments, seeing all the benefits solar, wind, and other renewables can bring, offer all these incentives to help drop the cost of solar.
But as the solar industry has matured and installation costs have decreased over the last decade, many of these incentives have already phased out. But there are still hundreds of rebates and other incentives available around the country.
Let’s take a look at the solar incentives that are still available as of December 2019.
Across the country, cities, counties, and utilities offer upfront, cash rebates to homeowners installing solar. Like any solar incentive, these rebates are designed to help decrease the cost of going solar, thereby encouraging more homeowners to install, which helps reduce environmental pressure and build a new local industry.
Many of these rebates programs began when solar panels cost far more than they do today. In 2010, for example, installing solar cost over $7 per watt, but today that cost has dropped to just $3.
As installation costs fall and more homeowners can afford to install solar without any discounts, pretty much all of these rebates are designed to phase out. As such, compared to just a few years ago, there are very few cash rebates available as of late 2019.
According to NC State’s Database of State Incentives for Renewables & Efficiency – the de facto official database of solar and efficiency programs – there are still 70 rebate programs for residential solar across the country, the majority of which are hosted by small, rural electric cooperatives or municipal utilities.
If you’re a member of one of these organizations, you’re in luck! Most homeowners are customers of large privately-owned utilities like northern California’s PG&E, whose solar rebate programs have already expired.
Here’s a brief sample of the kinds of rebates that are still available:
- City of Aspen in Colorado offers rebates of $0.75 per watt for residential solar, with a max of $2,250.
- City of San Francisco offers $100 per kW, with a maximum incentive of $400.
- Colorado Springs Utilities offers rebates of $0.20 per watt for residential solar between 500 and 10,000 watts. For an average 7,000 watt installation, that equals a $1,400 rebate.
- Rochester Public Utilities in Minnesota offers $0.50 per watt for residential solar, up to $5,000
Your installer will be well aware of the incentives available in your area, from city and utility rebates to net metering and the federal tax credit. Most installers will also help you apply or apply on your behalf for cash rebates from the city or utility.
Federal and State Tax Incentives
Rebates aren’t the only incentives available to homeowners installing solar. The federal tax credit is one of the biggest solar incentives available today and any homeowner that purchases and installs a solar installation on their roof is eligible.
As of 2019, the federal tax credit is equal to 30% of the cost of your installation, with no maximum amount. So if you paid $20,000 for your installation, you’d be eligible for a $6,000 credit on your federal income tax. That’s a major discount on your installation costs and can shorten your payback period on your solar installation by four years or more!
As a non-refundable credit, you need to make sure your tax liability is high enough to take full advantage. If you don’t owe enough in a single year, you’re allowed to break the full amount into smaller chunks and claim a portion each year. Talk to your installer and tax specialist before making any decisions.
The credit is set to begin its phase-out at the end of 2019. In 2021, it drops to 26%. In 2021, it drops to 23%. After that, it’s toast!
The feds aren’t the only ones that offer income tax credits for rooftop solar. Seven states also offer solar tax credits, including:
- Arizona: 25% of installation cost ($1,000 max)
- Hawaii: 35% of installation cost ($5,000 max)
- Iowa: 15% of installation cost ($5,000 max)
- Massachusetts: 15% of installation cost ($1,000 max)
- Montana: 100% of installation cost ($1,000 max)
- New York: 25% of installation cost ($5,000 max)
- Utah: 25% ($1,200 max before 2021, $800 before 2021, $400 before 2021)
Because these taxes credits don’t affect your initial purchase price, they typically don’t affect each other. In other words, you can take advantage of both the federal tax credit as well as your state’s individual solar tax credit without negatively affecting either.
You’ll apply for the tax credit during the tax season directly after your installation is complete. So while your installer will typically help you apply for any instant utility rebates or net metering programs, you’ll have to apply for all the tax credits yourself. Don’t worry though, it’s pretty easy!
Solar Renewable Energy Credits (SRECs)
If you live in a state with an SREC market, you’re in luck – that’s just another way to make some extra cash from your solar installation.
Twenty-nine states have adopted legislation called Renewable Portfolio Standards, which requires utilities to source a certain percentage of all the electricity they sell from renewable sources like wind and solar. Some states have gone even further, passing solar carve-out regulations, which require utilities to source a percentage of all electricity specifically from solar. New Jersey, for example, requires 5.1% of all electricity sales to come from solar by 2021.
To meet these solar carve-out mandates, utilities can purchase Solar Renewable Energy Credits (SRECs) to show they’re complying. All solar installations produce SRECs, which are simply certificates that guarantee that the electricity produced comes from a solar installation. One megawatt-hour of electricity is equal to 1 SREC. The average solar installation produces about 10,800 kWh per year, so that’s about 11 SRECs per year for the average solar installation.
Six states have an open SREC market, where homeowners (including you!) and businesses can sell their SRECs. Utilities then purchase these SRECs within the SREC market to comply with solar carve-out regulations. As an open market, the value of the SREC depends on local market conditions. if it’s oversaturated, prices go down. If there’s high demand, prices go up.
The top SREC markets are found in Washington DC, Massachusetts, and New Jersey, where demand is high and SREC prices are far above any other state. Here’s the full list of the six states with an active SREC market, as well as the latest SREC bid price (as of December 2019):
- Maryland: $73 per SREC
- Massachusetts: $312 per SREC
- New Jersey: $225 per SREC
- Ohio: $7 per SREC
- Pennsylvania: $40 per SREC
- Washington DC: $430 per SREC
New Jersey boasts the largest SREC market in the US and throughout 2019 prices hovered around $230 per SREC – which equals $0.23 per kWh of solar electricity produced. For an average system that produces about 10,800 kWh a year, that’s equal to about $2,500/year.
Other SREC markets aren’t so lucrative. The markets in both Pennsylvania and Ohio are extremely oversaturated, so prices are far lower than in New Jersey. In Pennsylvania, SREC prices hover around $30 in 2019, which is equivalent to $0.03 per kWh and about $325 per year for an average installation size.
That pales when compared to New Jersey or Washington DC, but any payment is money in the bank, so even $300 is better than simply turning your SRECs over to your utility with no compensation or simply letting them sit unused.
States have also set up penalties, known as Solar Alternative Compliance Payments (SACP), for utilities that don’t meet SREC mandates. These SACPs are typically very high, so utilities actually benefit from buying your SRECs, which are cheaper than the SACPs. For example, New Jersey’s SACP in 2019 is $268, while SRECs are trading at $225.
Performance-based incentives (known as PBIs) are another type of incentive, similar to cash rebates discussed above, that utilities can offer solar homeowners or businesses. Unlike a cash rebate in which your utility gives you a lump sum at the time of installation, performance-based incentives are handed out slowly over several years, based on the amount of electricity your system produces (hence the name).
Generally, utilities offer PBIs as payment for use of your RECs to meet their state’s Renewable Energy Standard (see the section on SREC markets above for more details on this). PBIs are typically a $/kWh incentive and can range from less $0.01/kWh up to $0.09/kWh or more. Programs typically last about 10 years.
According to NC State’s Database of State Incentives for Renewables & Efficiency, there are currently 22 PBI programs across the US. Here’s a brief smattering of what you can expect:
- Tennessee Valley Authority runs the Green Power Providers program. In North Carolina, TVA will pay customers $0.09 per kWh (for systems under 10kW, which includes most residential systems) for all electricity over a 20-year period. The electricity produced goes to TVA’s Green Power Switch program, in which non-solar customers can pay extra to know their electricity comes from renewable sources.
- PNM in New Mexico will pay $0.0025 per kWh (yes, that’s 2/10 of a penny) for all solar electricity over 8 years. For an average system, that’s equal to about $30 per year, and $270 total.
- Solar Massachusetts Renewable Target (SMART) Program began in 2018, when the state met its SREC goals (see section above for info on SREC markets). Under this PBI program, over 10 years homeowners receive incentives for each kilowatt-hour of electricity they produce. The exact value depends on the utility and the point at which you join the program, as incentives decrease as more participants join.
If your utility offers a PBI program, you’re certainly lucky, so take advantage!
Sales and Property Tax Exemptions
Tax credits aren’t the only mechanism that states use to encourage homeowners to install solar. Many states also offer both sales and property tax exemptions for solar installations.
Sales tax exemptions are either based on the entire installation cost or just the equipment costs, depending on the state. An average solar installation costs $21,000 and the average state sales tax in the US is 5.5%, so you could save $1,050 just by taking advantage of this exemption.
About 20 states offer sales tax exemptions for solar installations. Here’s a couple examples just so you know what to expect:
- Arizona offers a 100% exemption on state sales tax for all solar equipment and installation costs, with no maximum amount. To be eligible for this incentive, installers must register with the Arizona Department of Revenue beforehand.
- Minnesota offers a 100% sales tax exemption for solar, as well as solar hot water. The homeowner must complete all forms for the Minnesota Department of Revenue, and the installer must keep the form on file for tax purposes.
States also offer property tax exemptions on the additional value a solar installation adds to your property. In a 2015 study of home values both with and without solar, researchers at the Lawrence Berkeley National Lab found that in the eight states studied, solar panels added a premium of $4/watt to the value of the home. At that rate, an average 7,000 watt installation then could potentially add $28,000 to your home value!
Of course, the flip side to this is that your property taxes increase. However, you’re in luck, as many states offer an exemption on those additional property taxes as a way to further encourage adoption of renewable energy.
Here’s two examples of property tax exemptions:
- New Jersey offers a 100% exemption on the additional property value a solar installation adds. Homeowners apply for a certificate from a local assessor that reduces the value of the home to what it would be without solar panels.
- Colorado also offers a 100% exemption of property taxes for solar installations. Systems must be owned by the homeowner, so leases aren’t eligible.
With New Jersey’s extremely-high property tax of 2.44%, you’re potentially knocking about $680 off your annual property tax in your first year alone! Colorado homeowners enjoy much lower property taxes around 0.55%, but can still save about $155 in the first year.
If your state offers a property tax exemption on solar installations, be sure to ask your installer so you can take the right steps to take advantage!
Some cities and utilities also offer low-interest loans to help homeowners and businesses install solar. These special solar loans generally have lower interest rates than you’d find at the bank, so it pays to see if your utility or city offers one.
Here’s a few examples to get an idea of what’s out there:
- Hamilton County, OH offers special loans with interest rates at 3% below market rate for a variety of renewable and energy efficiency technologies, including solar, wind, high-efficiency AC, building insulation, and windows. Loan terms are five years, with a max of $50,000.
- Clark Public Utilities in Washington offers 5- to 7-year loans for solar and solar hot water at 3.5% interest rate. The max loan amount is $10,000 for hot water and pool heaters, and $30,000 for solar panels.
- Santee Cooper Electric Coop in South Carolina offers variable rate loans (2.75% as of December 2019) for solar panels. The max loan amount is $40,000 with repayment terms up to 10 years.
Loans of course add an additional expense to your installation, so your lifetime solar savings will be lower than if you paid in cash upfront. If you’re determined to finance via a loan, a low interest loan like those above can help save you thousands of dollars, thereby shortening the payback period on your solar installation by a few years and increasing your total savings.
Your installer might not be aware of all the loan options in your area, so be sure to call your city and utility to see if any special programs are available. If none exist, call up a few local credit unions as well, as often times they’ll also offer loans for solar with a good interest rate.
All the incentives above can lower your total investment to install solar. This in turn shortens your payback period and increases your overall solar savings. In some areas, it’s possible to take advantage of multiple incentives – whether they’re solar rebates, tax credits, exemptions, or an SREC market – so talk to your installer so you know exactly what’s available in your area.
Image Source: Public domain via Pixabay