In addition to the generous federal investment tax credit of 30%, there are over 900 financial and regulatory incentive programs for solar photovoltaic (PV) systems across the United States. While going solar is still a big decision with a pretty hefty price tag, it’s becoming more and more affordable, depending on where you live.
Solar costs have been falling (by more than 55% since 2009), and more and more states and municipalities are implementing incentive programs to encourage the switch to solar. Moreover, as electricity prices continue to rise in most parts of the U.S., installing solar panels is an investment that reaps even greater rewards.
Federal Investment Tax Credit (ITC)
The solar investment tax credit (ITC) is a 30% federal tax credit for solar energy systems, both residential and commercial. Originally set to expire at the end of 2016, the tax credit has been extended and will remain at the 30% level through 2017, 2018 and 2019 and then be phased out completely over the following three years, falling to 26% in 2020, 22% in 2021 and to 10% in 2022.
There is no cap on the maximum amount of the credit. If the tax credit is more than your tax liability in the year you install the system, you can carry forward the excess amount and use it in the future. Allowable expenditures include equipment costs and labor costs for assembly, installation, preparation, and interconnection.
The tax credit applies to installations on both principal residences and second homes (even an RV or a boat can qualify as long as they are considered as a second home according to the rules of IRS).
Net metering is an example of a regulatory incentive for homeowners with grid-connected systems that allows you to buy electricity from the grid when you are not producing enough solar electricity and to sell your excess electricity to the grid for a credit.
In most states, you are credited for your excess electricity at the retail rate. However, recent policy changes in Nevada have resulted in a significant disincentive where solar electricity generators are only compensated for their extra electricity at the wholesale rate. After a considerable slow down in new solar system applications in that state, other jurisdictions are weighing the disadvantages of such a policy shift.
Many states have put their money where their mouth is, by implementing incentive programs that truly make solar energy a better investment than sticking with the status quo (i.e. the local utility). These solar tax credits, rebates and other financial incentives can make the difference between a state/city being at grid parity or not, where grid parity is defined as the point at which solar electricity is the same or cheaper than electricity from the utility, calculated over the lifetime of the panels (on average 25 years). Now let’s take a look at three example states to better understand some of the main types of solar incentives available to homeowners.
A great example is Louisiana: the state has the lowest average residential electricity prices across the U.S., yet because of the generous state tax credit for solar PV systems (up to $10,000), Louisiana is at grid parity, and solar panels will save most Louisiana residents money in the long run.
New Jersey makes solar energy more affordable for residents using other types of incentives. Along with other programs, they have implemented a sales tax exemption (currently 7%) for all solar energy equipment. They also have a Solar Renewable Energy Certificates (SRECs) program, whereby solar electricity producers receive certificates based on the amount of electricity produced which they then sell using New Jersey’s online marketplace for trading SRECs. These programs, in addition to others, have made New Jersey one of the top solar states in the U.S.
Residents of Iowa benefit from yet another type of incentive. In addition to a state tax credit of 18% (up to $5000), homeowners with solar PV systems can take advantage of a property tax exemption, whereby the market value added to a property by a solar energy system is exempt from the state’s property tax for five full assessment years.
These are just a few examples of the different types of incentives available in the U.S. to homeowners that make the switch to solar energy. These regulatory and financial mechanisms for making solar energy more affordable, while different from state to state, are all helping to increase the adoption of solar energy across the United States. For Canadian residents, there are also a number of solar incentives available.
While it’s great to have access to so many different programs, it’s not always easy for homeowners to find the information they need. In order to help you save time and money, we consolidated available programs by state. So, why not learn about the solar incentive programs available where you live?
Simone Garneau is the co-founder of Sunmetrix, an online consumer education website for residential solar energy. The goal of Sunmetrix is to help homeowners go solar and save money with our Solar Cashback Program. In addition to the 200+ articles about solar energy, Sunmetrix offers homeowners three main resources: a Consumer Report for solar energy, Discover to preview solar energy for your home, and GO, the only solar energy test drive experience. Read all of Simone’s MOTHER EARTH NEWS posts here.
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