Solar Incentives and Rebates: Everything You Need To Know

Solar panel installation is associated with higher upfront costs, given that the average cost of a residential solar panel installation in the U.S. ranges between $15,000 to $25,000 before applying any tax credits or incentives. However, the local, state, and federal programs might differ according to your region, which can help to minimize the upfront costs.

Solar incentive programs can make the solar power system much more affordable, thereby increasing accessibility and saving you long-term. It includes a few popular schemes such as federal solar grant programs, state tax credits, solar panel rebates, performance-based incentives (PBIs), and local net metering. Additionally, you can find solar buyback programs, utility rebates, and feed-in tariffs under the utility company incentives. Whereas, the tax exemptions for solar installations include tax deductions, as well as on the property and sales tax.

Let’s explore the financial impact of different types of solar incentives and how to maximize the most out of them.

Types of Solar Incentives

Out of several types of solar incentives, a few main ones are listed below for your reference:

1. Federal Solar Tax Credits are one type of credit that be taken advantage of by federal income taxes for a percentage of a PV system’s cost paid by the taxpayer.
2. State Solar Tax Credits offer extra tax credits for installing a solar energy system that varies according to the state.
3. Net Energy Metering (NEM) allows you to sell additional electricity generated by solar panels back to the grid.
4. Solar Renewable Energy Credits (SRECs) are the certificates that convey the environmental benefits of generating solar power.
5. Solar Tax Exemptions include exemptions from property tax where the overall value of the solar system is not included in property tax.
6. Cash Rebates are offered by a few states, municipalities, and local utility companies for installing solar power systems, which can reduce the upfront costs of preferring solar.
7. Performance-based incentives (PBIs) are rewarding programs that pay you the amount based on the power generated by your solar energy system.

Federal Solar Incentives

The Federal Investment Tax Credit (ITC) is introduced to encourage installation and use of renewable energy systems. Using this credit, homeowners and business owners are eligible to qualify for installing the system from federal tax.

There are several benefits of ITC, such as:

1. Reduces the renewable energy system installation cost. This is because the tax credit makes up 26% of installation costs if you have installed systems in 2020 and 2021.
2. Highly versatile since it applies to various renewable energy systems such as solar panels, wind turbines, and geothermal systems.
3. In contrast to other types of solar tax credits, the ITC doesn’t have any limitations on the amount to be claimed. You can claim up to 26% of the overall investment as a tax credit regardless of your system cost if it is $10,000 or $1,000,000.
4. Residential and commercial property owners can have higher savings on utility bills and businesses without compromising on their aim to minimize their carbon footprint.

The potential changes to ITC in the future include:

1. Percentage Drop: The credit for solar energy systems is expected to drop from 26% for systems installed in 2033 and 22% for systems in 2034.

2. Regulations for inclusion of new technology: The proposed regulations include the newer qualifying technology that includes energy storage property and various others such as:

• Solar process heat equipment
• Fiber-optic solar energy property
• Electrochromic glass property
• Geothermal heat pump equipment
• Qualified biogas property
• Microgrid controllers

3. Shift Towards Clean Electricity Credits: Section 48E of the tax code states that the Inflation Reduction Act redirects ITC to the Clean Electricity Investment credit for projects implemented in operational service after 31st December 2024.

Grant Programs

Grants are financial assistance or awards provided by the government to support specific renewable energy projects and encourage the installation and usage of solar panels to generate electricity. Examples include Research and Development Grants, and the Community Development Block Grant (CDBG) Program.

The benefits of grants include:

• No Repayment required: Unlike loans, grants don’t require any repayment and prove to be a valuable source of funding.
• Credibility: Obtaining a government grant can increase the borrower’s credibility and help attract additional funding from various sources.
• No Limitations: There isn’t any limit for nonprofit groups to apply for a certain number of government grants.

In a subsidized loan, interests are fully or partially covered by a third party such as a government or non-profit organization. The main goal is to make the loans much more affordable for specific purposes such as education, housing, or small-scale business development. A few examples of subsidized loans include Clean Renewable Energy Bonds (CREBs) and Rural Energy for America Program (REAP) Loans.

The benefits of subsidized loans include:

• Instant Processing: Personal loans are processed faster and can be advantageous for those requiring short-term monetary support.
• No requirement for any collateral: Subsidized loans require a lot of paperwork, but they are offered without asking for any collateral.
• Flexible Repayment Options: Borrowers can alter monthly payments based on their income.
• Reasonable Interest Rates: As the government covers interest during specific months, the overall borrowing cost is lower compared to other loan types, which can increase borrower’s savings.

These are the following government agencies in the U.S. Departments of various fields that provide financial help to homeowners for solar system installation and take advantage of low energy costs:

• Energy
• Health and Human Services
• Housing and Urban Development
• Treasury
• Agriculture
• Transportation

State and Local Solar Incentive

State incentive programs for solar energy are the initiatives developed by state governments in the U.S. that offer numerous benefits to motivate users to prefer renewable energy at the most reasonable price.

Different types of state incentive programs include state tax credits, rebates, and Performance-Based Incentives (PBIs)

State Tax Credits

State-specific tax credits are the financial incentives provided by the state government to reduce the tax charged to individuals or businesses.

You need to know that the state tax credits don’t reduce the federal incentives. Upon receiving the state tax credit, the taxable income will be higher than its original value since the income tax is less to deduct.

Also, the state tax credits and federal incentives complement each other to reduce the financial burden on homeowners for installing solar energy systems. For example, if you purchase a solar power system in New York worth $25,000, then you will get 30% cash back as a federal tax credit of $7,500 and 25% return as a state tax credit up to $6,250. Also, the net cost would be reduced to $11,250, which is more than half of your investment you would gain back in the form of tax benefits.

Rebates

Rebates are one type of credit or cashback program offered by the state governments, manufacturers, and installers to reduce the purchasing cost, thereby making it easier to purchase new solar power systems.

A few important state and local rebate programs in the U.S. include:

• Home Energy Rebate Programs are offered by the U.S. Department of Energy (DOE) and include Home Efficiency Rebates and Home Electrification and Appliance Rebates. These rebates help to increase your savings in home improvement projects.
• New York State Energy Research and Development Authority (NYSERDA) assists New York state residents to attain their energy efficiency improvements for a more beneficial and comfortable home.
• California Solar Initiative (CSI) program provides rebates for solar power systems installations in homes and businesses in California.
• Massachusetts Clean Energy Center (MassCEC) is the rebate program for renewable energy system installations that includes solar, wind, and geothermal to motivate the adoption of clean energy technologies.

Performance-Based Incentives (PBIs)

Performance Based Incentives (PBIs) are the monetary payments made to solar system owners based on the electricity generated by the system. The PBIs are paid on accurate energy production over a certain period, which ranges up to six years upon the approval of system generation.

Solar Renewable Energy Credits (SREC) are transferable credits that represent the green value of the electricity generated and sold separately from the physical electrical energy produced by your solar panels. Typically, one SREC represents solar power produced per 1,000 kilowatt-hours (kWh).

The main difference between these two programs is that PBI offers incentives for electricity generated, whereas SREC focuses on environmental benefits by reducing emissions. However, PBIs don’t require to be sold through the market unlike the SRECs as the incentive rates are fixed when the system is manufactured, which can be implemented adhering to the net metering rules.

These are the main advantages of PBIs:

1. Accurate Valuation: PBIs are paid out on the exact energy produced by panels and provide an accurate estimation of the cost of solar to the grid.
2. Long-term financial benefits: PBIs can be used along with other solar incentives to maximize the financial return on investment (ROI).
3. Effective installations: Most importantly, the PBI encourages installers and system owners to prioritize correct installation methods, maintenance, and performance since the program is based on the system’s performance.

Similarly, the SREC benefits people in the following ways:

1. Budgeting: Selling SRECs at a fixed price provides you with an accurate estimation of your earnings in advance. Due to this assurance, you will be able to manage extra income and budget for other financial requirements.
2. Supports Renewable Energy Goals: The SRECs assist the state governments in satisfying their Renewable Energy Portfolio Standards (RPS), which require a specific percentage of energy from renewable sources.

Utility Company Incentives

The incentives provided by the utility company aim to lower the overall installation and maintenance costs of solar energy systems. These are the main programs that will be discussed in detail:

• Solar Buyback Programs
• Utility Rebates
• Feed-in Tariffs

Solar Buyback Programs

Solar Buyback Programs assist in selling extra energy back to the grid so that it becomes easier to offset solar panel installation costs and maintenance in the long run through the received credits or cash. These are the different buyback programs such as:

• Net Metering program: A billing system that offers credits to solar energy system homeowners for electricity added to the grid. Usually, the credits earned through Net Metering are offered at a retail rate.
• One-to-One Buyback Plans: You will receive credits for excess solar power produced at a retail rate.
• Partial Credit Buyback Plans: Compared to retail electricity rates, the energy credits are fixed either lower or higher than the regular price by not including parts used for transmission, distribution charges, and non-bypassable charges.
• Wholesale Rate Buyback Plans: These are the credits rewarded based on real-time pricing of electricity rates. As the rate fluctuates on an hourly basis depending on the supply and demand, an advanced meter is required for tracking production in real time.
• Zero Buyback Plans: Although the electricity rates are lower to partially substitute for no buyback plans, you won’t receive credits for exporting excess solar power to the grid.

The benefits of these programs include:

• Less dependence on energy: By participating in a solar buyback program, your dependence on conventional energy sources will be reduced to promote a highly sustainable future.
• Increased property value: As a first-time buyer, you will be aware of how much you can save when purchasing properties with solar panels integrated with a buyback plan.
• Reduces electricity bills: You can save money on your electricity bills as you are required to pay the difference amount between power consumption and feeding into the grid.

Utility Rebates

The main types of utility rebates provided by the companies for commercial and industrial buildings include:

• Service Incentives: The utility company pays directly to an engineering company or other service provider for offering their technical services that include retro-commissioning or energy reviews. Each utility provider offers unique incentive programs.
• Cash Rebates: The utility company provides rebates to professional building owners based on the energy value of setting up energy-efficient equipment and services.
• Prescriptive rebates: These incentives are fixed for certain dollar amounts and consist of installation and frequent replacements of approved energy-efficient equipment, including high-efficiency motors and drives. There isn’t any requirement for a pre-approval process until the incentive has exceeded the specified amount and can be used after installation.
• Custom utility rebates: These are rebates determined on power savings that must be measured and verified by the utility during pre-installation and post-installation.

Feed-in Tariffs

A Feed-in Tariff is a legal measure to supply renewable energy producers by paying them more than the market price for the power delivered to the grid. These rules are mainly developed to motivate people to invest in clean energy sources. The fixed price minimizes the risks and uncertainty linked with their latest renewable energy installations to encourage new suppliers to invest considerable funds.

The Feed-in Tariffs benefit solar panel owners in the below-mentioned ways:

• Increased Financial Savings: The feed-in tariffs not only reduce electricity costs but also create a consistent source of income to recoup your investments made in solar energy.
• Non-Reliance on Fossil Fuels: As per kilowatt-hour (kWh) of excess solar energy is fed back into the grid, the dependence on fossil fuels is reduced. This is because the Feed-in Tariffs benefit a smooth shift towards cleaner and long-term energy sources.
• Instant Payback Period: The combination of production and investment-based incentives can result in faster payback periods for the initial investment in solar power systems.

Tax Exemptions for Solar Installations

The solar tax exemptions such as sales and property along with tax deductions are suitable for individuals and companies that prefer installing solar energy systems on their property.

There are several benefits of tax exemptions such as:

1. Reduces Upfront Costs: You can save investment on purchasing and installing solar energy systems.
2. Increase in Home Value: Particularly, the selling value of homes in Texas is increased by 4.1% if installed with solar panels.
3. Solar Installations Highly Appealing: The impact of solar panels and tax exemptions in Texas consists of PV panels and solar thermal energy devices such as water and pool heaters. Mainly, this scheme contributes to a highly appealing solar installation process by eliminating financial complications on property taxes.

Sales Tax Exemptions

The sales tax exemptions in solar energy systems minimize upfront costs only if you reside in a state offering sales tax. As a result, you are required to pay sales tax ranging between 2.9% and 9.5% on overall installation cost.

These are the 15 states in the U.S. that offer sales tax exemptions in 2024:

1. Arizona
2. California
3. Colorado
4. Connecticut
5. Florida
6. Lowa
7. Maryland
8. Massachusetts
9. New Jersey
10. Rhode Island
11. New Mexico
12. New York
13. Tennessee
14. Vermont
15. Wisconsin

Property Tax Exemptions

Solar property tax exemptions mean that even if you install solar panels on your home, the added value doesn’t increase your property taxes. In simpler words, these exemptions help you avoid paying additional taxes due to the increase in the value of your property.

These are the 23 states in the U.S. that offer provides property tax exemptions:

1. Arizona
2. California
3. Colorado
4. Connecticut
5. Florida
6. Indiana
7. Lowa
8. Kansas
9. Louisiana
10. Maryland
11. Massachusetts
12. Michigan
13. Minnesota
14. Missouri
15. Montana
16. New Jersey
17. New Mexico
18. Oregon
19. Rhode Island
20. Texas
21. Vermont
22. Washington DC
23. Wisconsin

Solar Tax Deductions

Solar tax deductions are one type of financial incentive that permits homeowners and businesses to reduce their taxable income by spending an amount on installing solar energy systems. This credit is applicable for residential and commercial system owners until its availability up to 2032 and the deduction reduces the overall cost of preferring solar by lowering the amount of income tax owed.

These are the seven states in the U.S. that offer solar tax deductions:

1. New York
2. Idaho
3. Illinois
4. Maryland
5. Oregon
6. South Carolina
7. Texas

Financial Impact of Solar Incentives

Solar incentives can hugely affect the cost, return on investment (ROI), and payback period of solar panels and let’s take a detailed look at how these factors create an impact:

1. Cost: Incentives such as tax credits, rebates, and grants can considerably lower the initial investment of installing solar panels. For example, the federal investment tax credit allows homeowners to reduce 30% cost for an average system that costs $7,500 or more.

2. Return on Investment (ROI): For commercial solar installations, the ROI is determined by factors based on the upfront costs, energy savings, system configurations, equipment performance, and obtainable incentives from the government. A majority of solar panels in the US have an ROI of up to 10%, which means that the average profit will be $10 per $100 spent on the solar power system. Whereas, in a few cases, the ROI might be 20% or more.

3. Payback period of solar panels: The payback period is the duration to accumulate savings from solar panels to recoup initial investment.

Calculating the solar payback period involves a simple method by dividing the solar system installation cost by the savings amount per year. Let’s consider an easy example of an average solar system installation cost is $21,000 after incentives. Suppose, if you spend $3,000 per year or $250 per month, your average payback period will be 7 years.

How To Make The Most Out Of Solar Incentives?

Claiming rebates and credits can help reduce solar installation costs and motivate users to adopt renewable energy. Here are a few strategies that assist you on how to make the best possible use of incentive programs:

1. Research your opinion: It is recommended to review the incentives offered by your state and local governments. Several regions offer unique programs with the main goal of promoting renewable energy. You can use the reputed database such as DSIRE and filter out accordingly as energy suppliers and solar equipment manufacturers provide extra incentives.
2. Work with a qualified installer: Reputed installers with considerable experience know the rules and guidelines for different solar programs that can guide you throughout the process, ensuring to follow the regulations. Your solar provider can help handle the installation in the correct method and obtain the required permits so that you can qualify for financial incentives or rebates for installing solar panels.
3. Stacking incentives: To increase your savings, you can combine numerous incentives by checking out the rules for each program to confirm if they can be linked together. As a result, this approach not only reduces your cost of preferring solar but also promotes environmentally friendly practices to develop a greener future.
4. Maintain records and receipts: You need to manage all the paperwork such as receipts, invoices, and installation proofs to speed up the application process. It is important to maintain accurate records that help you prepare the required supporting information while submitting your application, thereby avoiding any delays and confirming a better professional record.