Solar Incentives Definition:
Electricity consumers are offered financial incentives from federal, state, and local government to install solar systems. These financial policies are implemented to promote energy independence, job creation and carbon emission reduction.
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Breaking Down Solar Incentives:
Depending on the homeowner's location, various incentives are available. Federal incentives are available nationwide while state and local government have implemented a wide range of incentives for their constituents. Some utilities across the nation have also implemented their own incentives for their customers to acquire a solar system.
These incentives can come in the form of a discount on the system, a rebate that the homeowner files for post-install, or a tax break that they apply for during their annual tax filing. Depending on what's available, these incentives, rebates, and tax breaks can add up to saving a homeowner 30% to 50% on their solar system.
Federal Solar Incentives
Federal Solar Tax Credit: The federal solar tax credit gives you a dollar-for-dollar reduction against your federal income tax. Currently, the residential federal solar tax credit gives you a dollar-for-dollar reduction against your federal income tax equal to 26% of the final cost of solar energy systems you install on your home. This benefit exists through December 31, 2022. In 2023 the residential tax credit will step down step down to 22%. In 2024, the tax credit for residential solar ends.
State & Local Solar Incentives
State Tax Credits: Some states offer a similar tax credit as the federal solar tax credit. The homeowner can deduct a portion of the solar system cost from their state tax bill. The amount varies significantly by state.
Cash Rebates: Some states and municipalities offer a cash rebate on the installation of solar systems. They generally have a set amount that will be rebated for their region and therefore are available for a limited time. These rebates can help reduce the system cost by 10% to 20%.
Utility Solar Incentives
Solar Renewable Energy Certificates (SRECs): In some states, legislation has been passed to require utilities to have a certain percentage of their electricity be generated from solar power. If a homeowner with a solar system lives in one of these states, every megawatt hour of electricity produced is credited with an SREC. This can be sold on an open market where the utilities purchase it to meet their quota. This can result in savings of hundreds to thousands of dollars a year depending on SREC market price and how much excess energy the homeowner produces.
Net Energy Metering (NEM): A practice in which utilities credit you for the excess electricity generated by your solar panels. You can then draw upon these credits when your panels don’t produce enough electricity to match your use; most commonly in the night when the sun is down.
All of the financial benefits listed go to the owner of the solar system. If the homeowner buys the system with cash or a solar loan, they can take advantage of these benefits. If the system is third-party owned or is provided as solar as a service, the third-party owner will receive the benefits, usually passing down the savings to the homeowner.
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