Rundown: Your Basic Solar Incentives

The driving factor behind the continuing surge in commercial and residential solar installations is lucrative solar incentives. At its core solar power is still quite expensive, due mainly to the high cost of solar panels. Yet, regardless of price, the need to implement clean, alternative energy sources is growing even faster than the industry itself. That is why many utilities, municipalities, states, and the federal government have stepped in to provide financial incentives for homeowners looking to make the switch from conventional, fossil-fueled energy. Unfortunately, while the vast majority of U.S. states have adopted solar rebates and incentives, they vary widely and can be complex and confusing. There are too many variations to explain in just one post, but I can give you a basic rundown of the incentives the average homeowner can expect when making the solar leap.

Federal Incentives

Thanks to an eleventh-hour renewal of federal solar tax credits, starting on New Year’s Day 2009, homeowners have at least one universal and substantial option available to them. Here is what to expect from the Feds over the next eight years (look for the Obama administration to juice up the pot even more!):

  • Solar PV Tax Credit. With the $2,000 cap removed, homeowners can now appreciate the full 30% tax credit on solar system equipment and installation. For a $40,000 photovoltaic system, you can expect to save $12,000 in tax credits. This is usually factored into financing options, a hefty gain over the maximum $2,000 credit of yesteryear.
  • Solar Thermal Hot Water Systems Credit. That 30% credit stands for solar hot water systems as well. Because SHW is much cheaper than PV systems, the difference between now and then is a tad more negligible (although it benefits co-ops and multi-family housing significantly), but still results in a good chunk of savings.

State Rebates and Incentives

Again, state incentives vary depending on where you live, but here are examples of what a good portion of states offer:

  • Rebates and Tax Credits. Many states offer rebates that are typically calculated based on system capacity or expected performance. The dollar amounts usually fall between $1.00 to $4.00 per watt with some maximum applied (25-50% on average). Therefore, a 4 kilowatt solar PV system at $2.00/watt will get you up to $8,000 in rebates or tax credits.
  • Property Tax Exemptions. Many states offer tax exemptions and, in the long run, are often the most lucrative of incentives. Most tax laws offer a 100% exemption from an increase in property taxes, regardless of how much value the solar system adds to your home. The excepted rule is that your property value increases $20 for every $1 of energy savings in the first year. So, if you save $500 a year on energy costs (a fairly average number), you home value increases $10,000.
  • Sales Tax Exemption. Considering the cost of solar equipment, an exemption from state sales and use tax can save a good grip on up-front expenditures.
  • Net Metering. Once your system is up and running, state net metering laws start having an immediate effect. Terms of these laws vary widely, so check with your state and utility for available options for you. Net metering will involve a bidirectional meter and essentially a trade system; the utility effectually buys excess power from you (during peak sunlight hours normally) and you buy from the utility at night, etc. At the end of the year all is tallied up and you either pay what you owe or the utility pays you. In some cases, net excess generation (NEG) is credited to the utility.


Many states have enacted renewable portfolio standards (RPS), which demand that utilities get a certain percentage of their electricity from renewable sources by a specific date in time. This motivates utilities to adopt incentive programs to meet these demands. Indeed, RPSs have been a huge incentive themselves in bringing down the cost of solar installations for homeowners across the country. The majority of utility programs resemble those described above. Check with your energy provider or at the Database of State Incentives for Renewable Energy (DSIRE) to see what options are available through your utility.

Posted on January 13 in Solar Information by .

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