Guide to Government Incentives and Programs for Solar Energy

Solar power represents one of the most abundant and accessible sources of clean energy available today. However, the upfront costs of installing solar panel systems can be prohibitively expensive for many households and businesses. Fortunately, federal, state, and local governments offer a range of incentives and programs aimed at accelerating the adoption of solar energy. This guide explores the types of solar incentives available and provides actionable steps for leveraging these programs to make solar power more affordable and attainable.

Overview of Government Solar Incentives

Governments recognize the environmental, economic, and energy security benefits of renewable power sources like solar. Financial incentives that reduce installation costs are among the most impactful policy tools for catalyzing widespread adoption of solar energy. The federal government, along with many state and local authorities, offers a mix of rebates, tax credits, and performance-based incentives to offset the upfront costs of going solar. These measures make solar power more accessible to homeowners, businesses, farms, schools and nonprofits.

The Database of State Incentives for Renewables & Efficiency provides a comprehensive overview of available renewable energy incentives across all 50 states. This U.S. Department of Energy-funded initiative documents federal and state policies including solar rebates and grants, net metering, tax credits, and performance-based incentives. Checking the database is the first step to identify and leverage the full range of solar incentives for your particular state and situation.

Types of Solar Incentives

Federal Solar Tax Credits – The federal solar Investment Tax Credit (ITC) remains one of the most significant incentives, providing tax credits equal to 22% of the cost of installing a solar energy system for homeowners in 2022. This credit drops to 26% in 2023 before phasing out entirely in 2024 for residential projects. Commercial and utility-scale projects can claim a 10% solar ITC indefinitely. The tax credit significantly offsets the initial financial outlay for solar installation.
State Tax Incentives – Many states offer additional solar tax credits and property tax exemptions beyond the federal ITC. State income tax credits can cover up to 50% of installation costs. Property tax exemptions remove any added tax for the increased property value from adding solar panels.
Solar Rebates – Local utilities and nonprofits often administer solar rebate programs that provide upfront discounts on residential and commercial solar installations. Rebates typically range from $500 – $5000. State governments and municipal utilities offer additional solar rebates in many locations.
Performance-Based Incentives – Also called Renewable Energy Credits (RECs), Solar Renewable Energy Certificates (SRECs) and Feed-in Tariffs, these programs provide ongoing payments based on the amount of solar energy generated. REC payments help offset a system’s costs over time.
Low-Interest Financing – Some states sponsor low-interest loan programs for installing solar panels and energy efficiency upgrades. These financing tools make projects more affordable by reducing borrowing costs.
Net Metering – Net metering policies allow grid-connected solar panel owners to feed excess energy back to the utility grid. This offsets electricity drawn from the grid when solar panels aren’t actively generating power. Credits roll over month-to-month in many cases. Net metering exchanges solar power for retail-rate bill credits.

Federal Solar Incentives and Programs

The federal government provides foundational solar incentives, including tax credits, grants and loan guarantees, that spur solar adoption across all 50 states. It also directly funds solar initiatives through several key agencies and programs.

Investment Tax Credit (ITC)

The federal solar Investment Tax Credit (ITC) allows taxpayers to deduct 26% of installed costs for residential solar systems and 22% for commercial projects from their federal taxes in 2022. This credit will fall to 22% for residential and 10% for commercial solar projects in 2023 before phasing out for homeowners in 2024. The credit has stimulated massive solar growth since implementation in 2006. Homeowners who owe less in taxes than the credit amount can carry forward the balance to claim in future tax years.

USDA Rural Energy for America (REAP) Grants

The Rural Energy for America Program (REAP) offers guaranteed loan financing and grant funding to agricultural producers and rural small businesses for renewable energy systems like solar panels. Grant amounts up to 25% of project costs help lower out-of-pocket expenses. REAP prioritizes underserved communities with access barriers.

Department of Energy Solar Energy Technologies Office (SETO)

The DOE Solar Energy Technologies Office (SETO) investigates innovations to improve solar performance and cost-competitiveness through grants, partnerships and R&D initiatives. SETO spearheads the DOE Solar Decathlon, an international collegiate competition pushing solar houses and products.

FEMP Assistance on Federal Renewable Energy PPAs

The DOE Federal Energy Management Program (FEMP) provides technical assistance on Power Purchase Agreements (PPAs) for federal agencies pursuing on-site renewable energy projects like solar panel installations. PPAs allow federal entities to buy solar energy from third-party system owners with no upfront capital costs.

State and Local Solar Incentives

Beyond federal policies, many state and local authorities offer substantial incentives that reduce the net cost of going solar for residents and businesses. Opportunities can vary greatly depending on your location and utility provider. Consult the DSIRE database and your state or utility website to identify the full mix of solar incentives accessible to you.

State Tax Credits and Rebates

Over 25 states enact personal and/or corporate income tax credits for installing renewable systems like solar panels. For example, New York’s solar tax credit returns 25% of system costs up to $5,000 for residential installations. Some states like Arizona and Louisiana also exempt solar panels from sales tax.

Check your state department of revenue to determine eligibility for state solar tax credits and exemptions. Your state likely also sponsors supplementary rebate programs. For instance, the California Solar Initiative offers rebates up to $3,200 for new home solar installations. Other states like Massachusetts, New Jersey and Maryland sponsor similar rebate programs.

Net Metering Policies

43 states and Washington D.C. have mandated net metering laws requiring utility companies to credit residential and commercial solar customers for surplus power fed into the grid. This enables solar panel owners to offset their electricity bills through net metering credits.

Net metering policies, compensation rates, and eligibility terms vary by state. For example, Hawaii compensates excess solar energy at the retail electricity rate while South Dakota buys back at avoided-cost wholesale rates. Check your state public utility commission’s website for specifics on net metering programs available from your electric utility.

Low-Interest Solar Loans

Some states and municipalities provide low-interest loan programs to finance renewable energy projects. For example, the Michigan Save Green Project offers low-interest loans through participating credit unions. Illinois’s Solar and Wind Energy Revolving Loan Program provides below-market loans for small solar installations. Explore options through your state or local energy office.

How to Access Solar Incentives and Programs

Taking full advantage of the patchwork of federal, state, and local solar incentives involves research to identify your available options, evaluation to determine the most impactful programs, and meticulous completion of all application requirements. Follow these steps to successfully tap into solar incentives and minimize your out-of-pocket costs.

Research Solar Incentives Available

Consult the DSIRE incentives database filtered for your state and county to catalogue federal, state, and local solar programs.
Check your state and utility websites for additional rebates, tax credits, and low-interest financing not listed in DSIRE.
Look up federal incentives like the ITC, USDA REAP grants and FEMP PPAs for federal sites.
Read all terms carefully to determine eligibility based on your property, system details, income level, etc.

Evaluate the Cost Implications

Estimate how much each incentive would deduct from the total solar installation cost.
Factor available incentives into cost-benefit projections and ROI timelines.
Prioritize programs that offer the biggest savings on your specific system and situation.
For example, maximize the 26% federal ITC while available before it drops.

Submit Applications and Required Documentation

Follow all application procedures carefully, including forms, supporting materials, and deadlines.
Documentation varies but may include tax returns, income verification, site details, and system technical specifications.
Keep extensive records of your application process, submissions, and approvals.
Understand that approval timelines can range from weeks to months depending on the incentive.

Claim Incentives and Track Ongoing Value

Claim approved tax credits properly when filing your taxes. Consult a tax professional for guidance.
Maintain documentation on rebates and financing received.
Understand the ongoing value of incentives like net metering credits and SRECs.
Monitor performance to quantify savings compared to projections.
Follow up diligently on any missing approvals or incentive payments.

The Value of Solar Incentives

While solar power costs have dropped dramatically over the past decade, upfront installation expenses remain prohibitive for many. Federal, state and local solar incentives play a critical role in paving the way to widespread adoption by defraying these initial capital costs. Policy support enables more homeowners, businesses, schools, and communities to enjoy the benefits of solar energy while spurring marketplace growth, technical advances, and grid modernization.

Solar incentives can drive over 50% reductions in effective costs. As the world shifts to renewable energy, these incentives allow individuals to contribute meaningfully while achieving energy bill savings. Unlocking government support provides the power to embrace solar energy more rapidly and equitably. Harness the potential of the sun by researching and capturing the incentives available to you. The future is bright for solar energy as innovative policies align with accelerating technology improvements and cost declines.