How to save (or even earn) money with solar tax credits and other incentives

Federal solar tax credit

If you’re a homeowner and you own the solar energy system on your roof, you likely qualify for the Residential Renewable Energy Tax Credit, thanks to your solar power. This tax credit is often referred to as the Solar Investment Tax Credit (ITC) which was first introduced in 2005 and originally planned to expire in 2007. Congress has since extended the credit through 2023 for residential systems! A solar tax credit directly reduces to your total tax liability at the end of the year. If your federal tax liability does not meet the value of the solar tax credit, it will roll over to the following year. This is not to be confused with a deduction which reduces the income amount used to calculate your tax due.

The solar tax credit currently equals 26 percent of the cost to install your solar energy system.1 The qualified costs includes labor, assembly or original system installation, and wiring to connect the system to your home. For most, that translates to 26 percent of the entire cost of the rooftop solar system! To get the full 26 percent tax credit though, you need to have your system installed and operational no later than December 31, 2022. If you decide to get solar after that date, you can still qualify for a credit before 2023 but the government is phasing the amount credit down so you’ll get a little bit less:

To apply for the solar tax credit, file tax form 5695 with your tax return.2 There’s no maximum on the credit and if the value of your credit is more than you owe in taxes for the year, you can carry the balance forward and use it next year.

To find out which solar incentives are available to you, visit your state’s .gov website and your utility company for the most up-to-date information. Many of the locally sponsored solar perks have date and system requirements, so you’ll want to fully understand your area’s specifics, which may change at any time.

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Solar income through SREC markets

OK, let’s cover this complex incentive in more detail. If you live in an area where Solar Renewable Energy Certificates (SRECs) are traded, you can generate ongoing income with your solar panels. Literally making money while you sleep! (Well, if you sleep during daylight.) Just what is an SREC? We already mentioned it’s a bit complex, but we’ll break it down for you. First, a few terms:

  • Renewable Portfolio Standard (RPS): A state regulation specifying how much of a utility’s electricity must come from renewable resources. More than half of the states in the US have an RPS.

  • Renewable Energy Certificates (RECs): To track how much renewable electricity comes from which source, a REC is issued when one megawatt-hour of electricity is delivered to the grid from a renewable energy resource. Utilities can generate their own RECs or purchase them from others to meet an RPS.

  • Solar Renewable Energy Certificates (SRECs): In some states with an RPS, a portion of the renewably sourced electricity must come specifically from solar power - a provision called a solar carve-out. An SREC, then, is exactly what it sounds like - a REC specifically generated by solar power. For every megawatt-hour of solar electricity delivered to the grid, one SREC is issued.

  • Alternative Compliance Payment (ACP): the penalty utility companies must pay if they fall short of the RPS. The ACP sets the ceiling for SREC value and usually declines each year.

Now that you understand the alphabet soup, it’s fairly simple to understand SRECs. If you live in a state that issues and tracks SRECs and you are generating solar electricity, you will be issued corresponding SRECs. You can trade your SRECs in a marketplace - market value ranges widely but bid prices in Massachusetts in 2017 were more than $250/SREC.6 The market value per SREC will vary over time based on each state’s solar carve-out and ACP as well as the number of new solar energy systems installed.

Check here to see if your state has an SREC market.

Net metering and savings for non-buyers

Many utilities also offer something called net metering, which essentially means you get credit for electricity you generate and send to the grid. The specifics for net metering programs will vary by state and utility, so be sure to check your utility’s website for the most up-to-date information in your area. Read our post about how net metering works to learn more about the specifics.

Interested in solar panels but not sure you want to own your system? Not to worry, there are several other ways to save money with solar, including leasing your energy system or taking advantage of a Solar PPA. No matter how you get solar panels, you can expect to save money by generating your own electricity and you’ll be eligible for net metering, where available. Some of the other incentives we explained may also be available in your area through a Solar Lease or PPA. You can explore different solar panel plans here to find out how to get solar panels for your home with no cost to install.

Happy savings!



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