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Your Guide to California Solar Incentives in 2023

April 14, 2023
PalmettoPalmetto
California solar incentives

California’s known for more than just its sunny beaches, giant redwoods, and Hollywood. The Golden State repeatedly ranks first in the nation for its solar power generation, largely thanks to the robust incentives, tax credits, and rebates available to California residents.

As a leading solar energy company operating in California, we are experts in helping people understand how solar incentives can make it more affordable to go solar. Although this post doesn’t cover every single rebate available, it will explain the most popular ones you may be eligible to receive.

If you’re interested in solar energy for your home, keep reading to learn how to get the most out of your investment in clean energy. 

Available Solar Rebates, Tax Credits, and Incentives in California

From federal tax credits to local rebates from your utility company, here are the most popular solar incentives available to California residents in 2023. (Note: Your eligibility can depend on your location, electric utility provider, income level, interest in battery storage, and more. This article is not tax advice; you should always consult a tax professional.)

1. Residential Clean Energy Credit

Most California residents are eligible to receive the Residential Clean Energy Credit—formerly known as the Investment Tax Credit or ITC. Enacted in 2005 by the Energy Policy Act, the ITC was renewed and renamed in 2022 through the Inflation Reduction Act, restoring the full original value of the tax credit to 30% (from 26%) until 2032.

The Residential Clean Energy Credit allows eligible homeowners to deduct up to 30% of the cost of their solar power system from their federal income taxes. It can be easier to think of the Residential Clean Energy Credit as a coupon from the federal government offering 30% off your home solar installation. For example:

  • Your solar installation costs $20,000.
  • You could be eligible to receive up to $6,000 back in federal tax credits.
  • This money can then be used to reduce your federal income tax owed for the tax year you installed your solar photovoltaic (PV) system.

The value of the Residential Clean Energy Credit’s full value will remain at 30% before beginning the following phased step down:

  • 30% - Projects that finish construction between 2022 and 2032
  • 26% - Projects that finish construction in 2033
  • 22% - Projects that finish construction in 2034
  • 0% - Projects that finish construction in 2035 or later

It’s important to remember that the credit value is based on the total cost of the system and the year when the system was installed. Tax credits are also just that: Credits. The Residential Clean Energy Credit is not a rebate or a discount and cannot be applied directly toward a solar loan. Solar owners will need to apply and claim the credit when filing federal income taxes and apply the total value of those savings toward their solar loan (if applicable) as a 30% balloon payment or payments prior to the loan recasting. 

Further reading: Why Solar Loans Reamortize in Month 19

2. Disadvantaged Communities Single-Family Affordable Solar Homes (DAC-SASH) Program

To increase the adoption of renewable energy in disadvantaged communities, California created the Disadvantaged Communities Single-family Affordable Solar Homes. Also known as DAC-SASH, this state program provides qualified homeowners with fixed, upfront, capacity-based incentives that can help offset the cost of a solar energy system.

The DAC-SASH program offers up to $3 per watt to eligible homeowners. Per the California Public Utilities Commission, homeowners must meet the following terms to be eligible for the incentive:

  • Own and live in their home
  • Receive electrical service from Pacific Gas & Electric (PG&E), Southern California Edison (SCE), or San Diego Gas & Electric (SDG&E)
  • Enrolled or eligible for CARE or FERA income-qualified utility bill programs
  • Property is in a disadvantaged community (DAC) qualified area

If you think you could qualify for the DAC-SASH program, visit the GRID Alternatives website.

3. Solar Energy System Property Tax Exclusion

In California, people who install a solar- or wind-powered device to produce energy for their residence or place of business are entitled to an exemption for the amount of value the device contributes to their property. This essentially means anyone who installs solar panels or other solar-powered devices on their property is exempt from paying property taxes equivalent to the property value increase as a result of adding said system until 2025.

It’s a win-win: your solar system could increase the value of your home and you don’t have to pay property taxes on it. This incentive is a great benefit, especially for people who require a larger system to offset their electricity usage.

4. Net Metering and Net Billing Programs

In California, solar owners are invited to participate in unique bill credit programs called net billing or, in some cases, net energy metering. Net billing and net metering are types of billing setups that allow solar owners to earn credits on their electricity bill in exchange for the excess solar energy their panels generate and add to the grid. These credits can then be used to offset the electricity that solar owners use from the grid when the sun isn’t shining. 

California currently has three versions of net metering or billing: NEM 1.0, 2.0, and 3.0. As of today, new customers in PG&E, SCE, and SDG&E can only sign up for NEM 3.0—the state’s current bill credit program. 

  • NEM 1.0 began in 1996 and was California’s first net metering program. Customers received the full retail rate—or the price at which customers pay for electricity—for any excess solar sent to the grid. The policy has since been phased out, and only customers who went solar under this program may continue receiving these credits. 
  • NEM 2.0 replaced 1.0 in 2017, offering slightly less than the retail rate for excess solar energy and requiring customers to switch to time-of-use energy plans. This policy has also been phased out as of 2023, and only customers who went solar under this program may continue receiving these credits. 
  • NEM 3.0 is the current policy and credits homeowners’ excess solar exported to the utility grid at the avoided cost rate—or the price a customer’s utility provider would otherwise pay to produce the same power itself or purchase from a power plant.

How Net Billing (NEM 3.0) in California Works

As a solar owner with net billing, the electricity your panels produce will first power your home and avoid the need to purchase electricity from your utility provider. What your home doesn’t immediately use will either 1) get stored in a solar battery, if you purchase one, or 2) be added to the grid as part of the greater electricity mix. 

Your utility company will track how much energy you consume and how much you share with the grid—the latter will be credited to your account at the hourly avoided cost rate. The avoided-cost rate changes every hour but tends to average around 4 to 8 cents/kWh. 

Net billing is available in the three large investor-owned utility companies in California, that are governed by the California Public Utility Commission (CPUC):

  • Pacific Gas & Electric (PG&E)
  • Southern California Edison (SCE)
  • San Diego Gas & Electric (SDG&E)

Under NEM 3.0, you must transfer to differentiated time-of-use (TOU) energy rates—also called electrification rates. You can learn more about TOU rates here. At the end of your 12-month billing period, you will be compensated for it at “fair market value” if you have any surplus credits on your account. Known as net surplus compensation (NSC), this rate changes based on the 12-month rolling average of the wholesale rate for electricity. You can find that historical data on your utility’s website.

Municipalities and other electric cooperatives, such as the Los Angeles Department of Water and Power (LADWP), also provide net metering credits to residential solar owners in their territories. The value of the credit depends on the policies set by the municipal utility company or electric cooperative’s governing board. LADWP currently provides 1-to-1 net metering credits at the same value they charge you for consuming electricity.

5. Equity fund

A major critique of California’s historical net metering programs was that they disproportionately benefited higher-income households. In 2022, new equity incentive funding of $630 million was passed under Assembly Bill 209 to support clean energy storage incentives for low-income Californians under the Self-Generation Incentive Program (SGIP). In this case, low income is defined as those enrolled in California’s CARE/FERA program, Disadvantaged Communities, and CA Tribal communities. 

Under the new net billing program, NEM 3.0, individuals within these communities are eligible to receive greater net billing credits, and customers enrolled in CARE or FERA programs can receive a discount of approximately 35% off their electric bill for CARE and approximately 18% for FERA. 

Consider Palmetto as Your California Solar Energy Company

As a company on a mission to halt climate change and expand access to clean energy for everyone, Palmetto is eager to help as many people as we can go solar and reduce their carbon footprint. And we invite you to join us on our journey by installing solar panels on your home.

If you’re interested in learning more about going solar in California, check out our Guide to Solar Panels in California.

Ready to go solar? Get started today with a savings estimate from Palmetto to learn more about how the solar federal tax credit and California incentives can help reduce your out-of-pocket expenses. Now is the time for you to take advantage of the California solar incentives that your state and local governments and utility company may have to offer!

Disclaimer: This content is for informational purposes only. All content mentioned does not constitute professional advice and is not guaranteed to be accurate, complete, reliable, current, or error-free. Palmetto does not provide tax, legal, or accounting advice. Please consult your own tax, legal, and accounting advisors.

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