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 $5,200 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
On April 14, 2023, California’s net metering program will be replaced with net billing. Net energy metering (NEM) is a type of billing setup that allows solar owners to earn credits from their utility provider for the excess solar energy their panels add to the grid. Because this electricity offsets what the utility would need to create or purchase themselves, they typically credit the homeowner’s utility bill generally at or around the retail rate of about 30 cents/kWh—the price at which customers pay for electricity. These credits can then be used to offset the electricity that solar owners use from the grid when the sun isn’t shining.
Net billing is similar but compensates homeowners differently. Rather than crediting homeowners at the retail rate, net billing compensates homeowners at the avoided-cost rate—or price the utility would otherwise pay to produce the same power itself, or to purchase it from a power plant. In California, the avoided-cost rate is on average 75% lower than the average retail rate.
Customers who submitted an error-free interconnection application (i.e. official permission from their utility to connect their solar system to the electricity grid) by April 13, 2023, will have up to three years to install their system and be grandfathered into the old rate structure. Any and all new applications received after April 13 will be eligible for the state of California’s net billing program.
To take advantage of NEM 2.0 savings, calculate your home’s solar potential and confirm your information to receive a risk-free, competitive quote that includes a preliminary system design. Get started today →
H2: How Net Metering in California Works
While net billing is a bit more complicated, the essence of how each work is relatively straightforward. With net billing and net metering you’re only billed your net usage: The difference between the total energy your solar system produces and the total energy your home consumes.
Net metering is available in the three large investor-owned utility companies in California:
- Pacific Gas & Electric (PG&E)
- Southern California Edison (SCE)
- San Diego Gas & Electric (SDG&E)
This program will be replaced in April 2023 with net billing. Find more information on how net billing works at: How California’s New Policy (NEM 3.0) Impacts Future Solar Owners
The California Plity Commission governs PG&E, SCE, and SDG&E. 2.0 program (the one being retired) provides customers with the full retail rate for their energy exported to the grid, but there are a few stipulations you should consider:
- You must pay a one-time interconnection fee - It’s $75-$145, depending on the utility.
- You must pay the non-bypassable charges - These charges fund low-income, energy efficiency, and other similar programs.
- You must transfer to time-of-use (TOU) energy rates - This step is required if you want to participate in net metering. 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 market 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. However, the value of the credit depends on the policies set by the municipal utility company or electric cooperative’s governing board.
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.
