Sunlight is free, but being able to harness that energy to power your home can come at a cost. That’s why the federal, state, and local governments have financial incentives available to those who want to invest in a solar energy system for their homes. As a solar energy company, we want to help homeowners better understand the various tax credits and rebates available across the U.S.—including the Texas solar incentives.
Home solar panels can save money by offsetting the amount of power you need to purchase from the electricity grid. Plus, rebates can lower the initial investment so that homeowners can recoup their upfront cost and start saving money more quickly. If you’re thinking about going solar, this article will guide you through the various incentives that can help you get the most out of your investment in clean solar.
Available Tax Incentives, Credits, and Rebates in Texas
In Texas, there is no statewide solar rebate program or state tax credit. However, numerous other incentives can help you lower the cost of solar at both the federal and utility levels. While this isn’t an exhaustive list of incentives, we’ve featured the most common and well-known Texas solar incentives that might be available to you in 2021.
Federal Solar Investment Tax Credit
The Federal Solar Investment Tax Credit—otherwise known as the ITC—allows you to deduct up to 26% of the cost of installing your residential solar power system from your federal taxes. So, what does that mean exactly?
At Palmetto, we like to think of the ITC as a coupon for 26% off your home solar installation that’s funded by the federal government. For example, if your solar installation costs $20,000, you could theoretically receive $5,200 back in federal tax credits, which you could then use to reduce your federal income tax owed in the year you installed your solar panels. In other words, the ITC can significantly reduce or even eliminate the federal taxes that you would have otherwise owed to the government.
If you do not have federal tax liability in the year the solar system is installed, you can claim the credit when you do have tax liability for up to 5 years. Note, however, not everyone is eligible to qualify for the ITC. Check with your tax professional for more information.
Property Tax Exemption for Renewable Energy Systems
Texans who install a solar- or wind-powered device to produce energy for their residence or place of business are entitled to exempt the amount of value the device contributes to their property. While anything with “exemption” or “credit” or “refund” sounds amazing, what does that mean in terms of your solar energy system?
For solar owners, this exemption means that anyone who installs solar panels on their property doesn’t have to pay taxes in an amount equivalent to the property value increase as a result of adding solar. 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. We think it’s a great benefit, especially for homeowners who need a larger system to offset their electricity usage.
Local Utility Company Solar Rebates
As we mentioned above, Texas does not have a statewide rebate program that compensates you for going solar. Instead, several utility companies offer rebate programs for going solar in their area. Solar photovoltaic (PV) systems and other small-scale electricity generators help offset the amount of electricity that utilities need to produce, transmit, and purchase from elsewhere.
Here are some examples of utilities and cities offering solar rebate programs in Texas:
- Austin Energy
- CPS Energy (San Antonio)
- Coserv Electric
- City of Sunset Valley
- City of San Marcos
- United Cooperative Services
Net Metering Programs
Unlike some states, Texas does not have a statewide net metering program in place. This unique billing mechanism credits solar homeowners for the extra electricity their solar power system generates and adds to the electric grid. With net energy metering, you are billed for the "net" energy used: The difference between the total energy your solar power system produced and the total energy consumed by your home.
Your electricity meter keeps track of the excess power fed to the grid. It also measures the power drawn from the grid when your home needs more electricity than your solar panels can produce (like at night or on a cloudy day). Comparing these amounts gives you the net energy usage.
While many utility companies and retail electricity providers across the state offer net metering (also called solar buyback programs), not all of them do. Texas homeowners serviced by Transmission and Distribution utilities can leverage Palmetto’s partnership with MP2 Energy (A Shell Energy Company) for competitive electricity rates and solar credits.
In deregulated areas of Texas, utility companies are referred to as a Transmission Distribution Utility, or TDU. The TDU delivers the electricity to your home through the poles and wires, but generation and billing happens with competitive electric suppliers known as Retail Energy Providers or “REPs”. TDU customers of Oncor, Centerpoint, AEP, and TNMP can leverage Palmetto’s partnership with MP2 Energy, a Retail Energy Provider, to receive a bill credit when exporting excess solar to the grid.
If you are serviced by an electric cooperative or municipal utility, then you are unable to choose an electric supplier like MP2 Energy. However, most cooperatives and municipal utilities offer fair solar net metering programs.
Take Advantage of Texas Solar Incentives While They Still Last
Here’s the twist: these financial incentives may not be around for much longer. For example, the ITC—created in 2005 by the Energy Policy Act—was originally set to expire just two years later in 2007. Thankfully, the ITC has been extended for more than a decade.
In 2015, Congress voted to phase out the solar tax credit, beginning in 2020, reducing the tax credit from 30% down to 26% for residential solar power systems. As part of this vote, the ITC rate was scheduled to drop from 26% to 22% in 2021. In late 2020, the COVID relief bill was passed, and it included a two-year ITC extension.
Currently, the 26% ITC rate will be available in 2021 and 2022, before dropping to 22% in 2023.
Starting in 2024, the federal tax credit for residential solar systems will go away entirely, and there will only be a small 10% tax credit available for commercial solar installations.
- 26% - Projects that finish construction by 2022
- 22% - Projects that finish construction by 2023
- 0% - Projects that finish construction in 2024 or later
There’s always a chance that Congress passes a bill and decides to extend the ITC once more. As it stands, the ITC will expire after 2023, so homeowners shouldn't wait to install solar panels.
Consider Palmetto as Your Solar Energy Company
As a company on a mission to halt climate change and expand access to clean energy for everyone, Palmetto wants to help as many people as we can go solar and reduce their carbon footprint. We invite you to join us on our journey by installing a solar panel system on your Texas home.
Get started today with an instant quote and savings estimate from Palmetto, and learn more about how the solar power federal tax credit can help reduce your out-of-pocket expenses. It’s time to take advantage of the federal tax credit, as well as the other Texas solar incentives that your local government and utility may offer.