Incentives for renewable power development are reducing electricity costs and carbon emissions for homeowners across the US.
Depending on where you live, there may be any number of rebates, tax credits, and other incentives to reduce the cost of solar panels at home. If you’re looking to save some money with solar power, you can maximize your investment by exploring all the incentives available to reduce your costs and boost your savings.
In this guide for homeowners, we walk through predominant renewable energy policies in the US, explore ways to reduce the total costs of solar energy systems, and show you how to discover the programs or financial incentives available in your area.
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Major Incentives for Solar and Storage
By some measures, solar is the cheapest form of new electricity in history and is dominating new investments in the renewable energy sector. Last year, the US produced more solar power than ever before, enough to electrify over 22 million American homes.
This sustained growth is thanks to falling costs and federal and local efforts to promote solar. Beyond financing programs designed specifically for low-income households, most solar incentives fall into one of the following categories.
- Tax incentives: Some of the upfront costs of going solar can be recovered by reducing the federal or state income taxes you owe after your renewable energy system is installed.
- Rebates: Rebates for solar are more likely to be available at the city or utility level and often promote the adoption of solar energy battery storage systems.
- Net metering and performance-based incentives: These incentives may help you earn electricity bill credits or even direct payments for the energy your system produces and shares with the grid.
By combining tax incentives, rebates, and utility programs for renewable energy systems, you can reduce the upfront costs, speed up your solar payback period, and further boost your system's long-term financial benefits.
Here are four key policy incentives for renewable energy projects that every homeowner should know when going solar today.
1. The Federal Solar Investment Tax Credit
The Federal Solar Investment Tax Credit (ITC), recently extended by the Inflation Reduction Act and now known as the Residential Clean Energy Credit (RCEC), can return a portion of the installation cost to you when you file your taxes.
Here are a few of the most important aspects of the Residential Clean Energy Credit.
- Tax credit is worth up to 30% of total project costs, including parts, labor, permitting, and overhead. If your renewable energy installation costs $35,000, you may be eligible for a federal income tax credit worth up to $10,500.
- To be eligible for the RCEC, you must purchase and own your solar energy system and live on the property where it is installed.
- Taxpayers must include Form 5695 with their filing for the year the solar energy system is completed. If tax credit values exceed federal income liability, the RCEC can be rolled over to future years.
Unless the credit is renewed, solar projects completed in 2033 will be eligible for a 26% credit and systems completed in 2034 will receive a 22% credit before the program expires in 2035.
Credit: SEIA
2. State and Local Solar Incentives and Rebates
There are a few primary state and local programs to investigate.
If you are not sure where to start, ask a local solar expert for some guidance, or refer to local government resources (state, county, city, etc.) to locate any financial incentives available in your area. The Database of State Incentives for Renewables & Efficiency from the North Carolina Clean Energy Technology Center is one of the most comprehensive resources available for renewable energy programs in the US, though, as always, you should confirm the incentives are still active and apply to you.
State income tax credits for solar installation costs
Much like the federal tax credit, state solar income tax credits might be available to you. While state-sponsored solar income tax credits are somewhat rare and vary in value, several states do offer solar tax credits, including Arizona, New Mexico, New York, Massachusetts, South Carolina, and Utah.
Sales tax exemptions for renewable energy sources
According to the Solar Energy Industries Association (SEIA), 25 states maintain policies that exempt solar energy systems from sales taxation.
Property tax exemptions for renewable energy sources
Many studies have shown that paid-off solar panels on your roof can increase your home's value. Therefore, to avoid higher property taxes after a solar installation, many states have policies that exempt renewable energy technologies from increasing property value when property taxes are calculated.
Local programs for renewable energy projects
Many communities and utility companies offer one-time rebates and ongoing programs for solar-powered systems to promote renewable energy technologies, reduce greenhouse gas emissions, and improve local air quality.
Although there are too many homeowner-focused local programs to mention in one blog post—which is great—both Fort Collins, Colorado, and Dunedin, Florida, are local incentive leaders.
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3. Net Metering Policies: Earning Credits for Surplus Energy
Net metering policies have been the hero of the early solar industry. While some states are stepping back from them, they still play a key role.
Utilities that offer net metering programs for home solar compensate homeowners for the excess electricity generated by their panels and shared with the grid.
How net energy metering policies work
Net energy metering (NEM) policies dictate the rates at which utility companies compensate solar producers for renewable energy shared with the grid, often called feed-in tariffs.
State utility commissions typically set or approve net metering policies, which vary in structure and value across the country and between utilities.
Though policies are subject to change, 34 states, Washington D.C., and Puerto Rico, maintain mandatory net metering requirements for investor-owned energy utilities in 2024.
Let's look at how a net metering policy works on a very basic level.
Say your solar panels produce 1000 kilowatt-hours (kWh) of electricity in August, but you only use 800 kWh that month.
Your excess energy (200 kWh) would be credited to your September electricity bills at a rate in your utility’s net metering policy. Under true net metering, each extra kWh you send to the grid would offset one kWh you would buy from your utility.
Where net metering is available, many homeowners design renewable energy systems to produce enough solar electricity to meet the property's approximate annual energy demand.
NEM 3.0 and net billing policies
The state of California has long been recognized as a leader in the US solar industry, though its departure from a traditional net metering policy has left some homeowners wondering if there is still value in a renewable energy investment.
Nicknamed NEM 3.0, California's major power utilities shifted to new net billing policies in 2023, which compensate solar energy producers for power shared with the grid at a lower avoided-cost rate.
By reducing the value of energy Californians return to the grid, NEM 3.0 and net billing programs incentivize homeowners to invest in a system with integrated solar energy storage where they can keep more of their free solar energy for themselves. Although the incentive is weaker, it's still possible to save money with solar in California, especially with an attached battery.
4. Renewable Energy Production and Performance-Based Incentives
Unlike net metering or net billing, which can reduce utility electricity expenses, some performance-based incentives for solar energy system owners can practically convert sunlight into cold hard cash.
Only available in a few select states, there are several performance-based incentives that will pay solar producers for the electricity their system exports with direct deposit payments, at low rates per kWh. Similarly, you can still sell solar renewable energy credits, the environmental benefit of your solar energy, in a few states (Illinois is a big one). Performance based incentives and renewable energy credits are getting fewer and farther between.
Battery owners may be able to join a virtual power plant or demand response program, where they’re compensated for sending some of their stored energy back to the grid. With a battery and smart energy controls, homeowners can store their renewable energy production as needed and make timely grid exports for maximum financial returns.
These programs are likely getting more common as the grid becomes more distributed and reliability becomes more of a concern.
Maximizing Your Incentives for Renewable Energy Sources
Before going solar, consult with an expert to ensure your solar system can deliver maximum home energy savings. A knowledgeable solar professional can walk you through federal incentives and programs in your area to reduce the upfront costs of solar, tailor your solar panel system design to maximum savings, and recommend a fitting financing or leasing option, if appropriate.
The Financial Benefits of Solar Energy Incentives
Alongside slowly lowering prices and energy efficiency increases in solar equipment over the last 15 years, energy policy incentives have made solar panels financially feasible for millions of American homeowners.
For the fun of it, let's look at how a single homeowner in Concord, Massachusetts, could benefit from three separate energy policies that make solar not only feasible but well worth the investment.
- With no cap, the 30% RCEC is an extremely valuable tax incentive for most Americans. Though not everyone will qualify, it is available nationwide.
- This homeowner may also qualify for the Massachusetts solar income tax credit worth up to $1,000.
- Even further, a program offered by the Concord Municipal Light Plant could land this homeowner a one-time rebate worth up to $3,125, based on the size of this installation. (Rebates generally must be applied before calculating tax credits, but check with your tax professional.)
The Environmental Impact of Solar Energy Policy Incentives
With so much talk about solar savings, it can be easy to forget that most energy policy incentives have environmental objectives guided by state or local renewable portfolio standards.
Let's look at the carbon offset of a typical single-family home replacing fossil fuels with solar.
- Let's say your panels produce enough solar power to cover your annual household energy demand, around the US average of 10,791 kWh.
- In this scenario, your solar panels may produce greater than 200,000 kWh during their multi-decade lifespan. According to the EPA, this represents the equivalent of approximately 140 metric tons of carbon dioxide avoided.
- Therefore, a single homeowner going solar avoids the emissions of approximately 150,000 pounds of coal (about 3/4 of a railcar) or the carbon sequestered by 160 acres of US forests in a year.
How Changes in Energy Policies Affect Solar Savings
Federal incentives have played an enormous role in the development of renewable energy resources, especially in making solar panel systems more affordable for homeowners.
However, federal policies alone are not always enough to make solar worth it when state-level policy, like a lack of net metering or net billing program, can make it hard for homeowners to recoup their investment.
While the solar energy industry continues to mature and develop, nationwide, national, regional, and local policies are always subject to change. For a discussion of up-to-date energy policy incentives in your area, contact a Palmetto solar advisor anytime.
Key Concepts and How to Get Started
Renewable energy policies have fueled the tremendous growth of residential solar power and homeowner savings over the last few decades.
From federal solar tax credits to utility net metering policies and performance-based programs, solar energy system owners have a variety of avenues to reduce the upfront costs of renewable energy and earn maximum long-term financial benefits.
You can’t secure long-term savings without starting with a quality solar installation. If you’re looking to go solar with a knowledgeable solar guide by your side, reach out to Palmetto today or use our solar calculator to see how much you can save.
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Disclaimer: This content is for educational purposes only. Palmetto does not provide tax, legal, or accounting advice. Please consult your own tax, legal, and accounting advisors.
Estimated system costs include installation - the Federal Investment Tax Credit is calculated as a percentage of those costs. Estimated savings assume eligibility and application of the Federal Investment Tax Credit. Site improvements, such as a main panel upgrade or roof replacement, may be required at an additional cost. We will assess this need during your site survey and outline any additional costs before signing your contract.
Brian ChurchWriterBrian is a writer, NABCEP PV associate and outdoor enthusiast living in Denver, Colorado. As a freelancer, Brian has written hundreds of articles to help individuals, businesses and our planet benefit from solar power and sustainable energy systems.
