Solar Incentives and Rebates

Solar Incentives, Grants and Rebates

Solar Incentives, Grants and Rebates

The upfront costs of purchasing solar panels can be a deal breaker for many people. However, as you look into the pricing options that are available to you, one thing you need to keep in mind is that you will likely qualify for solar incentives.

Solar incentives (also called solar rebates) help make purchasing solar panels more affordable. They exist in several forms and the specific incentives that are available to you will vary based on where you live and what you buy.

If you’d like to learn more about solar panel rebates, you’ve come to the right place. Keep reading to learn:

  • Why solar incentives exist
  • How solar rebates save you money
  • What types of solar panel rebates may be available to you
  • And everything else you need to know about solar incentives and rebates

Why solar incentives exist

Solar incentives exist because the government wants to encourage people to invest in solar panels. And one of the best ways to do that is by bringing the cost of residential solar systems down. Governments do achieve that by offering tax credits, rebates, and other types of incentives to people who invest in solar energy.

Types of solar incentives that may be available to you

There are lots of different incentives that you may qualify for by purchasing a new set of solar panels. This section will cover some of the most important of these.

Federal Investment Tax Credit (ITC)

The ITC is the most important solar incentive by far. It’s offered by the federal government and currently gives you back 26% of the price you paid for solar panels. Remember, this isn’t a tax deduction, but a credit.

This means that the amount you owe to the federal government in taxes the year that you purchase your solar panels will be reduced by 26% of your solar panel purchase price. You can even get a refund if you owe little enough on your taxes.

One important thing to note about the ITC is that it is on a declining scale. It will be 26% in 2021 and 2022. However, it will drop to 22% by 2023 and will expire altogether by 2024. It could be reintroduced at that point but new legislation would be required to do so.

State Solar Tax Credits

Many states also offer their own (typically smaller) versions of the ITC. The specific credits available vary significantly from state to state so be sure to do your research before buying.

DSIRE has a helpful tool that will tell you exactly which solar incentives are available in your state.

Solar Renewable Energy Certificates (SRECs)

SRECs exist in areas where utility companies are mandated to generate or procure a certain amount of solar energy. In these areas, homeowners with solar panels can sell their SRECs to the utility company so that they can meet their obligations. Just remember that you won’t benefit financially from SRECs until your system is installed and you begin producing solar power.

Cash Rebates

Depending on where you live, you may be eligible to receive upfront cash rebates for installing a residential solar system. These are becoming relatively rare as more and more people invest in solar. However, you may still be one of the lucky ones that qualify for a cash rebate so be sure to look into whether these are offered in your area.

How much you can save with solar rebates

The amount of money that you can save with solar rebates will depend heavily on the factors that make up your unique situation. But as a general rule of thumb, most homeowners who purchase a residential solar system can save somewhere between 26 and 50% with incentives.

However, you should know that many of the solar panel prices that you see online will already have the 26% ITC factored in. If that’s the case, then any additional savings from solar rebates will need to come from state incentives, cash rebates, or other local solar incentives.

Leasing and solar panel rebates

Unfortunately, you won’t get to enjoy any federal or state tax incentives for owning solar panels if you sign a lease. That’s because whoever owns the panels gets to enjoy the benefits of these incentives. So if you lease your residential solar system, then the company that manages that lease will get to enjoy the solar tax breaks itself.

What it takes to qualify for solar rebates and solar incentives

Most people who purchase a new residential solar system for their home will qualify for the federal solar tax credit. But if you’re unsure about whether you will qualify, these are the specific criteria that you need to meet:

  • You installed your solar system sometime between 01/01/2006 and 12/31/2023
  • Your solar system is located at your primary or secondary residence
  • You own the solar system yourself instead of leasing it or signing a PPA agreement
  • The solar system is brand new, not previously used

The criteria that you need to satisfy in order to qualify for state and local solar incentives will vary based on the requirements specified in the legislation.

How solar panel rebates impact your payback period

Solar panel incentives can significantly reduce the amount of time that it takes you to break even on your solar investment. They do so by reducing the amount of money that you spend purchasing your panels initially.

When your upfront purchase price for solar panels goes down, you need to save less on electricity to complete your solar payback period. Consider the following example.

In scenario A, let’s imagine that you don’t qualify for any solar incentives and you pay $25,000 for a brand new residential solar system. You would have to save $25,000 on your electricity bill before breaking even on your investment.

The average household spends around $1,400 on electricity each year. That means in this scenario, it would take you nearly 18 years to break even on your solar investment.

In scenario B, you qualify for state solar incentives and the ITC. This results in a net purchase price of $15,000 for your new system. Using the same math, we can see that you would only need to wait for about 10.7 years to complete your solar payback period.

Scenario B, in which you qualify for solar incentives, gives you an extra 7.3 years to use your solar panels after you’ve already broken even on them. That could equate to something like $10,000 in extra savings for you.

A final word on solar incentives and rebates

Solar incentives make it significantly more affordable to add solar panels to your home. As you shop for a residential solar system, it will be important to take into account exactly which federal, state, and local rebates you qualify for.

Keeping track of this information will help you accurately determine your solar payback period so that you can figure out the long-term returns that you can expect to get from an investment in a new solar system or solar battery storage system.

Matt Hope
Last Reviewed By: Matt Hope
Published: 2022-07-25