Solar Tax Credits, Rebates, Loans, Leasing & PPA's

In the last decade, new financing options and tax deductions have made it easier to pay for a solar electric system. While the cost of PV panels and other equipment has decreased dramatically, credits and rebates from government agencies have mostly evaporated, though a few programs still remain available. You'll have to do a bit of research to figure out how much money you can get back, and then whether or not it's worth the long-term payback on your investment.

Blue Pacific Solar

Eligibility for credits also depends on where you live, who your utility company is, and how much money remains in the budget of the agency issuing the credit.

To achieve a shorter payback period, most homeowners opt for something less than a 100% offset of their grid electricity usage. This means buyng a less expensive PV array with fewer modules. It turns out that sizing your PV system to knock out only the higher tiers or peak electricity rates - while still paying for grid kilowatt hours at the cheaper baseline rate - yields a much higher return on your investment. Under this scenario, your solar kilowatt hours are worth more money.

Conversely, homeowners who think they might relocate 2-3 years down the road are generally discouraged from going solar. Whatever investment is outstanding at that time can be added to the home's listing price, but a $15,000 increase over the market rate may deter potential buyers.

CalFinder

Before going into more detail about various incentives and financing options, here are the main developments in solar financing introduced in the past decade:

Net Metering - This allows homeowners to get paid for their solar electricity at the same retail rate that the utililty company charges, even if it's a higher-tiered or peak-period rate. Understandably, the utilities object to net metering and in some states are lobbying the legisature to eliminate the program post haste.

Power Purchasing Agreement (PPA) - This arrangement allows banking institutions and other capitalized enterprises (like Google) to become your PV utility company. The third party pays for the equipment and installation service. Consequently, you must pay it for the solar kilowatt hours generated each month. PPA solar utilities insist their rates are less than your traditional utility company. However, on occasion the door-to-door PPA pitch tends to inflate the future cost of grid electricity. If you decide to go this route, the federal tax credit and state rebate (if any) will be collected by the company, not you. You'll find more info about PPA's on Page 2.

Energy Efficient Mortgage (EEM) - While low-interest loans for homeowners who undertake conservation measures (in effect, "going green") have been around a long time, banks now make larger sums available to cover PV installations. A conventional EEM is offered by banks and other lenders with a little help from Fannie Mae and Freddie Mac. You can borrow up to 15% of the home’s appraised value for improvements. The Federal Housing Authority (FHA) and Veteran's Administration offer a low-interest version of the EEM to applicants who meet their eligibility requirements. For more info, click here.

Federal HomeownerTax Credits - The federal residential solar energy credit i can be claimed on federal income taxes for a percentage of the cost of a solar photovoltaic (PV) system. (Other types of renewable energy are also eligible for similar credits but are beyond the scope of this guidance.) The system must be placed in service during the tax year and generate electricity for a home located in the United States. There is no bright-line test from the IRS on what constitutes “placed in service,” but the IRS has equated it with completed installation.

In December 2020, Congress passed an extension of the ITC, which provides a 26% tax credit for systems installed in 2020-2022, and 22% for systems installed in 2023. (Systems installed before December 31, 2019 were eligible for a 30% tax credit.) The tax credit expires starting in 2024 unless Congress renews it. There is no maximum amount that can be claimed.For more info, click here.

Powersmart
The South Pacific island territory of Tokelau went 100% solar in November, 2012, courtesy of a soft loan from New Zealand Aid. The one-megawatt system is backed up on cloudy days by coconut oil-fed diesel generators.

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For more info on all federal programs, read the Guide to Financing a Grid-Connected to a Solar Electric System published by the U.S. Dept. of Energy.

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State Initiatives

You can check for tax credits, rebates and other incentives by state with a free state solar incentives database sponsored by a nonprofit called DSIRE.

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PACE Financing Assistance

This organization, known formally as Property Assessed Clean Energy, is dedicated to increasing the affordability of renewable energy. Currently, it offers a variety of programs in California, Florida, and Missouri. For more info, click here.

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Continued on Page 2 (PPA's and Solar Leasing)

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