Solar electricity is now “the cheapest electricity in history”, with a price down 89% between 2010 and 2020. Yet obstacles still prevent ordinary consumers from installing solar power systems, as the cost of a rooftop solar system can be out of the reach of many homeowners. According to EnergySage, at an average of $ 2.81 per watt in 2021, a 10-kilowatt system sufficient to provide electricity to the average American home costs $ 28,100, with no incentives. That’s why the median income for a new rooftop solar panel buyer was around $ 113,000 / year in 2019, almost double the US median.
Yet low- and moderate-income residents stand to gain the most from the switch to cleaner, cheaper energy, as they spend three times as much of their income on energy as high-income residents. Fortunately, the income gap in solar property is narrowing not only because of falling solar energy costs, but also because of government incentives. While the average solar customer still earns more than the average American, 42% of new solar homeowners in 2019 earned less than 120% of their region’s median income – a key threshold for including low and moderate incomes.
Government incentives can significantly reduce the upfront costs of a solar system and decrease the time it takes for the system to become self-financing. Without government subsidies, the cost of a kilowatt hour (kWh) of a rooftop solar system was between $ 0.11 and $ 0.16 in 2020. With federal incentives, but not including variable incentives of the State, this cost fell between $ 0.07 and $ 0.09 per kWh. With the average price of electricity supplied by utilities at $ 0.13 / kWh in the United States, Rooftop solar with federal incentives is becoming cost competitive, cutting the cost of electricity by almost half. While Americans consume an average of 11,000 kWh of electricity per year, it is the difference between spending $ 1,430 and $ 770 to $ 990 per year for electricity.
What is a kilowatt hour?
A watt is a unit of power, while a watt hour is a measure of the amount of energy used. If you left a 100 watt bulb on for an hour, you have used 100 watt hours. If you left the light on for 10 hours, you’ve used 1000 watt hours, or 1 kilowatt hour, short for kWh.
Solar incentive options for homeowners
The State Incentives for Renewable Energy and Efficiency Database (DSIRE) lists 2,387 federal, state, municipal, and utility incentives for renewable energy and energy efficiency – ranging from special assessments to property tax from solar power systems awarded by the state of Illinois to rebates for the renewable power facility offered by the utility company NorthWestern Energy of Montana. Some incentives apply to commercial scale installations, others to residential customers, and still others to solar installers.
The most important incentive for the installation of residential solar energy is the Federal Solar Photovoltaic Tax Credit, which originated in the first residential energy credit created by the Energy Tax Act of 1978, which provided a tax credit of 30% of the cost of solar equipment. . The current investment tax credit was established by the Energy Policy Act 2005 and has been renewed and extended several times, the last of which was in December 2020. Under the policy, until the end By 2022, taxpayers can claim up to 26% of eligible expenses to invest in a solar system for their home. Eligible costs include labor, assembly and installation of the system, as well as the cost of all associated pipes and cables. The credit percentage decreases to 22% for 2023, after which it disappears for residential solar systems.
Tax credits and rebates
A tax credit is not a refund. A discount is a reduction in the price of a good or service, either at the time of purchase or as a refund after purchase. A tax credit is a reduction in the amount of taxes you owe. To qualify for a tax credit, you must pay enough tax to be able to apply the credit. If, for example, you qualify for a solar tax credit of $ 5,000 but owe only $ 3,000 in taxes, you only receive $ 3,000 in tax credits. This makes some tax credits out of reach for low and middle income earners. The federal solar photovoltaic tax credit can be carried forward to the following year if the total amount exceeds the homeowner’s tax liability.
State and municipal incentives
States and municipalities also offer incentives for solar installations, including subsidy programs, low interest loans, performance-based incentives, personal tax credits, property tax incentives, rebates , renewable energy credits and sales tax reductions. For example, the state of New Mexico exempts solar systems from property tax assessments, while the City and County of Honolulu Solar Loan Program offers zero-interest loans to help homeowners with income. low or medium. DSIRE’s search engine allows potential solar customers to find applicable incentives not mentioned in this article.
Many states have requirements in their renewable portfolio standards that require that a certain percentage of the electricity that utilities provide to their customers come from renewable sources. In order to meet these requirements, utilities sometimes purchase renewable energy credits (RECs) from owners of solar systems. Solar customers earn one REC for every megawatt of electricity produced, and the revenues from these RECs can reduce the total cost of their solar system. The price of RECs varies from state to state, depending on the policies of state RECs, and as states increasingly prioritize clean energy, the price of RECs is likely to drop. ‘increase.
The net metering programs are perhaps the most important incentives in the state. Net metering began in Massachusetts in 1979 when architect Steven Strong discovered that when his solar panels produced more energy than it consumed, his electricity meter worked backwards because its excess of energy was reinjected into the network. Beginning in Arizona in 1981, states quickly began adopting net metering policies to incentivize the adoption of solar energy by giving owners of solar systems full or partial credit for the energy they received. they produce. These savings can reach tens of thousands of dollars. Since then, net metering has been “a major driver of the widespread and rapidly increasing adoption of distributed solar photovoltaic (PV) power in the United States.”
Net metering programs vary from state to state, with some states requiring utilities to credit solar energy produced by solar customers on an individual basis at retail rates, others at wholesale rates and still others at various percentages of the retail or wholesale rate. . It’s no surprise that states with the most robust net metering programs typically have the highest levels of residential solar installations. Among them are California, Texas, North Carolina and Florida, the top four states for solar installations. The exception to the rule is sunny Arizona, fifth in solar installations but with a relatively low net metering program.
Incentives for public services
In the United States, there are over 1,100 different incentives offered by utilities to encourage energy efficiency and the adoption of residential solar or other forms of renewable energy. Austin Energy in Texas is offering a rebate of $ 2,500 to customers who take a solar education course and install a solar system in their home. The Colorado division of Xcel Energy has a solar rewards program that commits to purchasing CERs from solar customers for a period of up to 20 years. The Long Island (NY) Power Authority has a feed-in tariff program ensuring that it will pay a fixed price of $ 0.1649 per kWh for residential solar power for 20 years. Of course, $ 0.1649 per kWh may be higher or lower than the retail tariffs for electricity over the 20-year period, so solar customers may or may not benefit from this fixed rate arrangement. Other utilities offer grants, loans, performance-based incentives, net metering in states without their own statewide net metering programs and other incentives. Check with your local utility.
Incentives for non-residential solar energy
There is more than one way to bring solar electricity to your home, however. Community solar programs are an increasingly popular alternative to installing solar panels on your roof. Incentives for community solar customers may vary depending on their relationship to the community solar project as a whole. The federal solar photovoltaic tax credit applies to customers in shared ownership situations, where the customer purchases a portion of the solar panel to support their residential needs. Depending on the state, RECs may also revert to the owners of a community solar farm on a pro rata basis. However, neither applies to customers in rental agreements, where they pay a monthly fee to owners of a community solar project. (Owner receives tax credits and RECs.) Other incentives may also apply, again depending on state policies or utility company practices.
As the price of solar energy continues to fall and the urgency of climate change increasingly drives state and federal policies, the incentives for solar energy adoption are likely to increase, allowing the solar economy to fit into more and more budgets. people. Residential and community solar has a bright future.