Growth of Solar Power in the United States
Solar power has shown remarkable growth as an energy source throughout the USA over the past decade. In 2008, the Department of Energy estimated the total installed solar capacity to be 1.2 gigawatts (GW). After of the end of 2016, total installed capacity has now surpassed the 30 GW mark, which represents an impressive growth of more than 2,400%.
Many factors have driven the growth of the solar power industry. Solar panel systems have become more affordable as manufacturing methods have evolved. The annual increase in electricity prices have made solar energy systems more attractive investments. In addition, significant solar power incentives have been introduced throughout the nation.
Solar Investment Tax Credit
The Solar Investment Tax Credit (ITC) has been a major driver in the rapid growth of solar power in the USA. This national tax credit allows solar panel owners to deduct 30% of the cost of solar from their federal tax burden after the solar panel system is installed. It is essentially a 30% nationwide discount for solar panel systems. It is only important to note that the ITC will not last forever. It will be gradually reduced each year from 2020 onwards. The tax credit applies as follows:
- 30% for all solar panel systems installed before the end of 2019.
- 26% for systems installed during 2020.
- 22% for systems installed during 2021.
- 10% for systems installed by business consumers from 2022 onwards.
- Residential solar panel systems installed after the end of 2021 are no longer eligible.
The federal ITC is the only nationwide incentive for solar power. Many state and municipal governments have created their own programs, but the ITC is the only one that applies for all energy consumers in the USA. We suggest talking to a local solar professional to see if you qualify for other local incentives.
We also highly recommend all home and business owners considering solar power is find out if they qualify as soon as possible. Your project needs to be completed before the end of 2019 in order to take advantage of the full benefit, and the installation process can be lengthy. Unexpected delays could cost home and business owners who wait until the deadline to sign up for solar.
State Tax Benefits for Solar Power
State tax credits, similar to the federal ITC, allow owners of solar systems to deduct a percentage of the total cost of solar from their tax burden once the solar system is installed. Unlike the ITC, state tax credits depend on state governments, and there is no consistent step down in tax credit amount.
There are also two main types of tax exemptions for solar power: sales tax exemptions and property tax exemptions. The main difference between tax credits and tax exemptions is that credits are deducted from the taxpayer’s normal burden, while exemptions eliminate taxes that would otherwise apply for solar panels.
State and Utility Rebates
Rebates are cash incentives for solar power and other renewable energy sources, normally calculated per watt (W) of installed capacity and offered by utility companies trying to meet RPS goals. For example, if a homeowner installs a 5 kW solar panel system for $15,000 and the utility company offers a rebate of $500 per kilowatt, the total incentive would be $2,500, reducing the net cost to $12,500.
It is important to note that state and federal tax credits are calculated after deducting any applicable rebates. In the example above, the federal tax credit would be $3,750 (30% of $12,500) and not $4,500 (30% of $15,000).
Although rebates are typically offered by utility companies, there are many programs by state governments as well.
Renewable Portfolio Standards
A Renewable Portfolio Standard (RPS) is a law that requires all utilities in a state to generate a minimum percentage of their energy from renewable sources before a specified deadline. The USA does not have a nationwide RPS, but many states have introduced them locally. Hawaii has the most ambitious goal, with an RPS that requires 100% renewable energy by 2045. New York and California are also notable examples, both with a 50% renewable energy target by 2030.
When a state introduces an RPS, it drives local utilities to offer incentives for their customers planning to install solar panel systems. Utilities often incentivize customers by buying Solar Renewable Energy Credits (SRECs), which are described in more detail in the next section. When your solar system produces energy, you receive SRECs that you can then sell to the utility. Utilities buy these SRECs to count toward their renewable energy target. This prevents utilities from having to install all of the required capacity mandated in the RPS.
Performance-Based Benefits: SRECs and Feed-in Tariffs
While a rebate is calculated based on the installed capacity, performance payments are calculated based on actual energy generation. In the case of solar power, there are two main options:
- Solar Renewable Energy Credits: In states that have a SREC program, home and business owners are awarded one credit for each megawatt-hour (MWh) of clean energy generated. These SRECs can be accumulated and sold to local utility companies with RPS goals, for extra income beyond the energy savings achieved.
- Feed-in Tariffs (FIT): Some utility companies follow a different approach from the SREC program. They instead purchase energy produced by solar panel owners above the retail price of electricity. For the consumer, the income achieved when selling energy through a FIT scheme is generally higher than the energy savings of consuming the solar power produced by the system.
Although the principle is different, SRECs and FITs have the same result of providing extra income for home and business owners with solar panel systems, helping to drive the adoption of the technology.
The federal tax credit is the only nationwide incentive, but there are also many state-specific incentives that make going solar attractive for both home and business owners. The best states for solar power are generally those with adequate sunlight, local incentives, and high electricity rates. These three factors generally determine the best states for solar. Check out if your state is good for solar here.