Solar Incentives by State

Solar panels can help reduce your carbon footprint and save you money on energy bills, but the cost to install them can be sky-high. Every state offers specific ways to help you save money on solar power. These come in various forms, including tax credits, rebates, and performance payment programs.

“Solar panels reduce how much electricity a homeowner must buy,” says Mark James, interim director of the Institute for Energy and the Environment and an associate professor of Law at Vermont Law and Graduate School. “Rebates lower the costs of installing the solar panels, giving the homeowner a shorter payback period on their investment.”

Depending on where you live, it can be challenging to learn which solar incentives may be available to you. We’ll look at the different kinds of solar incentives out there and which states offer them. Once you get an idea of how to save money where you live, you can check out the best solar companies to get a quote on installation.

What Are Solar Incentives?

Broadly speaking, solar incentives are financial and regulatory programs that help consumers save money on installing and maintaining solar power. They fall under three main umbrellas:

• Tax breaks: Most solar tax breaks come in the form of income tax credits, but many state and local governments also offer property and sales tax exemptions for solar energy systems.
• Rebates: Rebates reduce the initial cost of solar panel installation. Utility companies usually pay them directly to installers. This money comes from a pool of ratepayer funds that companies set aside specifically to encourage the adoption of solar energy.
• Performance payments: Some government bodies offer programs that pay solar panel owners based on how much energy their solar system generates.

Additionally, several states have passed renewable portfolio standards (RPS) laws, which mandate that utility companies operating in the state get a percentage of the energy they sell from renewable sources. RPS laws require state public utilities commissions to ensure companies meet these requirements.

Solar Tax Credits

If you install solar panels on your home, tax credits help ease the financial burden of setting up a solar energy system. Both the federal and state governments offer solar tax credits that can be claimed on your tax return the year after installation.

Federal Solar Tax Credit

Created in 2005, the federal solar tax credit reduces the cost of solar panel installation by a percentage specific to the year they’re installed based on the purchaser’s income. It can’t exceed the total amount owed in a year, but all unclaimed credit rolls over to future years.

The Inflation Reduction Act (IRA) of 2022 extended the solar tax credit through 2034, increasing the total credit to 30% until 2032. The credit goes back down to 26% in its final two years before expiring in 2035.

In Virginia, for example, installing a solar panel system can cost you around $14,000, which means you’re eligible for a federal tax credit of $4,200. If you owe at least that much in taxes, you can claim the full $4,200. If you owe less, the remainder of that credit will be carried forward to the following year.

To learn if your state offers an additional tax credit for solar installation, we recommend checking the Database of State Incentives for Renewables and Efficiency (DSIRE), which keeps an updated list of every solar panel incentive by state.

Tax Exemptions

Many state and local governments offer both property and sales tax exemptions to individual purchasers and companies that install solar panel systems.

Property Tax Exemptions

Property tax exemptions allow businesses and homeowners to exclude the value of their solar energy systems from property tax assessments. Thirty-four states currently offer these exemptions.

Sales Tax Exemptions

Some states offer exemptions from state sales tax on solar panel system purchases, which helps lower upfront installation costs. Twenty-two states currently offer sales tax exemptions.

In the table below, you’ll find the property and sales tax exemptions listed for each state.

Solar Rebates

Rebates are another way to save money on solar panel installation. These are usually implemented by utility companies operating in a specific market. The company pays the installer directly, which saves the customer money up front.

Jenny Carter, professor of law at Vermont Law and Graduate School and former policy director and staff attorney for the Vermont Public Interest Research Group, explains that solar rebates are a good way to put money directly in the pocket of customers whose income is too low to qualify for tax credits.

“Rebates provide direct reimbursement to individuals and businesses for installing solar panels without having tax liability to qualify for the credit or until tax season to file a return and get a refund,” she explains. “State-sponsored programs or electric utilities have typically provided solar rebates and are often targeted toward low to moderate income individuals.”

Ask An Expert

Have solar rebates actually made a difference in how many people are getting solar panels in different states?

McKenzie Bolduc

Vice President of Operations
Coalition for Community Solar Access (CCSA)

Kirt Mayland

Institute for Energy and the Environment Visiting Professor
Vermont Law and Graduate School

“Definitely! For example, in Colorado, tax credits and incentives like Xcel Energy’s Solar Rewards have made it possible for many residents to afford solar panel installations, causing residential solar in the state to increase by 217% from 2017 to 2022.”

“100%. Given the high upfront costs of solar still and the slow but steady payback, which comes in the form of reduced electricity bills, reducing upfront costs for homeowners with rebates is critical, even in states with high electricity prices.”

Below is a table outlining which states have utility companies that offer solar panel rebates.

Performance-Based Incentives

Performance-based incentives, or performance payments, pay solar system owners based on how much energy their panels generate.

Some incentives are paid directly to solar owners, while others use Solar Renewable Energy Credits (SRECs). Each SREC represents one megawatt-hour (MWh), or 1,000 kilowatt-hours (kWh) that a solar energy system generates. These credits are useful because they’re hard proof that energy was created via a renewable source. Utilities purchase SRECs to comply with renewable portfolio standards (RPS) laws, which require companies to produce a certain percentage of their energy from renewable sources.

Ten states and Washington, D.C., currently have SREC programs:

• New Jersey
• Massachusetts
• Pennsylvania
• Maryland
• District of Columbia
• Ohio
• Delaware
• North Carolina
• California
• Illinois
• Virginia

Solar Battery Incentives

Solar batteries are great for home energy storage and have been gaining in popularity over the years. They qualify for the federal tax credit, regardless of whether they’re part of a solar panel system or not. Batteries allow homeowners to bypass the energy grid in times of high usage, which some utility companies incentivize.

There are four main types of solar batteries:

• Lead-acid batteries: Big, heavy batteries that require regular maintenance but use reliable technology that’s been around since the mid-1800s
• Lithium iron phosphate (LFP) batteries: Eco-friendly, long-lasting batteries that can withstand many different temperatures
• Lithium-ion batteries: Small batteries with high energy density
• Nickel-based batteries: Rarely used as solar storage due to the inclusion of cadmium and potential for sudden failure, but have long lifespans and can operate in extreme temperatures

Some of the most popular batteries include the following:

• Tesla Powerwall 3
• Enphase IQ 5P
• Franklin aPower2
• Panasonic EVERVOLT

Massachusetts, Nevada, and Hawaii lead the country in solar battery storage. The table below shows each state’s battery capacity as of 2023 and the average capacity added since 2020.

The Future of Solar Incentives

Though the Inflation Reduction Act significantly extended the federal solar tax credit, there are uncertainties regarding its future.

“The federal income tax credit is the main [solar] incentive… that was stabilized under the Inflation Reduction Act,”  says Kirt Mayland, visiting professor in the Institute for Energy and the Environment. “This is a base credit of 30% off the project cost.  In very basic terms, if one pays (net of state grants) $10,000 for a solar system, when they file their taxes, they can fill out a form and receive a $3,000 credit on any taxes owed or receive a refund.”

President Trump indicated an intent to repeal the IRA while campaigning. In his first week in office, he issued an executive order that suspended funding of IRA projects, but it was rescinded a week later. As of this writing, there have not been significant steps taken to dismantle the IRA, thus dismantling the solar tax credit, but its future is still uncertain.

Conclusion

Solar power incentives are a key way to get more homeowners and companies to invest in installing renewable energy systems. Aside from the 30% federal solar tax credit, most states and localities offer some form of solar incentive, whether it be rebates that help cut the cost of installing panels or performance-based incentives that pay out based on the amount of energy a system generates.

“These incentives exist because we know using more solar power is a benefit to our environment and health,” says Ben Zook, owner and NABCEP Certified Master Electrician at Belmont Solar. “We also know that solar power will reduce health and clean-up costs in the long run.”