Exploring the many tax credits and financial incentives available to help you fund your solar energy system can be overwhelming. With so many affordable and financially beneficial programs available to California consumers, we hope you enjoy this guide as you navigate your way to the best solution for your property.
In this article, we’re covering the complex world of solar tax credits and other financial incentive like net energy metering and the self generation incentive program in layman’s terms. We are covering all ways in which you can leverage your solar energy system and help to combat utility costs. Our goal? To empower you to maximize your savings, streamline your solar energy investment strategy, and make the most informed decision for your home.
Offset the Costs of Installing Your Solar Energy System
The cost of installing solar panels onto your property has decreased and is only expected to continue to do so, year after year – albeit a little bit at a time. This is because the technology behind this renewable energy has improved greatly over the years, making solar panels increasingly efficient and highly cost-effective. Because of these advancements, manufacturers and installers can pass along the savings to homeowners.
Another reason why solar panels have become increasingly affordable is a direct result of government incentives and creative financial mechanisms that broaden access to third-party-owned systems and solar leasing programs widely. These popular new financing models can help to drastically lower your up-front costs of switching to solar.
It is also possible to increase system affordability by leveraging incentives like state and federal tax credits. On a federal level, homeowners are eligible for a significant tax credit – up to 30% – on the cost of most solar systems installed through 2032, including the cost of energy storage systems in batteries.
Locally, California offers financial incentives to customers who use batteries and storage systems with their solar panels. It is also likely that your specific utility provider provides its own lucrative incentives to homeowners. We recommend you visit your utility provider’s website or call their clean energy division to discover more information on programs that may be available to you.
Sure, saving money is a big plus. But saving the planet while you do it makes your switch to solar energy feel that much more impactful. The many incentives available today will help you to do your part in fostering renewable energy adoption across our beautiful state.
Federal Tax Solar Credit
Also known as the Investment Tax Credit (ITC), this program allows homeowners and businesses to deduct a portion of their installation costs from their federal taxes. ITC offers a hefty tax credit of 30% for residential solar systems. This tax credit applies to the cost of solar equipment and installation, including the cost of solar panels, inverters, mounting equipment, and installation labor. It also applies to battery storage systems, promoting monetary savings and energy resilience.
To take advantage of this tax credit, you’ll need to file IRS Form 5695 when you submit your federal tax return. Your credit will be applied in the year your system was installed. Another perk: there is no cap on the amount of credit you can claim. If your credit value is higher than your total tax liability, you can carry over the unused portion to future years.
There is expected to be a gradual phase-out schedule for this program over the next several years. This phase-out is designed to gradually reduce federal support as the solar market expands and becomes a more self-sufficient industry. This approach also encourages the clean energy sector to keep innovating and lower costs over time. The overall goal is to foster a sustainable market that does not rely on long-term subsidies (unlike fossil fuel industries, which still receive massive federal subsidies every year despite being pretty well established).
California Solar Incentive Programs
When it comes to embracing clean energy solutions in the USA, California is consistently ranked as the most committed. The state boasts over 30 gigawatts (GW) of installed solar capacity, making us the “host with the most” – nowhere else in the entire country has as much solar energy capacity installed. California accounts for more than 40% of the United States’ total solar capacity and, on some days, more than 70% of the state’s peak-hour electricity supply is generated via solar panels. Yes, we’re way ahead of the curve, but that doesn’t mean we should slow down.
Our beautiful state has put a strategy in place to encourage residents to invest in energy storage for their renewable energy systems. Coined the Self Generation Incentive Program (SGIP), the main focus of this policy is grid reliability. In theory, increasing the number of solar systems with battery storage will help to decrease the chances of an overwhelmed grid. This will ultimately result in fewer blackouts and brownouts, and help maintain the reliability and stability of energy provided by our utility companies.
SGIP allows property owners to receive cash rebates depending on the size, type, and scope of their solar energy system. The highest incentives currently being offered are for smaller, residential systems. Unlike some programs, SGIP does not have income restrictions, making the program available to a wider range of California residents. In fact, there are higher benefits for homeowners who meet certain criteria, such as living in areas at greater risk of blackouts or wildfires. Explore the Equity Resiliency program to see if you might meet these stringent requirements to save even more on your storage.
Overall, SGIP is a very forward-thinking way for Californians to contribute to a more sustainable energy future while saving on electricity bills.
Tax Credit Eligibility Criteria
Both the federal and California incentives are available to most residential properties. But, there are a few rules projects must abide by to qualify.
First and foremost, your clean energy system must be installed on a property that you own, and it must be used for generating electricity for your use. You cannot enjoy the benefits of a tax credit if the property taxes of the parcel of land are not your fiscal responsibility. Also, the solar panels must be used to power a structure that is on the property.
Both solar photovoltaic (PV) systems and energy storage systems (ESS) qualify for these solar panel tax credits. Keep in mind that leased systems typically do not qualify, as they are owned by a third party who has already claimed the incentives and ideally passed them through to the homeowner as savings on the monthly charge.
You won’t be able to claim this tax credit until your installation is fully completed, meaning a. All components of your new solar system are fully operational and interconnected to the grid.
Keep all of your records; you will likely be asked to present all relevant invoices to claim this benefit – the signed Homeowner Installation Agreement that shows your total contract price is generally sufficient, but check with your tax preparer to see if they need more info. Make sure that your solar panels were not previously claimed for tax credits or incentives before submitting any paperwork. Always consult a trusted tax professional or check the latest information from our federal, state, and local municipalities or the Department of Energy for the most up-to-date eligibility criteria.
Net Energy Metering (NEM)
Under NEM, solar energy system owners can receive credits on their utility bills by sending back any excess electricity generated by their solar panels back to the grid. Your expected savings can widely vary based on factors like energy consumer, size of your solar system, and local utility rates. California homeowners who participate in NEM have reported annual savings ranging from hundreds to several thousands of dollars.
Over time, these savings can significantly reduce or even eliminate a homeowner’s electricity bills, depending on the solar system’s output. NEM is a great incentive that often offers immediate savings and helps to reduce total electricity costs.
California’s Clean Energy Goals
The great state of California has set a lofty goal: By 2030, 60% of its electricity will be generated by renewable resources. Always ambitious to build a more sustainable future, the state has pledged to reach 100% by 2045.
Indeed, tax incentives and programs like NEM and SGIP have driven a substantial increase in residential and commercial solar adoption throughout the entire state. At the start of this year (2024), California had generated a whopping 46,874 MW of solar energy. An impressive capacity, the state was armed with enough solar capacity to power nearly 14 million homes! California is now ranked as the highest solar power-generating state in the nation.
Building A More Sustainable Future
On any given day, solar power accounts for almost 30% of the entire state’s electricity generation. Although this is already an impressive feat, the United States as a whole still only receives about 4% of our total energy mix from solar. California is committed to bringing a solar-powered energy solution to every community in the state and fostering growth around the country by extension.
The solar industry has created thousands of jobs and has greatly aided in the growth of many of our local economies. Since solar energy production requires much less water compared to fossil fuel generation, this source of energy is vital to our state, which often faces drought conditions, especially in the scorching summer months.
Residents and installers alike should be proud that we are all doing our part to promote workforce development in more green technology sectors. California’s commitment to clean energy not only protects our environment today but also paves the way for greater innovation, inspiring generations to embrace a greener, brighter tomorrow.
At Energy Service Partners (ESP), our team is committed to securing a sustainable future for our planet. If you are a homeowner looking to go solar in California, you can request a free quote online. We’ve streamlined installing solar to be among the fastest in the industry, making us a top installer in California. Learn more today!