Understanding the Newest Federal and State Solar Programs and Policies
Despite the Trump Administration’s commitment to coal, the solar industry remains strong and continues to grow at a record pace. Ironically, part of the growth is due to the government’s policies, programs, and regulations, all of which have been designed to help promote solar energy deployment.
Since legislation is always being revised and updated, it’s important for solar installers to stay up to date with what the latest versions of these federal and state programs and policies include. Read on for a comprehensive list of incentives and policies that solar installers everywhere should know about in 2020.
The Federal Solar Investment Tax Credit (ITC)
The Federal Solar Investment Tax Credit (ITC) is designed to encourage the deployment of solar energy among homeowners, businesses, and utilities. After installation, the tax credit gets applied against the homeowner’s personal income tax. For commercial and utility-scale projects, the credit is awarded to the business that owns the solar system.
The amount of the credit is based on the amount invested in building the system or project, but it offers a dollar-for-dollar reduction in the taxes the homeowner or company would otherwise pay to the federal government.
Solar investors can claim a tax credit of 30 percent on eligible installations through 2019. In 2020, the credit will drop to 26 percent, and in 2021 it will fall to 22 percent. Starting in 2022, commercial and utility-scale installations will be eligible for a 10 percent tax credit; the residential tax credit will be eliminated.
State Solar Incentives
In addition to federal tax credits, rebates and additional tax credits are available from many states. These programs include:
- Renewable Portfolio Standards (RPS)
- Renewable Energy Certificates (RECs)
- Solar Renewable Energy Certificates (SRECs)
Renewable Portfolio Standards (RPS) are state-specific regulations that require utility companies to produce a certain percentage of their energy from renewable sources such as solar, wind, biomass, geothermal, and hydropower. To meet the state requirements, utilities have the option to either “develop their own renewable resources; purchase renewable electricity from third parties; or acquire what are known as Renewable Energy Certificates (RECs).”
One Renewable Energy Certificate (REC) equals one MWh of renewable energy. If the MWh of renewable energy is produced exclusively by solar, then the certificate is applied via Solar Renewable Energy Credits (SRECs). While many states offer RECs, as of 2019, only New Jersey, Massachusetts, Maryland, Delaware, North Carolina, Illinois, Pennsylvania, Ohio, California and the District of Columbia offer SRECs.
Additional Programs and Incentives for Solar Investors
Many jurisdictions offer a variety of other rebates and incentives that homeowners and businesses can take advantage of. These may include:
Net Metering – If the state offers net metering, then at the end of each billing cycle, the amount of electricity the user imported from the grid is netted against the electricity their solar system exported to the grid. If the imported amount exceeds the exported amount, then the customer is billed for the net electricity consumed. But if the amount exported exceeds the imported amount, then the customer receives a credit on their utility bill. Currently there are 40 states that offer net metering compensation with amounts varying per state.
Power Purchase Agreements (PPAs) – In a PPA, a customer signs a contract with a solar project developer. The developer builds, owns and operates the solar energy system that’s installed at the customer’s home or business. The customer then pays for the electricity they use at the contracted rate. This system allows the customer to enjoy the benefits of solar energy without the up-front cost of installing one. The developer can also receive revenues and incentives that help to offset the cost of the project.
Solar leases – Solar leases are like PPAs, but the amount paid by the customer every month is for the solar system, not the energy it produces. Leases typically run from 10 to 20 years.
Clean Energy Funds – Some states offer clean energy funds to help cover the costs of solar installations. In some cases, a state may also offer low-interest loans or loan guarantees to those looking to invest in solar. The terms and rates for these loans vary by state.
On-Bill Financing – On-bill financing is a way some utilities are helping their customers afford solar energy. With this type of financing, the monthly payment for their solar system is included in their utility bill.
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