The demand for clean energy generation is increasing as we move away from using fossil fuels to reduce greenhouse gas emissions. Although more and more people are moving over to renewable energy generation, solar energy only makes up 2.5 percent of energy generation in the United States.

The state of California solar incentives make installing and financing a system capable of producing sufficient solar capacity to power your home more affordable. In some cases, you could also benefit from lower electricity bills if your solar cells or solar array generates more electricity than you need. There are also various tax benefits to installing solar power in your home.

 

California Tax Credit.

The state of California offers property tax incentives in the form of a new construction exclusion for persons who install a solar power system on their property. The California solar tax credit is an exclusion, not an exemption.

When you install an addition to your property, the addition will need to be assessed and the current market value of your property adjusted. This, in turn, increases your property taxes. Installing an active solar panel system does not require this assessment (or reassessment). This means that your existing assessment will not increase, and thus, no additional property tax will apply.

 

Solar Investment Tax Credit (ITC).

The solar investment tax credit is a federal program that offers tax benefits that promote new solar panel installations. The program offers a 26 percent tax credit for solar power systems installed on residential properties based on the investment in the solar energy system. The requirements for residential solar investment tax credits are stipulated under Section 25D. The 26 percent tax credit is available until 2022. In 2023 this number will reduce to 22 percent and is set to end in 2024.

Under section 25D residential ITC, California homeowners can apply the 26 percent federal tax credit to their personal income taxes. This solar tax credit is a dollar-for-dollar reduction of tax that would otherwise be payable to the federal government. The credit is generated when a homeowner purchases and installs a solar PV system. Because this is a credit that is applied to income tax, you will need to owe federal income taxes to benefit from this incentive.

This tax credit is applied to the gross cost of your solar power system. That means if you receive any other incentives, these amounts will be applied to the total cost first. The solar investment tax credit will then be applied to the amount you paid minus any incentives that you received.

This federal tax credit can be applied to buyers who purchase a newly built home with solar. This is applicable only when the homeowner owns the solar power system. The new home buyer will receive their tax credit in the year that they move into their home.

In cases where a homeowner leases a solar energy system or has entered into a power purchase agreement (PPA), they are not eligible for the solar investment tax credit. The California solar companies that own and lease the solar system or offer the power purchase agreement will receive the ITC.

 

Net Energy Metering (NEM).

The California Public Utilities Commission implemented the current Net Energy Metering program in 2016. This program allows private electricity generators (also called “customer-generators”) to feed excess electricity into the grid in exchange for a financial credit that is applied to their energy bill. That means homeowners who generate more electricity than they use can sell the surplus power to an electric utility.

The rate paid for electricity that is fed into the grid could vary depending on the utility company. In most cases, the rate is equal to the full retail rate. In order to benefit from the net metering program, solar owners will need to pay a one-time interconnection fee and any non-bypassable charges.

The interconnection fee is to connect your solar system to the grid. Non-bypassable charges relate to grid-supplied electricity that the solar owner may use. This could happen if the solar owner does not have batteries to store electricity for use when the solar system cannot generate electricity (during the night or on cloudy and rainy days) or does not generate sufficient power to support the user’s needs.

In addition to this, solar owners will need to transfer to a time-of-use (TOU) rate. This rate could differ between utilities and refers to fluctuations in the rates paid for electricity that is used. These fluctuations are linked to demand. Higher rates are charged during times when there is a higher demand for electricity, like in the evening.

Participating in the Net Energy Metering program does not influence the customer generator’s eligibility for any other solar-related incentives.

 

Self-Generation Incentive Program (SGIP).

The California Public Utilities Commission offers self-generation incentives for specific communities to purchase and install clean energy battery storage units. This includes communities living in areas where there is a high fire threat or that have experienced two or more utility Public Safety Power Shut-offs. The incentive is also extended to medically vulnerable and low-income customers.

There are two categories in the Self-Generation Incentive Program: Equity and Equity Resiliency.

Customers in the equity category can receive a rebate of $850 per kilowatt-hour (kWh) stored in their solar battery storage systems. This covers around 85 percent of the cost of installing an energy storage system. In order to qualify under this category, you need to live in a single-family home that is subject to resale restrictions. Alternatively, you should live in a single-family home and have participated in the California Solar Initiative’s Single-family Affordable Solar Homes or Disadvantaged Communities – Single-family Solar Homes program.

Other criteria include living in a low-income housing apartment or living in an apartment that has already participated in the Solar on Multifamily Affordable Housing program. Lastly, communities who live in California Indian Country could be eligible for the Equity category.

Customers in the Equity Resiliency category could receive a rebate of $1,000 per kilowatt-hour of their battery storage system. This can cover nearly 100 percent of the cost of your clean energy storage system.

To qualify for this category, you should have experienced two or more utility Public Safety Power Shut-offs or live in a Tier two or three High Fire Threat District. You will also need to meet one of the following criteria:

  • Live in multifamily deed-restricted housing or single-family home that is subject to resale restrictions.
  • Be enrolled in a utility Medical Baseline Program.
  • Have a serious illness and/or life-threatening condition and have notified your utility company of this.
  • Already received or reserved other solar-related incentives.
  • The water in your home depends on electric pump wells.

The Self-Generation Incentive Program works on a rebate basis. That means you may need to pay for the system and installation and get your investment back afterward. In some cases, the solar installer may cover these costs and receive the rebate – negating the need for the customer to make the payment upfront.

Solar customers in California can benefit from numerous incentives to install rooftop solar panels and storage systems. These incentives can offset California solar prices to make installing home solar panels more affordable and accessible.