While solar energy has proven its ability to reduce energy costs over time, as well as lower the carbon footprint of a home or business, solar systems do involve upfront costs. However, both the federal government and the majority of states offer tax credits and other economic incentives that help to offset these costs and make clean, renewable energy more accessible to residential and commercial property owners.

State and local programs

Several state, municipal and other local governments offer tax credits and incentives for solar systems. One common method is property tax exemption. These exemptions make it easier for residential and commercial property owners to fund solar systems by allowing them to exclude the added value of a solar system from the valuation of their property for taxation purposes.

According to the Solar Energy Industry Association, 38 states currently offer tax credits for renewable energy projects. The qualifications and degree of tax abatement will differ depending on the state.

SEIA also noted 29 states offer sales tax exemption on the purchase of a renewable energy system. Some states will offer this exemption for components and energy storage devices used in combination with solar systems as well.

"Tax exemptions make it easier for residential and commercial property owners to fund solar systems."

Though not a tax abatement program, some counties and municipalities will also finance residential and commercial solar systems, as well as other energy-efficiency or water-saving projects. For example, Los Angeles County's Property Assessed Clean Energy (PACE) Program allows qualified home and business owners to permanently install solar systems on their property without putting any money down. Through this funding model, LA County issues a bond to a lender, which secures funding for the solar system. Home and business owners repay the financing annually through an assessment on their property tax bill. In many instances, these county and municipal programs can be combined with other tax incentives and utility rebates.

The North Carolina Clean Energy Technology Center offers a searchable database of state policies and incentives available to home and business owners throughout the country.

Federal tax incentives

The federal government offers the solar Investment Tax Credit (ITC) for solar systems installed on residential and commercial properties. Through the ITC, the system's owner can claim 30 percent of its cost as a dollar-to-dollar write-off to lower his or her tax liability. For residential systems, the tax credit is applied against the homeowner's personal income tax liability. Large investors, such as banks and big industrial projects, can also claim the credit if they are financing residential or commercial installation projects, such as the panels leased by homeowners who decided not to purchase their systems outright.

The 30 percent solar ITC is available to solar projects that commenced construction on or before Dec. 31, 2019. After 2019, the credit will drop to 26 percent in 2020 and 22 percent in 2021. The residential credit is currently set to expire after 2023, though the commercial and utility credits will remain available at 10 percent.

The 30 percent ITC was initially created by The Energy Policy Act of 2005 and was set to expire on Dec. 31, 2007. Several acts of legislation extended the credit in 2006, 2008 and again in 2015. The most recent extension of the credit is expected to propel the solar industry to unprecedented growth.

Impact of the federal tax credit extension

According to GTM Research, 2015 was a record year for U.S. solar with 7.4 gigawatts of solar photovoltaic systems installed. However, that number is expected to be dwarfed in 2016 thanks to the extension of the federal ITC.

"By extending the solar ITC credit, Congress allowed an extra 20 gigawatts of solar power to come online this year."

GTM projected 15.4 gigawatts of solar power will be installed this year, making U.S. the second largest solar market in the world. Bloomberg New Energy Finance noted, by passing the extension of the solar ITC credit in 2015, Congress allowed an extra 20 gigawatts of solar power to come online in 2016, giving the industry an unprecedented boost.

Further, SEIA projects extending the credit will propel the growth of utility-scale solar, including large solar farms and rooftop arrays. This sector will become a source of new jobs in the years to come, SEIA projected. Total employment for the solar industry is expected to exceed 420,000 by 2020, more than double the number seen in 2015. That number represents 180,000 more jobs than would have been projected had the solar ITC not been extended.

SEIA further estimated the ITC extension will lead to $40 billion in additional investment in the U.S. economy from 2016-2020 for a total of $132 billion in solar investment during those four years. By 2020, SEIA forecasted the U.S. solar industry will add $30 billion to the country's economy each year.

As the world's leading manufacturer of solar panels, Trina Solar is proud to support the continued growth of the U.S. solar industry as a source of quality jobs and strong economic investment for a cleaner, more sustainable future. 

Relevant Topics

Smart Energy Solutions

delivered straight to your inbox