Solar incentives: What you need to know
Updated: Jun 19
People who are interested in going solar are often curious about what kind of solar incentives are available.
The answer to that question will often depend on where you live or who provides your electricity. Your state and power company may offer different ways to encourage you to add solar panels to your home or business.
In this blog, we’ll lay out some common solar incentives you might be able to use to make your renewable energy goals more feasible.
The federal government offers a tax credit for residential and commercial solar systems. Essentially, it reduces your income taxes by an amount that’s based on how large of a solar system you installed.
The Investment Tax Credit, or ITC, has been a key driver of solar’s growth in recent years. And it’s not hard to see why.
Let’s say you installed a solar system on your home or business that cost $30,000 to install. Since the tax credit is currently 30% (more on this later), you’ll be able to reduce your federal income tax obligation by $9,000.
That’s obviously a big discount that helps make it easier for homeowners and businesses make the initial investment in solar. According to the Solar Energy Industries Association, “the residential and commercial solar ITC has helped the U.S. solar industry grow by more than 10,000% percent since it was implemented in 2006.”
Businesses that claim the solar tax credit may also use accelerated depreciation to reduce the cost of their solar system.
Congress last year passed the Inflation Reduction Act, which increased and extended the tax credit. It also provided a way for nonprofits — which don’t pay taxes — to take advantage of “direct pay.”
Net metering may be the most important financial incentive for going solar. It means the utility credits solar system owners for the excess electricity that they send back onto the grid.
On sunny summer days, solar systems may produce more than their owner needs. At this point, the extra electricity is sent back onto the grid for someone else to use. At night and cloudy days, the solar system owner will likely still need power from the utility.
Net metering is essentially balancing that give and take between the solar user and the utility. If you end up producing more electricity from your solar panels than you used, you’ll end up with some kind of credit.
Solar United Neighbors has a detailed explanation of net metering, as well as the rules in Minnesota. For Minnesota systems less than 40 kilowatts (kW) in size, customers can earn a credit at the average retail rate for excess electricity they generate. So if you pay 11 cents per kilowatt-hour (kWh) of electricity, you’d be credited at that same rate for the energy you send to the grid.
Wisconsin allows net metering for systems of 20 kW or less.
Many of our customers rely on Minnesota Power for their electricity. Turns out, they have a rebate program for those lucky enough to be selected.
The SolarSense program offers a rebate based on how many kilowatt-hours (kWh) the system is expected to produce annually. The system owner would receive 29 cents per kWh.
While that doesn’t sound like a lot of money, a modest 5-kilowatt (kW) system in Duluth could produce almost 6,500 kWh in a year, according to PVWatts. That would result in a rebate of $1,885.
Minnesota Power budgeted $87,675 for SolarSense in 2023, and awards are given out on a lottery basis.
Minnesota Power requires applicants to use certified installers. The application window opens March 1.
In Minnesota, solar systems are exempt from sales tax. That includes components used for the solar systems, including wires and racks, according to DSIRE, which tracks renewable energy incentives nationwide.
The Minnesota state sales tax rate is almost 7%, which makes that exemption a helpful discount.
Small rural business and farmers can also apply for a federal grant from the U.S. Department of Agriculture.
The Rural Energy for American Program (REAP) provides grants for up to 50% of project project costs. It also offers guarantees on loans of up to 75% of project costs.
There are certain requirements for participating in REAP, but eligible entities can drastically reduce the cost of their solar system. Farmers and small businesses that get funding from REAP can still take the 30% tax credit.
The Inflation Reduction Act boosted REAP, increasing the federal share of grant funding to 50% from 25%, among other changes meant to increase renewable energy installations.
Minnesota’s MinnPACE program allows business owners to invest in renewable energy projects with no upfront costs. Instead, payments are made through the property owner’s property taxes, with repayment lasting up to 20 years.
PACE, which stands for Property Assessed Clean Energy, requires local governments to enter into a joint powers agreement in order for businesses to take advantage of the program.
Luckily, many local governments, including Duluth, Ely and Virginia, have entered into such agreements.
Eye on the prize
Going solar requires a considerable upfront investment. But there are plenty of solar incentives out there to help make it easier to make the transition to renewable energy.
If you want to learn more about how you might save on a solar system, don’t hesitate to contact us for more information.