California Solar Incentives You Need to Know in 2022 — and Beyond
With California’s year-round sunny skies, ambitious climate change goals. and a selection of financial incentives and benefits to choose from, going solar might be more affordable than you think.
The exact cost of your PV system (and how much you’ll save on your energy bill) depends on a list of factors. Some include the size of your PV system, which installer you choose, eligible solar incentives, which utility services your region and their electricity rate structure. and how much electricity you use.
Regardless of where you live in California, there are a few solar incentives and savings benefits for you, including property-assessed clean energy (PACE). property tax exemption for PV systems, and net energy metering (NEM). Another solar tax incentive that is quite substantial is the federal solar tax credit—also known as the investment tax credit (ITC).
It is worth highlighting that incentives are also a huge benefit in other states, like Texas. which is one of the most deregulated electricity markets in the country.
Continue reading to find out more about these offerings and more.
California Tax-Based Solar Incentives
Property-Assessed Clean Energy (PACE)
PACE —known as the Home Energy Renovation Opportunity (Hero)— is a loan option that allows property owners to finance their qualified solar energy and energy efficiency projects through their property taxes. Local or state governments, working with traditional financiers, fund the upfront cost of the project, and homeowners pay back their local authority via an increased property tax bill, usually over a period of 20 years. PACE programs are currently operating in 20 states. including California.
Property Tax Exclusion for Solar Energy Systems
There are two main ways a reassessment at full market value of your property can be triggered in California—when you sell or buy a house and when there’s new construction or major house renovations. Section 73 of the state’s revenue and taxation code allows a property tax exclusion for qualifying new solar installations. Meaning, your property taxes will not increase if you install solar on your property. This tax exclusion was set to expire in 2016, but is now extended through January 1, 2025. Find out more about the active solar energy system tax exclusion and what qualifies here.
The Investment Tax Credit
Though not a California-specific solar tax incentive, the federal ITC provides additional and significant savings for solar installations. Every homeowner who buys and owns their PV system can claim and deduct 26% of their solar installation costs from their federal taxes (tax liability) this year. For example, if you install a PV system that costs 20,000, and you owe 6,000 in taxes, you can reduce your tax liability from 6,000 to 450,200 by applying your 5,200 (20,000 x.26) solar installation tax credit.
If the value of your tax credit exceeds your tax liability, you can apply the unused credit to the following year’s taxes. Using the same example above, if your tax liability was 3,000 instead of 6,000, you can roll over the unused 5000,200 (5,200 – 3,000) to next year’s taxes.
Note: You can only roll over any unused credit once, and the ITC is in addition to all state and local solar rebates and incentives you receive. Also, the value of the ITC stepped down from 30% to 26%; it will drop to 22% in 2023, then to zero for residential installations in 2024 unless Congress renews it.
Here’s an in-depth guide about the ITC for homeowners from the Department of Energy.
Net Energy Metering
Net metering (also called Net Energy Metering or NEM) allows utility customers to get credit for the extra energy they produce and give to the utility. NEM has become the dominant approach in the U.S. for compensating solar customers for the energy they contribute to the grid. NEM is mandatory in California and it increases the value of rooftop solar.
New participating PV systems must be sized to meet customers’ demand—not higher, and switch to a time-of-use electricity rate. If you choose to participate in NEM, you will receive a bill credit for the excess solar energy your PV system produced and exported to the electric grid. How much credit you’ll receive (and save on your monthly energy bill) will depend on when you installed solar.
We’ve written extensively about NEM and what its changes will mean for solar savings ; learn more about California’s latest NEM policy here: NEM 2.0. (Note: The California Public Utilities Commission (CPUC) is currently in the process of developing a successor to the existing NEM tariffs.)
California solar and battery incentives
For many California homeowners, going solar is already a slam dunk. However, there are federal, state, and local incentives that can maximize your solar savings.
The incentives fall into two broad categories: tax incentives and rebates. Let’s start by digging into the tax incentives.
Pro Tip: If you plan on moving out of California anytime soon, check out our list of other states incentives and rebates!
California solar and battery tax incentives
The following California solar incentives come in the form of tax credits, exemptions, and exclusions. Consult a licensed tax professional for advice regarding tax incentives.
Federal solar and battery tax credit
The first tax incentive to mention is the 30% solar investment tax credit – also known as the ITC or Residential Clean Energy Credit.
This federal tax credit is worth 30% of the cost of installing solar and battery storage systems. Thanks to the Inflation Reduction Act, the ITC will remain at 30% until 2032 and beginning on January 1, 2023 applies to battery storage that isn’t hooked up to solar.
Property tax exclusion
Studies by Zillow and Berkeley Lab found that solar panels increase home values by up to 4,000 per kW. And Californians know better than anyone else that higher property value means higher property taxes.
But thanks to California’s Active Solar Energy System Exclusion, rooftop solar systems installed before January 1, 2025 won’t be assessed in property valuations, and therefore won’t increase your property tax.
According to the California State Board of Equalization, this tax exclusion applies to solar systems “where the energy is used to provide for the collection, storage, or distribution of solar energy.”
It does not apply to solar swimming pool heaters or hot tub heaters.
Property-Assessed Clean Energy (PACE)
Upfront cost is often the biggest hurdle to going solar, but the PACE program – known as the Home Energy Renovation Opportunity (Hero) program in California – is one way to go solar with zero money down.
Through the Hero program, your state or local government teams up with a local lender to fund the upfront cost of your solar project. Then you pay the project off through an increase to your property tax bill over an agreed upon term, typically 5 to 20 years.
The savings come when the increase to your property taxes is lower than the energy savings provided by your solar system.
California solar and battery rebates
California also has solar incentives in the form of rebates, which can help reduce the upfront cost of solar and battery storage projects. We’ve listed a few below, but we strongly encourage you to check for local rebates through your utility, city, or municipality.
Self-Generation Incentive Program (SGIP)
With frequent power outages and Time-of-Use rates, home battery storage is an opportunity for both energy independence and savings.
Through SGIP, eligible Californians can be reimbursed for 150 to 450,000 per kWh of battery storage installed – which, in some cases, covers the entire cost of the project.
The incentive amount depends on your utility, your wildfire risk, and special circumstances like having a life threatening illness, medical equipment, and an electric pump for well water.
Disadvantaged Communities – Single-Family Solar Homes (DAC-SASH)
DAC-SASH is an upfront rebate to reduce the cost of going solar for qualifying low-income households.
To be eligible, you must meet all of the following criteria.
- Receive electrical service from
- Pacific Gas Electric (PGE)
- Southern California Edison (SCE)
- San Diego Gas Electric (SDGE)
DAC-SASH is scheduled to run through 2030. Visit GRID Alternatives to check your eligibility.
In addition to state rebate incentives, California also has several local rebates that can further maximize your solar savings.
For example, Rancho Mirage Energy Authority has a Residential Solar Rebate Program that offers a one-time 500 incentive for installing or expanding a residential solar system.
Similarly, Sacramento Municipal Utility District (SMUD) offers a 150 stipend for residential solar system installations.
Cost of going solar in California
While there are a variety of solar incentives in California, most homeowners will only qualify for the federal solar tax credit – and that’s okay. Even without incentives, the cost of going solar in California is already much cheaper than grid energy.
But, for many homeowners, the goal of going solar is to maximize your energy savings, so let’s see how the cost of going solar in California compares tobuying electricity from a utility provider.
Cost of solar vs grid electricity in the Los Angeles metro area
The figures below are from a real quote presented to a solar.com customer in Buena Park, Cali. for a 6.4 kW solar system under NEM 3.0 solar billing.
With California’s abundant sunshine, a 6.4 kW solar system can be expected to produce:
- An average of 9,770 kWh of electricity per year
- A total of 244,250 kWh of electricity over 25 years
If you divide the net cost of the project by the lifetime production, the cost per kilowatt-hour of home solar for this Los Angeles-area customer comes to:
- 7.8 cents per kWh with the 30% solar tax credit
- 11.2 cents per kWh without the solar tax credit
Now, let’s compare the cost per year electricity from home solar to the cost of grid electricity:
Even without the 30% federal tax credit, grid electricity is 118% more expensive per year than home solar – and that’s before factoring in the constantly rising cost of grid electricity
According to the Bureau of Labor Statistics, the average cost of grid electricity has increased by over 6% per year since 2017 in the Los Angeles metro area – but let’s use a 4% annual increase to be conservative.
Here’s how the cost of solar versus grid energy in Los Angeles compares over the 25-year warrantied life of a solar system:
Even NEM 3.0 solar billing, this solar.com customer near Los Angeles is looking at a payback period around 9 years and over 60,000 in energy cost savings over 25 years.
Is going solar worth it in California?
Whether your goal is energy cost savings, contributing to the clean energy transition, or providing backup power for grid outages, going solar is absolutely worth it in California – even under NEM 3.0 solar billing.
California is notorious for having some of the nation’s highest utility electricity rates and there is plenty of reason to belive they will continue increasing. Home solar is an affordable alternative to buying electricity from a utility provider and a hedge against rising energy costs.
California Solar Incentives FAQ’s
How much do solar panels cost in California?
Based on real binding quotes generated by solar.com, a 6.4 kW solar system (slightly larger than average for California) has a net cost around 19,000 after claiming the 30% federal tax credit.
That breaks down to around 3 per Watt for the system, and around 7.8 cents per kWh for the electricity it produces. For comparison, grid electricity rates ranged between 25.1 cents/kWh in Los Angeles to 40.9 cents/kWh in San Diego in 2022.
How does the California solar tax credit work?
California no longer has a state solar tax credit. However, the federal solar tax credit is worth 30% of the installed cost of a solar and/or battery system. This credit can be used to decrease your federal tax liability and increase your tax refund.
On a 15,000 solar system, the federal solar tax credit can be used to lower your tax liability by 4,500. If you don’t have enough tax liability to use at all it once, the tax credit can be rolled over into future years.
Consult a licensed tax professional for advice regarding applying the solar tax credit.
Can you get free solar panels in California?
There are a few programs in California that can drastically reduce or completely cover the cost of going solar. These niche programs are reserved for low-income and disadvantaged communities that meet strict eligibility criteria.
The Disadvantaged Communities/Single-Family Solar Homes (DAC-SASH) offers an upfront rebate for low-income homeowners in disadvantaged communities identified here.
California’s Low-Income Weatherization Program provides no-cost solar systems and energy efficiency upgrades for eligible farmworker households and other low-income housing types.
Reasons why the U.S. Government Introduced Solar Incentives Programs
Indeed, solar has quickly become the toast of communities eager to live greener and reap the environmental and economic benefits of solar energy generation. But why did the U.S. Government introduce free solar panels government programs, and what are they meant to achieve?
Firstly, solar incentive programs help owners recoup their system costs over a reasonable period. For commercial customers, the recoup period is five years, while residential customers have a span of 10 years. This helps reduce the risk associated with the cost and encourages more people to switch to solar.
Another aim of the program is to encourage efficient solar system designs. Performance-based incentives (PBIs) are used to encourage the design of systems that have peak energy production. This encourages solar system owners to proactively install, manage and maintain their systems.
Finally, these incentives help to jumpstart and support a vibrant local solar industry. Firstly, subsidies and tax incentives make it more affordable for people to transition to solar. This increases sales volume and consequently contributes to more competition in the local markets. Thus, it helps to drive down the cost of installation even further.
The U.S. Government’s introduction of Solar Incentive programs has some formidable benefits that can help make the transition to solar easier and more profitable. Ultimately, the incentives are all geared towards ensuring a greener and brighter energy future, something we can all get behind.
Where to Get Information About Solar Panels Incentives and Rebates
Reducing energy bills and having the sun power your home may sound appealing. But the hoops you need to jump through to get incentives and cut installation costs can be overwhelming. Fortunately, there are a few ways to get reliable and accurate information about solar panel incentives and rebates.
One of the most comprehensive and up-to-date sources is the Database of State Incentives for Renewables Efficiency (DESIRE), which provides a comprehensive list of solar incentives and policies by state. Not only is it regularly updated with information, but it also provides detailed guidance on each policy and incentive.
Another great resource for information about solar incentives is the Solar Energy Industry Association (SEIA) partner SolarReviews. They feature a resource page for solar incentives, including state-by-state solar data updates. The page breaks down incentives by incentives by state, tax credits, and other financing programs.
Finally, nothing beats speaking to your installer directly. Not only can your installer provide you with the most up-to-date information on solar incentives in your area, but they can also explain how those incentives can apply to your specific project.
Where to buy solar panels?
It may not be possible to get free solar panels from the government, but the solar market in the U.S. has grown leaps and bounds in 2023. Thanks to local solar companies, you can save big with no down payments and low monthly installments. On top of that, you also benefit from lower energy costs in the long run, Investment Tax Credits, and doing your bit for the environment! So turn on the modules to start reaping solar savings today!
When it comes to “ where to buy solar panels ”, Renogy is a good place to start. There are also home-used solar panels from Renogy, rating at 320 watts. 450 watts. and 550 watts. as well as large-scale home energy storage solutions like the Lycan 5000 power box which offers a 4.8kWh capacity, which is expandable. Explore the access to solar energy in various kinds of ways with affordable solar products from Renogy now.
Solar Power Rebates
A rebate is a cash incentive for going solar, which is subtracted directly from your upfront costs. Solar rebates are normally granted through programs that are managed by governments or utility companies. Note there are eligibility requirements, so you should make sure that your solar power system is designed and installed by professionals. The NY-Sun program in the state of New York is an example.
When both solar rebates and tax credits are available, the rebate is applied first and the tax credit is calculated for the net cost. For example, if you get a 5000,000 rebate for a solar PV system priced at 20,000, the federal tax credit is calculated with the net cost of 18,000. In other words, the federal incentive is 5,400 and not 6,000.
Performance-Based Incentives for Solar Power
Reducing the net cost of solar power systems with rebates and tax benefits is one incentive option. There are also programs that FOCUS on increasing the cash flow of a solar power system. There are two common options:
- Adding a performance payment per kilowatt-hour produced.
- Creating a Solar Renewable Energy Credit (SREC) program.
Bonus Payments per Kilowatt-Hour
When performance payments are available, owners of solar power systems get extra cash for every kilowatt-hour generated. For example, if the local electricity price is 15 cents/kWh and there is an incentive of 5 cents/kWh, the total benefit is 20 cents/kWh. This shortens the payback period of solar panels, while increasing the return on investment.
Since this type of incentive is so good, there is normally a capacity limit that gets filled quickly. One example is the Solar Massachusetts Renewable Target (Smart), launched in 2018. The program will grant incentives for solar power systems until a capacity of 1,600 MW is accumulated. The incentive is higher for the first movers, and it is gradually reduced as the program approaches its target.
Solar Renewable Energy Credits
SREC programs are an alternative to bonus payments per kWh. They can be applied when local governments have introduced clean energy targets for utilities and large energy consumers. These organizations can meet their target by producing clean energy on their own, by purchasing an amount of SRECs equivalent to their target, or with a combination of both. There are hefty penalties for missing the target, which creates a high demand for SRECs.
- Owners of solar PV systems are awarded one SREC for every 1,000 kWh of generation.
- SRECs are then purchased by the organization subject to clean energy targets.
- The SREC price is determined by supply and demand, which means the benefit is variable. However, it represents a cash bonus beyond the savings from solar power.
For instance, a SREC price of 100 is equivalent to an incentive of 10 cents/kWh, since one SREC is awarded for every 1,000 kWh.
Favorable Laws: Net Metering and Simple Interconnection Rules
Legislation that favors solar power can also be considered an incentive, since home and business owners can get more benefits from solar panels.
- Net metering gives full credit for every kilowatt-hour sent from a solar power system to the electricity grid. This happens all the time in solar paneled homes that are empty around noon, since there is nobody to use the electricity. Businesses with large roofs can also reach surplus production if they cover a large area with solar panels.
- Some power companies offer a feed-in tariff instead of net metering. This tariff is normally lower than the electricity price, with the argument that power companies must handle the surplus energy from solar panels.
- Simple interconnection rules help reduce the upfront cost of a solar power system, improving the return on investment. When utilities impose complex connection requirements with high fees, power consumers are less likely to go solar.
Having a Renewable Portfolio Standard (RPS) can also be considered an incentive for solar power. In simple terms, an RPS establishes a minimum renewable energy percentage for investor-owned utilities in the corresponding state. Since clean energy systems owned by consumers count towards the goal, utilities subject to RPS laws normally create incentive programs.