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Arizona Solar Incentives & Rebates

Arizona ranked as the second sunniest state in the United States, offers an excellent opportunity for solar energy adoption, with increasingly affordable options. Residents of Arizona can capitalize on various financial incentives, including a statewide tax credit, tax exemptions, and local rebate programs, in addition to the 30% federal solar tax credit. All of these incentives can significantly lower the overall cost of installing a solar system.

How Solar Power System Works in Arizona?

Before we explore the available incentives, let’s provide a brief introduction to how solar energy functions in Arizona. The majority of solar installations in residential areas are qualified for participation in their utility’s net billing program. This system, much like net metering, enables you to accrue credits on your electricity bill for any surplus solar energy generated that remains unused.

In a net billing system, any surplus solar power that you generate but don’t use right away or store in a solar battery is sent to the main electrical grid. This helps reduce the amount of electricity that utility companies need to produce. In return, they reward you with credits on your utility bill. Going solar allows you to be self-sufficient in generating clean energy for your own needs. Also, this allows you to earn rewards while contributing to the adoption of solar energy in your community.

house with solar panel on the roof
a solar panels and cactus

Solar Export Credit in Arizona

In Arizona, the state’s three major utility companies, namely Arizona Public Service (APS), Tucson Electric Power (TEP), and Salt River Project (SRP), offer a solar export credit. This credit is provided at a rate determined and approved by the Arizona Corporation Commission. The specific compensation amount can differ between these utilities and might undergo minor adjustments over time.

  • Arizona Public Service (APS) offers about 9.4 cents per kilowatt-hour (kWh).
  • Tucson Electric Power (TEP) provides roughly 7.8 cents per kWh.
  • Salt River Project (SRP) offers approximately 2.8 cents per kWh.

The details regarding solar incentives for local electric cooperatives and municipal utilities may differ. With that understanding of how solar energy operates in Arizona, let’s explore the financial incentives that are accessible to residential homeowners of the state.

What are some Arizona Statewide Solar Incentives?

Apart from the federal solar tax credit, residents of Arizona can benefit from a 25% state solar tax credit, exemptions on property tax, and sales tax when purchasing solar panels and accessories.

The statewide solar incentives include:

a city with red pointers

Arizona, known as the Grand Canyon State, provides a solar tax credit equal to 25% of your solar installation expenses, capped at a maximum of $1,000. Homeowners can request this personal income tax credit during their state tax filing. If the credit amount surpasses your tax liability, you have the option to carry it forward for up to five years. It’s important to note that individuals who lease solar systems or participate in power purchase agreements (PPAs) are not eligible for this credit.

Incentive Amount: Maximum of $1,000

Availability: One-time tax credit

When you install a solar power system, it can increase your home value. However, in Arizona, there’s a property tax exemption to spare you from paying taxes on this added property value. Importantly, this exemption isn’t limited to just solar panels – it also includes various other energy-efficient upgrades like passive solar technology (such as a Trombe wall), solar pool heaters, solar space heaters, solar thermal electric systems, and solar water heaters. 

To benefit from this tax exemption, you’ll need to provide comprehensive documentation of your energy system’s purchase, installation, and associated costs to your county assessor.

Incentive Amount: Full exemption on Property Taxes for the increased value of a solar panel system

 Availability: Ongoing exemption, starting from the solar installation of your energy equipment

The Arizona Department of Revenue offers a sales tax exemption for solar energy equipment and its installation, but this applies only when the work is carried out by approved contractors. It’s essential to note that this exemption doesn’t cover items like solar battery storage or other accessories that aren’t integral to the initial solar power system.

To benefit from this exemption, your solar installer is responsible for registering with the Arizona Department of Revenue (using Arizona Form 6015). As the customer, you typically won’t need to take any specific action in this process; it’s primarily the responsibility of the installer to ensure the exemption is applied correctly.

 

Incentive Amount: Complete waiver of sales tax on qualifying solar equipment Availability: One-time exemption from sales tax

a person in a hard hat and safety gear using a tablet

How Net Metering Works in Arizona?

In Arizona, most rooftop solar installations are eligible for the utility company’s net billing program, which replaced net metering in December 2016. Similar to net metering, net billing allows homeowners to accumulate credits on their electricity bills for surplus energy generated by their solar systems.

However, there’s a notable difference. Unlike net metering, where customers are credited at the retail rate for excess energy, net billing compensates customers at a non-retail rate. In Arizona, this rate is based on the avoided cost, representing the wholesale cost for the utility to produce electricity. It’s usually considerably lower than the full retail rate under net metering.

These credits have no expiration date and are paid out annually when they reach a certain balance, which typically falls between $10 and $25, depending on your utility company. Export compensation rates for excess solar energy generated range from 7.81 to 10.45 cents per kilowatt-hour (kWh), varying depending on your utility. You can find more information about Arizona’s net billing program on the DSIRE website.

How to Enroll for Solar Net Metering/ Net Billing Program in Arizona?

To enroll in the net metering (net billing) program in Arizona, follow these steps:

First, you need to have a solar energy system installed on your property. Ensure that your system is compliant with your utility company’s requirements.

Get in touch with your utility company to express your interest in enrolling in the net metering or net billing program. They will provide you with the necessary information and guidelines.

Your utility company may inspect your solar system to ensure it meets safety and technical standards. Once your system is approved, you can move forward with the program.

Work closely with your solar installer to complete any required paperwork. This may include interconnection agreements and applications for the program.

A bi-directional meter, which can measure both the electricity you consume and the surplus energy you feed into the grid, will be installed by your utility.

After the bi-directional meter is in place, your system will start generating credits for the excess energy it produces and sends to the grid. You can monitor these credits on your utility bill.

Continue monitoring your energy generation and consumption through your bi-directional meter, ensuring your system is operating efficiently.

You can use the solar energy credits you accumulate to offset your future electricity bills. If you generate more energy than you use, your credits can carry over to the next billing period or accumulate over time.

Typically, at the end of each year, if your credits exceed a certain balance (often between $10 and $25), you may receive a financial settlement or credit for the excess energy at the rate set by your utility.

It’s essential to communicate with your utility company throughout the process to ensure a smooth transition into the net metering or net billing program. The exact steps and requirements may vary slightly depending on your utility and local regulations, so it’s a good idea to consult with your utility and solar installer for specific guidance.

a stack of coins with a TAX letter on wooden cubes

What is the Federal Solar Tax Credit in Arizona?

Arizona homeowners are eligible for the Federal Solar Investment Tax Credit (ITC), often referred to as the ITC. This incentive allows you to deduct a substantial 30% of the total installation costs of your solar panel system from your federal tax bill. To qualify, you must be a homeowner or a member of a cooperative housing corporation that owns the solar panel system.

It’s worth noting that the ITC will gradually reduce in value in the coming years. In 2033, it will drop to 26%, and in 2034, it will further decrease to 22%, eventually expiring in 2035.

Unlike a tax refund, the ITC directly reduces the amount of taxes you owe when you file your federal taxes. One significant advantage is that there’s no maximum limit to the credit you can claim. Additionally, if your tax liability is less than the credit amount, you can carry over the remaining credit for up to five years to maximize its benefit.

To claim the ITC, you’ll need to include it on your federal tax return using IRS Form 5695. Your solar installer should be able to assist you with this process, ensuring you receive the credit you’re eligible for.

How Much Solar Panels Cost in Arizona?

According to research, the cost of installing a residential solar energy system in Arizona typically ranges from $3 to $5 per watt. An average five-kilowatt system, therefore, usually falls in the range of $15,000 to $25,000. However, the actual cost may fluctuate and depends on various factors, including:

  1. Labor Costs
  2. Local Permits
  3. Choice of System Components and Devices
  4. System Configuration
  5. System Size
a solar panel next to a flag with stack of coins
a laptop and money on a table

What are the Estimated Solar Savings in Arizona?

Residing in Arizona comes with significant financial benefits for those considering solar energy. Residents are eligible for both a statewide solar tax credit and the federal solar tax credit. This results in substantial savings on a new solar installation. On top of that, the net billing system, solar rebates provided by your utility company, and tax exclusions further enhance these savings.

In Arizona, the typical payback period for solar panels averages about six and a half years. Given that the average solar system lifespan is of 25 years or more. This means you’ll enjoy over 18 years of generating free energy once your system pays for itself.

All in all, if you call Arizona home, you have the opportunity to save thousands of dollars in energy costs over the entire lifespan of your solar energy system. This makes going solar a financially attractive and environmentally responsible choice.

Are the Arizona Solar Incentives Making It Affordable for Homeowners to Go Solar?

Solar installation expenses in Arizona closely align with the national average. Specifically, a 7-kilowatt (kW) solar energy system in Arizona costs around $18,270, which is nearly on par with the national average of about $18,620.

However, when you consider the federal solar investment tax credit (ITC), the cost for a 7 kW system in Arizona decreases to approximately $12,790, while the national cost remains at around $13,035. This demonstrates that investing in solar power in Arizona can be a worthwhile decision, especially when considering the economic benefits.

A couple standing next to a illustrated house with solar roof

In addition to the ITC available to all American homeowners, Arizona residents have the advantage of various other financial incentives that further reduce the cost of adopting solar energy. This advantage may be due in part to Arizona’s Renewable Energy Standard (RES), which mandates that electric utilities generate 15% of their energy from renewable sources by 2025.

For instance, by leveraging both federal and state solar tax credits, the average cost of a solar system in Arizona can be reduced to approximately $11,790, representing a 35% reduction from the initial $18,270 price. This calculation doesn’t even account for the savings you’ll enjoy from reduced electricity bills, which you can estimate by using a solar saving calculator to get a clearer picture of your potential savings.

a hand holding a pen over a tax incentive form

What are the available Local Solar Incentives in Arizona?

You might be eligible for various incentives and rebate programs depending on your utility company and the type of photovoltaic solar system you install. Here are some local solar incentives available in Arizona. But, we recommend reaching out to your specific utility and local municipality to inquire about additional incentives that might apply to your situation

This program offers incentives of up to $3,750 for homeowners who purchase a solar battery and enroll in APS’ Residential Battery Pilot program.

MEC provides incentives of five cents per watt (up to $2,500) for residential and small commercial solar panel systems with a capacity of less than 50 kW.

MEC also offers rebates of up to $500 for qualifying battery storage installations in solar systems.

This program offers a rebate of 50 cents for every annual kilowatt-hour saved with eligible solar water heaters.

Homeowners can receive a $250 rebate when they purchase and install a demand management solar panel system.

Which Are the Best Solar Tax Incentives Available in Arizona?

When it comes to solar incentives in Arizona, it’s advisable to maximize your benefits by taking advantage of as many of these incentives as possible. However, due to certain limitations or application deadlines, you might not be able to apply for all of them. Here’s a ranking of the incentives you should prioritize:

In addition to solar incentives, most utilities in Arizona also provide rebates for various energy-efficient home improvement upgrades, such as HVAC systems, home energy audits, windows, and more. It’s a good idea to explore these offerings to make your home more energy-efficient and reduce overall energy costs.

a person pointing at a tax incentive list

This is the most substantial solar incentive, offering a 30% deduction from the total cost of your solar system. It’s relatively straightforward to apply for and can result in savings worth thousands of dollars.

Similar to the federal tax credit, the Arizona Solar Tax Credit provides a 25% deduction from the cost of your solar system. Prioritizing this credit is important, as it can save you an additional $1,000 on your solar panel purchase.

While the state of Arizona doesn’t provide an extensive range of solar incentives, some local utilities and municipalities do offer rebates. It’s worth checking with your specific utility to see if they provide any incentives for solar homeowners, as this could lead to savings amounting to several thousand dollars.

Although net billing in Arizona may not be as advantageous as net metering in other states, it’s a valuable incentive. The setup is relatively straightforward, and it allows your solar panels to generate savings on your energy bills without much effort on your part. It’s essentially “free money.”

By strategically prioritizing these incentives, you can maximize your savings and make the most of the financial benefits of going solar in Arizona.

Given the widespread popularity and economic viability of solar power in the state, the good news is that despite the changing incentive landscape, going solar remains a highly worthwhile and beneficial choice for residents in Arizona.

Solar Incentives By State

Frequently Asked Questions
Does Arizona offer any state solar incentives?

The Residential Arizona Solar Tax Credit allows you to receive a 25% refund on your solar panel installation costs, up to a maximum of $1,000, deducted from your annual personal income tax in the installation year.

Are solar panels worth it in Arizona?

Solar equipment costs are relatively lower in Arizona compared to some states, but the overall system cost is higher due to the state's higher energy demand. Despite this, you can still expect a return on your investment, typically within 6 to 10 years.

What are the energy rebates for 2023 in Arizona?

For projects completed between 2023 and 2032, there's a 30% tax credit available for various home improvement projects:

  • Air conditioners have a maximum credit of $600.
  • Heat pumps qualify for a credit capped at $2,000.
  • Furnaces and boilers are eligible for a tax credit with a cap of $600.
  • Geothermal systems, on the other hand, have an uncapped 30% tax credit for both the purchase and installation costs.

Do solar panels increase property taxes in Arizona?

When you install a solar system in Arizona, your property taxes won't go up. In fact, solar panels can boost your property's value, and the state offers a property tax exemption for solar installations.


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