Adding solar panels to a new or existing structure might seem like a hefty investment, but there are multiple ways to finance photovoltaic systems that bring down costs to a more manageable amount. Leases, solar power purchase agreements (SPPA’s) and solar loan programs are three common and effective solar financing initiatives. However, perhaps the most important financial aid to the solar industry is a public one: government tax breaks.
State Tax Credits
Income tax credits are available at both the state and federal level for solar users. State tax credits vary from state to state. For instance, in Massachusetts, state tax credits cover 15 percent of installation costs (up to a maximum of $1,000), whereas in Utah the individual income tax credit covers 25 percent of installation costs (up to a max of $2,000 for residential systems).
Federal Tax Credits
For federal income tax credits, the Solar Investment Tax Credit (ITC) is the big one. The ITC is a 30 percent tax credit for photovoltaic systems on both residential and commercial properties. The credit is applied when a homeowner purchases and installs solar panels outright and not through a SPPA.
The ITC was created via the Energy Policy Act of 2005 and received an eight-year extension in 2008. The extension of residential and commercial solar ITC helped solar installation rates grow by over 1,600 percent since its implementation in 2006. In other words, the ITC is a huge driving force for the continued adoption of solar energy at both the individual and commercial levels.
However, the ITC as it exists now is in danger. After 2016, the tax credit is set to drop from 30 percent to 10 percent for commercial properties and disappear entirely for residential properties. Solar financing will be more difficult if congress does not approve another extension of the tax credit.
Solar Financing for the Future
Even if congress does not approve another extension to the ITC in 2016, advances in solar panel technology will likely reduce costs to a more manageable level, and there are still more third-party solar financing initiatives available.
Natalie Benoy is a renewable energy writer reporter for Fusion 360, an SEO and content marketing agency. Information provided by Elements Capital Group.