Note: This blog was originally published in March 2022. It was updated October 30, 2023 to reflect recent changes. If you have any questions, please contact us.
With California’s year-round sunny skies, ambitious climate change goals, the introduction of NEM 3.0, and a selection of financial incentives and benefits to choose from, it’s no surprise that it leads U.S. in solar. According to SEIA, California has invested 90.6 billion dollars into solar and currently more than a quarter of its electricity is generated from it, with numbers expected to increase. With that being said, in order for California to reach its climate and energy goals, widespread adoption is essential. Luckily, there are several solar incentives, programs, and rebates for consumers that make going solar more affordable.
The exact cost of your PV system (and how much you’ll save on your energy bill) depends on a list of factors. These 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.
Learn more about California NEM 3 in our NEM 3 Resource Center.
Regardless of where you live in California, there are a few solar incentives and rebates 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.
How do California solar tax credits work?
There are a few different tax incentives that California residents can benefit from when they install solar. However, most commonly, these incentives allow homeowners and businesses to deduct a portion of the costs associated with the installation of solar panels from their tax obligations. When a solar system is installed, the owner calculates the total eligible cost, then multiplies it by the tax credit rate to determine the amount of the credit. This amount can then be subtracted from their total tax liability for that year.
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 30+ 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. Thanks to a recent extension and the Inflation Reduction Act, every homeowner who buys and owns their PV system can claim and deduct 30% 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 $7,000 in taxes, you can reduce your tax liability from $7,000 to $1,000 by applying your $6,000 ($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 $4,000 instead of $7,000, you can roll over the unused $2,000 ($6,000 – $4,000) to next year’s taxes.
This extension will remain until 2032. In 2033, the tax credit is scheduled to decrease to 26%, and to 22% in 2034. 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.
Here’s an in-depth guide about the ITC for homeowners from the Department of Energy.
California net 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.
NEM 1.0 was the original policy that allowed solar customers in the state of California to receive credit for the surplus electricity their solar systems produced. However, as solar adoption grew exponentially, there were concerns about the sustainability of this model. Thus NEM 2.0 was created.
NEM 2.0 introduced several changes to the program. These changes included an interconnection fee for new solar customers, non-bypassable charges, and adjustments to how credits were calculated. But we’re not done yet.
NEM 3.0 is the most recent update to California’s net metering policy, and went into effect in April 2023. Also referred to as the Net Billing Tariff, NEM 3.0 adjusts solar export rates to be closer to wholesale rates, which are what utilities pay for electricity. This in turn, extends payback periods for solar customers, and lowers cost savings. Batteries for self-consumption are more attractive and cost effective under NEM 3.0.
Under NEM 3, storage — especially storage for self-consumption — is more important than ever. Click through the Tourial below to learn more about hour hourly storage visualizations can help you attach storage to more sales.
California solar programs for affordable housing
Self-Generation Incentive Program
This California solar program offers rebates of $250/kilowatt-hour for installing solar battery technology in your home. Those eligible for the SGIP rebate include residential customers of Pacific Gas and Electric Company, Southern California Edison, Southern California Gas Company, and San Diego Gas and Electric. Along with this program are two additional categories of higher rebates: Equity and Equity Resilence. Those eligible for Equity receive a rebate of $850/kilowatt-hour and $1,000/kilowatt-hour for Equity Resilience. Read more on eligibility and requirements for these solar programs.
Single-Family Affordable Solar Housing (SASH)
California’s Single-Family Affordable Solar Housing (SASH) program was designed to provide incentives to qualifying low-income single family homeowners to help offset the upfront costs of installing solar. SASH is overseen by the CPUC and administered by GRID Alternatives. As of this writing, SASH is closed. You can go to this GRID Alternatives SASH information page to learn more.
Multifamily Affordable Solar Housing (MASH)
The state’s Multifamily Affordable Solar Housing (MASH) program, which is now closed to new applicants but may have a waitlist, provides incentive rates of $1.10 to $1.80/Watt for qualifying multifamily affordable housing. It is administered by PG&E, SCE, and the Center for Sustainable Energy in SDG&E territory.
Local solar incentives and rebates
Many city-level rebate programs have expired, but it’s worth taking a look in your area. The City of San Francisco’s GoSolarSF program offers a one-time cash incentive to residential, commercial, and nonprofits to encourage solar installations. This program is now only open for the low-income DAC-SASH incentive category and will be expiring soon. Learn more about the different incentive rates and eligibility here.
There are a lot of solar power incentives in 2023 — and beyond — to consider. Click the following links to learn more about selling storage under NEM 3 in California (hint: it involves self-consumption), and whether the ITC is applicable for solar battery usage.
And, as always, be sure to relay these — and any other — incentives to potential customers. They can be the difference between a new installation and a “No thanks”.