Arizona solar tax credits and utility rebates (2020)

Get the latest info on the big solar incentives available in Arizona.

Picture of an Arizona landscape.

Arizona is a great state for solar energy. Not only does it have some of the best year-round sunlight in the country but also favorable incentives, including a generous state tax credit. This means that an investment in home solar panels can pay for itself

Here’s a map of the solar energy that falls on the United States, with the areas with the highest solar potential colored in deep red:

Map of DNI (NREL)
NREL

This is a map of what’s called Direct Normal Irradiance, which is a measure of the amount of sunlight that hits the ground in an average year.

“Hits the ground” is a key point: DNI takes into account the average climate, including things like haze and cloud cover that affect how much light reaches the ground (and your solar panels). Florida is further South than Arizona so you might expect it to have more sun, but you can see on the map that Florida has lower DNI values. This is because Arizona has a drier climate, and with fewer pesky clouds blocking the Sun, solar panels in Arizona will generate more electricity than in Florida.

If you want to geek out and explore this map yourself in further detail, the National Renewable Energy Laboratory has an interactive version. (By the way, this same climate data also is what’s behind The Solar Nerd Calculator, which means that it will give you an accurate solar production estimate for your location.)

With great solar potential and both federal and state tax credits to take advantage of, Arizonans have a lot of reasons to go solar!

Summary of solar rebates in Arizona:

Federal tax credit26% off system price through 2020; 22% in 2021
Arizona Department of Revenue tax credit25% off system price, up to a maximum of $1,000

Arizona state tax credit for solar

The most significant solar rebate offered in Arizona is the Credit for Solar Energy Devices from the Arizona Department of Revenue. This credit offers 25% off the gross cost of the system, up to a maximum credit of $1,000. Because the invoice price (before other incentives) of a home photovoltaic system will pretty much always be greater than $4,000, most homeowners will qualify for the maximum $1,000 credit.

It can be combined with other incentives, including the federal solar tax credit, giving you a significant amount of cash back when you install solar panels on your home.

How the Credit for Solar Energy Devices works

This incentive is a tax credit, which means that you claim it at tax time. It is used to reduce your tax bill. For example, if the price of your system before any incentives is $15,000, you would get the maximum credit of $1,000.

You would then be able to use that credit to reduce your state tax bill by $1,000. If your tax bill is less than your solar tax credit, you can carry over the remainder for up to five consecutive years.

It’s worth underscoring again that this is a tax credit, which means that you need to wait until tax time to get your money back. Between the federal and the Arizona solar tax credits, you’re looking at fronting the full cost of the system and waiting until April rolls around so that you can get a pretty big chunk of money back.

Considering the large size of the incentives, it’s worth even getting a small loan (such as with a HELOC) if necessary to tide you over for the year or less until you get your rebate check.

Qualifying equipment

It’s worth noting that this tax credit isn’t just for photovoltaics, but any device used to “collect and transfer solar generated energy”. Here’s the detailed description from the Arizona Form 310:

Solar photovoltaic systems - collectors, batteries, inverters, solar system related wiring, and including solar photovoltaic systems for recreational vehicles used as a residence. End-use appliances (even if they are 12 vdc) are excluded unless they are manufactured specifically for photovoltaic systems applications.

A few noteworthy points: this credit applies to solar batteries, such as the Tesla PowerWall. This is great news, because with the dropping cost of solar storage and net metering having been discontinued in Arizona (read more below), batteries have become more attractive to Arizona solar homeowners.

Here’s a full list of equipment that can qualify for the Arizona tax credit:

  • Photovoltaics
  • Solar hot water collectors
  • Solar pool heaters
  • Solar lighting
  • Passive solar building systems, such as trombe wall components, thermal mass, and components specifically designed for energy gains. Notably, windows are excluded from this category.
  • Micro wind turbines

Solar pool heaters and other solar hot water devices are popular in Arizona because so many people have swimming pools. These devices don’t use solar cells to convert sunlight into electricity, but heat water directly and use a heat exchanger to transfer that heat to your pool water or a hot water tank. If all you want to do is generate hot water, these can be more efficient than using photovoltaics.

Eligibility requirements

There are a few requirements to be eligible for this credit:

  • You must be an Arizona taxpayer.
  • The solar device must be installed on any Arizona residence, including second homes and even motorhomes, if the motorhome is considered your residence.
  • The system must be installed by a properly licensed contractor.
  • The solar panels must have a product and an installer’s warranty of at least two years, and the remaining equipment must have warranties of at least one year.
  • The person who sells a solar energy device in Arizona must furnish a certificate to the buyer that the solar energy device complies with Arizona’s solar energy device requirements.

By the way, if you use The Solar Nerd to find your solar contractors, we’ll make sure to connect you with qualified local installers who meet these criteria.

More info and references

You can claim the credit on Form 310. The form is just one page, and the instructions contain details about how to claim it.

Pub 542 from the Arizona Department of Revenue includes some frequently asked questions that aren’t covered in the instructions for Form 310.

Arizona Net Metering

In 2016, the Arizona Corporation Commission (the public utility commission for the state) voted to end net metering. What this means for the solar owner is that new systems that are added to the grid will be reimbursed at a wholesale rate for any excess electricity they send into the grid. The upshot of this is that if you consume less energy than your panels produce during the day, and draw power from the grid during the evening, solar will be less financially advantageous for you.

The rate that you will be paid for your excess electricity varies by utility. APS, under Rate Rider RCP, pays a pretty high rate at 10.45 cents per Kilowatt hour, while other utilities may pay as little as 6 cents.

(Note that APS has been reducing the rate they pay to homeowners for their excess solar electricity in steps called tranches, and these tranches have been updated annually. Check the APS website for current rates.)

Despite the fact that Arizona doesn’t have full net metering, it remains a great state for solar because of the favorable climate, and state and sales tax incentives.

By the way, if your system was installed before net metering was recinded, you are grandfathered under your original net metering rate for 20 years.

Arizona sales tax exemption for solar

In addition to the state income tax credit, Arizona also exempts solar from the 5.6% state sales tax, which is a pretty significant savings. However, this doesn’t include local sales taxes, which on average are about 2%. Muncipalities may provide an exemption from this local tax, however, so find out from your installer if that’s the case for you.

Local solar incentives in Arizona

There are a few utilities and cities that provide residential solar incentives:

City of Mesa

The City of Mesa offers a Solar Program which gives a rebate of $200 per kW installed, up to a maximum of $1,000. This program was recently renewed and will run through June 30, 2020.

The requirements for the program are basic: if the utility allows you to interconnect your system to the grid, you should qualify for the rebate as long as the program budget hasn’t been exhausted. Use the link above to find out the latest program status and to get more details.

Duncan Valley Electric Cooperative

The Duncan Valley Electric Cooperative and Mohave Electric Cooperative operate the Sunwatts Renewable Energy Incentive Program, which give a rebate of 5 cents per installed Watt.

With DVEC, the maximum rebate is $500. With MEC, the maximum is $2,500.

The process to apply is pretty simple: you or your contractor must submit a copy of the proposed solar system design and your rebate application prior to system installation. There are other requirements too, such as inspections and permits, but those are part of the process anyway, and not specific to the rebate application.

Visit the links above for more details.

Does it make sense to go solar in Arizona?

There are two big reasons why people choose to add solar panels to their house: it saves them money on electricity in the long run, and it helps the environment.

The average price of electricity in Arizona

For homeowners, the retail price of electricity will vary with your electricity provider - sometimes by a lot. As of April 2020, the average retail price of residential electricity in Arizona is 12.78 cents per kilowatt hour.

This is a little less expensive than the average price of residential electricity in the United States of 13.28 cents per kilowatt hour.

What does the price of electricity have to do with your decision to go solar? Well, the more expensive your electricity is, the more compelling solar power is because high bills mean that solar panels will pay for themselves quicker.

In Arizona, the cost of electricity is a little less than the United States average. At first, this might seem to make solar less compelling. But of course Arizona is a hot climate, and air conditioning is a necessary part of everyday life for many Arizonans.

Air conditioners are big energy hogs, with home central AC units using a few kilowatts of power when they’re operating. Because of this, electricity use in Arizona is higher than average - the average monthly bill in Arizona is $131.

If you’re one of those people with high electricity bills, and especially if you have large energy consumers in your home like air conditioning, then you should definitely consider home solar.

Save 26% or more on home solar with current incentives

When you’re ready, fill out our form to get up to three estimates from qualified solar installers.

Save 26% or more on home solar with current incentives

Photo of a solar home.

Use our calculator to get a financial payback and solar performance estimate customized to your home, including federal, state, and local incentives.

When you’re ready, fill out our form to get up to three estimates from qualified solar installers.