Arizona solar tax credits and utility rebates (2019)
Get the latest info on the big solar incentives available in Arizona.
Arizona is an amazingly great state for solar energy. With a dry climate and a location in the southern US, all of Arizona experiences some of the best solar potential in the country. There’s basically dozens of kilowatts of free electricity falling on your house every day. Why not harvest it?
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:
As you can see, all of Arizona - and especially the south - has fantastic amounts of sunlight. This helps to make home solar a great investment in Arizona.
Not only that, but significant state and local rebates help to bring down the cost of home solar even more. When you combine the federal and state tax credits, you’re looking at saving about 35% off the cost of home solar in Arizona. That’s huge!
Summary of solar rebates in Arizona:
|Federal tax credit||30% off system price through 2019|
|Arizona Department of Revenue tax credit||25% off system price, up to a maximum of $1,000|
Arizona state tax rebate 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 cost of the system, up to a maximum rebate of $1,000. Because of the typical cost of a solar array, 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.
The tax credit isn’t just for photovoltaics, but any device used to “collect and transfer solar generated energy”. That’s a really broad definition, which means that the following types of devices are included:
- 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
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.
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 11.6 cents per Kilowatt hour, while other utilities may pay as little as 6 cents.
Despite this policy, Arizona 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.
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, up to a maximum system size of 50 kW. This means that the incentive could be as large as $2,500, although 50 kW would be extremely large for a residential system, unless you have a mansion and a couple of Telsas to power.
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. But the average retail price of residential electricity in Arizona is 11.47 cents per kilowatt hour.
This is a little less expensive than the average price of residential electricity in the United States of 12 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 $128.
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.