This article was updated in July 2021 to reflect the latest information.
With California’s year-round sunny skies, ambitious climate change goals, and a selection of financial incentives and benefits to choose from, going solar might be more affordable than you think.
The exact cost of your PV system (and how much you’ll save on your energy bill) depends on a list of factors. Some 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.
Regardless of where you live in California, there are a few solar incentives and savings benefits 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). Continue reading to find out more about these offerings and more.
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 20+ 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. Every homeowner who buys and owns their PV system can claim and deduct 26% of their solar installation costs from their federal taxes (tax liability) this and next year—2021 and 2022. For example, if you install a PV system that costs $20,000, and you owe $6,000 in taxes, you can reduce your tax liability from $6,000 to $1,200 by applying your $5,200 ($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 $3,000 instead of $6,000, you can roll over the unused $2,200 ($5,200 – $3,000) to next year’s taxes.
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. Also, the value of the ITC stepped down from 30% to 26%; it will drop to 22% in 2023, then to zero for residential installations in 2024 unless Congress renews it.
Here’s an in-depth guide about the ITC for homeowners from the Department of Energy.
Net Energy 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.
We’ve written extensively about NEM and what its changes will mean for solar savings; learn more about California’s latest NEM policy here: NEM 2.0. Note: The California Public Utilities Commission (CPUC) is currently in the process of developing a successor to the existing NEM tariffs.
To learn more about the latest NEM developments, check out our expert panel Straight Talk: State Net Energy Metering Programs.
Solar for Affordable Housing
California’s Single-Family Affordable Solar Housing (SASH) program provides incentives to qualifying low-income single family homeowners to help offset the upfront costs of installing solar. The program offers one up-front incentive level of $3/Watt to all qualifying applicants to eligible households within the PG&E, SCE, and SDG&E territories. SASH is overseen by the CPUC and administered by GRID Alternatives.
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.
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.
Sunny Wang is Aurora Solar’s Director of Government and Non-Profit Relations. Previously, she was the Assistant Director of a new interdisciplinary research initiative at Stanford University. She received her Masters in Public Policy from Johns Hopkins University and graduated Pi Alpha Alpha from CSU, Fullerton.