Federal Incentives The Renewable Energy Tax Credit commonly referred to as the Federal Tax Credit or ITC, provides a 30% federal tax credit for residential and commercial solar installations. The 30% credit is calculated from the total system cost. This would include sales tax, permits, and fees, in addition to the materials and labor cost. The IRS also recently issued a private letter ruling allowing battery storage systems that are charged by solar to be eligible for the credit.
To claim the tax credit for residential installations, you would need to fill out IRS Form 5695 and submit that with your federal tax filing. The credit is normally claimed for installations that were paid for during the tax year you are filing. For commercial installations you would use IRS Form 3468.
Importantly, the ITC is a tax credit against your tax liability. It is not a reduction of income, or a tax deduction.
Here’s a summary of the rate schedule and some guidance from energy.gov:
30% for systems placed in service by 12/31/2019
26% for systems placed in service after 12/31/2019 and before 01/01/2021
22% for systems placed in service after 12/31/2020 and before 01/01/2022
There is no maximum credit for systems placed in service after 2008.
Systems must be placed in service on or after January 1, 2006, and on or before December 31, 2021.
The home served by the system does not have to be the taxpayer’s principal residence.
Example: If the total cost of your new solar installation was $10,000 in 2018, then when you file your taxes in early 2019, for the 2018 tax year, you may be able to claim a tax credit of $3,000 ($10,000 x 30%). If you had a tax liability in 2018 of $10,000, then the tax credit would reduce your tax liability to $7,000.
If your new solar installation generated a tax credit of $3,000, but you had less than $3,000 in tax liability, then you may be able to roll over a portion of the tax credit to the next tax year.
* Remember, we are solar installers, not accountants. Please contact your tax professional to confirm how you can make use of the ITC.
Washington Production Incentive In July 2017, Governor Inslee signed a new law providing production incentives for grid-tied solar production, to support solar jobs and encourage the investment in solar. Washington will pay you to produce solar electricity.
Each utility in Washington has an annual fund of $250,000 or 1.5% of taxable revenue (2014), whichever is greater. For OPALCO this works out to be roughly $260,000 available for annual incentive payments.
For grid-tied solar installations of 12kW or less (considered residential scale), the production incentive is $0.16/kWh for installations certified before July 1, 2018. The incentive is effective for 8 years after installation. Note: Certification can take up to 30 days, so plan ahead if summer is approaching.
For installations certified between July 1, 2018 and June 30, 2019, the incentive is $0.14/kWh and the incentive continues to reduce by $0.02/kWh each year thereafter. The incentive program is not currently available for installations completed after June 30, 2021.
For installations greater than 12kW (considered commercial scale), the incentive starts at $0.06/kWh for 8 years for installations certified before July 1, 2018 and decreases $0.01/kWh each year for new installations until June 30, 2021.
For installations using Made in Washington PV modules (e.g., Itek Energy) there is an additional $0.05/kWh production incentive available for installations certified before June 30th, 2018. The rate decreases $0.01/kWh each year thereafter.
Importantly, the incentive rate you receive is fixed for the entire 8 years. If you are certified during the $0.14/kWh incentive period, then you will receive $0.14/kWh for 8 years.
The production incentive is funded by the state and paid through OPALCO. Each June 30th, your new production meter is read, and a check is sent to you in September equaling your incentive rate times the number of kWh your system produced between July 1st and June 30th.
The incentive is paid based on kWh produced by your solar PV system. It does not matter if you consume the electricity or send it back to the grid. To be clear, the incentive is paid for all electricity produced.
Example: If your 8kW solar PV system generated 10,000 kWh between July 1st and June 30th and your incentive rate is $0.16/kWh, then the incentive check you receive in September will be $1,600.
The production incentive is completely separate from your electricity bill. If your system produced 10,000 kWh, then your annual incentive could be as much as $1,600, and electricity savings would be between $1,000 and $1,300, for a total benefit of $2,600 to $2,900 each year.
The production incentive is limited to a total amount that cannot exceed 50% of the original system cost. If your PV system cost $10,000, then all of your production incentive payments cannot exceed $5,000.
The annual production incentive payment is limited to $5,000 per utility account holder. If you own a large PV array and/or multiple PV systems on one or more properties in Washington, your total incentive payment cannot exceed $5,000. Generally, the total capacity of your PV systems would have to be greater than 30kW for this to be an issue. This $5,000 limit includes incentive payments from previous Washington incentive programs.
* More information on the program can be found by visiting the program website here.
Net Metering If you are an OPALCO member then your grid-tied solar PV system is eligible for net-metering. Net-metering means that if your array produces more electricity than you consume (common in summer months) then you earn credits for the electricity you sent back to the grid. During a later month, if you consume more electricity than your array produces (common in winter months) then you retrieve those credits at full value. This means it is perfectly possible to pay only the facilities charge* in December even though you consumed more electricity than you produced.
With net-metering, you receive the full benefit of any electricity your array produces even if you don’t consume that electricity during that month. Moreover, if it happens that you have produced more electricity than you consumed for the entire year, then OPALCO will send you a check for the excess production times the wholesale electricity rate (roughly $0.045/kWh). *OPALCO charges a flat fee of $42.57 each month, even if you use no electricity. This is known as the facilities charge and allows OPALCO to cover infrastructure costs even as electricity consumption varies.