How Government Subsidies Impact Solar Costs

The direct cost of solar panels for homeowners is reduced through subsidies, rebates, and incentive schemes. Here’s what you need to know.

Are you considering going solar soon, or are you already preparing to have solar panels installed in your home? If so, you want to know what benefits you can get from them.

Many are hesitant because of the high upfront cost, but you can get several incentives to make it cheaper. Usually, these come from the government and state, including tax advantages and cashback. But what exactly are those?

It helps to know what financial benefits you can get to reduce solar costs. So, here’s a guide to how different government subsidies can impact the price of a solar panel system.

Financial Benefits of Going Solar       

You can expect more savings from using electricity to solar energy. It removes the need to pay for power and replaces it with a system that constantly generates it without a price.

So, you already get to save money only from installing solar power. But besides that, you also get additional federal and state benefits.

The government encourages people to use solar power by providing various incentives. It allows them to get cashback and credits that make up for a portion of the price they pay for the system.

Here’s an in-depth look at the perks you can get from solar energy:

Federal Tax Credits on Solar Costs

One of the best solar incentives you can get includes federal tax credits. It gives you back 30% of the price you paid for the solar panel system and installation on federal income taxes.

So, rather than deducting the amount, it reduces the amount of taxable income you owe. The incentive offsets what you owe in taxes and returns the excess payment as a refund if you have already paid beyond that.

The catch is that you should have the system installed from 2022 to 2032 for residential properties. Commercial solar systems also get a 30% tax credit benefit until 2025.

Starting in 2033, the percentage of federal tax credits homeowners receive from installing solar panels will be reduced yearly. The scheme is as follows:

  • 30% for installation from 2022 to 2032
  • 26% for induction in 2033
  • 22% for installation in 2034

The government will only provide these credits from 2035 if they decide otherwise.

State Tax Exemption

The incentives you get from state to state vary. Some offer property and sales tax exemptions, either of the two or none. So, checking your state’s guidelines before expecting it is best.

Here’s what each of the taxes covers:

Sales Tax on Solar Costs

If your state offers a sales tax exemption for solar panels, you don’t have to pay the tax upon buying the system and its parts. And so, it reduces the total amount you pay for the solar panels upfront.

Note that this only applies to anything that adds up to the total cost of the solar panel system. It includes the panels, extra parts, and installation. It would help if you covered the cost when you need repairs or maintenance.

Property Tax

States that provide property tax exemptions for solar panel installations allow you to retain the taxes you pay for your home. Usually, renovations like these add to the property’s tax and value. But with this exemption, you grow the value of your home without worrying about paying higher taxes.

It makes solar panels a great benefit if you sell your home because you can increase the price and value without covering more tax.

Utility Company Cash Rebates

A solar panel system will likely produce extra energy if they have good access to sunlight. A few ways to use them include storing them in batteries for later use or putting them back on the grid.

When you send excess power to utility companies, they compensate the amount by offering cash rebates. In most cases, the cost depends on the wholesale price of electricity per kilowatt. Even so, you could get extra cash to get back the price you paid for the solar panel system.

It becomes an excellent way to receive cashback and savings sooner while promoting the use of renewable energy among companies.

Performance-Based Incentive

Besides utility cashback, you can get performance-based incentives, which pay you for every kilowatt-hour credit your system generates. It’s a program that compensates you for generating renewable energy.

You don’t have to sell these to earn from it. But note that the rate of your incentives varies after the system installation. In a way, it replaces or works with net metering policies in your location.

For PBIs, you get paid based on how much energy your solar panels produce within a set duration. Utilities determine how much to pay you according to a fixed and approved amount or percentage of your bill offset by your system’s power production.

Solar Renewable Energy Certificates

Some states also give you solar renewable energy certificates or SRECs for the amount of power your solar panel system generates. You can sell these to companies or so to get additional cash for having and using the system.

You can make more if you live in a state that requires utilities to produce a certain percentage of renewable energy. They will likely look for homeowners who sell SRECs to comply with the state’s renewable energy requirements.

As a result, you can gain hundreds to thousands a year from selling your solar renewable energy certificates.

How to Finance for Solar Panel Installation

Going solar has fewer drawbacks than most people think. But one thing that hinders homeowners from making the switch is the cost.

Solar panel systems are expensive upfront compared to the cost you pay for power bills every month. It costs a lot for some, even if they spend it in installments. Because of this, many people rely on solar subsidies to make up for the price.

Consider different ways to finance your solar panel system to determine the best option. The following are the common ways to pay for solar energy.

Cash Purchase

You can get the most savings when you pay for a solar panel system in full through cash since there are no additional payments. Moreover, you get deductions made directly to the cost of your system, making it seem like you pay a lower price from the get-go.

The downside is the price of the solar panel system itself. Not everyone can afford to pay for the system, and its installation in one go. So, consider paying it through a different option unless it doesn’t dent your finances.

Personal Loan for Solar Costs

Homeowners can apply for a personal loan to finance their solar panel system. But just like other loans, you must pay interest at a fixed rate and make payments every month.

You can file a loan as a home improvement project for a higher limit or longer payment term. Although, it’s good to note that you must pay more to cover the interest.

While loans are an excellent option to avoid paying in total upfront, they reduce the amount you can save. And so, it results in lower total savings.

You should also note that you still own the system even if you pay it with a loan. So, you can still enjoy the incentives, from cashback to exemptions.

Solar Lease and Purchase Power Agreement

Some solar companies allow you to rent their solar power systems to homeowners who can’t afford to pay it monthly or upfront. Moreover, they don’t have to worry about maintenance and repairs since they aren’t the system’s owner.

Two ways to rent a solar panel system are through a solar lease, which means you pay a fixed rate to use them, or a purchase power agreement, which refers to delivering only the energy you use.

Compared to electricity from regular utility companies, you still pay less monthly and worry less about running out. But since you don’t own the system, you won’t get the perks it comes with.

Moving or selling your house also gets tricky since you should find a homeowner willing to continue paying for the lease.

Fannie Mae or Home Equity Loan

You can get loans related to your property if you want other benefits. You can consider two options: the Fannie Mae and home equity loans.

The Fannie Mae mortgage loan helps you finance home renovations and upgrades, including solar panel installations. The loan allows you as much as a 97 percent loan-to-value ratio. So it becomes easier to qualify for other loans.

On the other hand, a home equity loan is similar to a personal loan. In line with this, you can also get a HELOC, which acts like a credit card that depends on your home’s value.

The main drawback of these options is that they tend to have higher interest rates. You pay more monthly with these plans than with traditional personal loans. But since they focus on paying for home upgrades, you can get better terms with them, like more extended payback periods.

How to Choose a Solar Panel System

No matter how many solar rebates you get from the government and utility companies, finding an ideal system is essential. The benefits of going solar depend on the solar panels you purchase.

Here’s a guide to choosing a solar panel system that fits your needs to get you started.

Consider Efficiency

Different types of solar panels offer varying ranges of efficiency. It usually depends on the materials for the system, which also causes price changes.

The best way to see if solar panels are energy and cost-efficient is by checking your power consumption. This way, you can see if the amount you produce and use aligns with how much you pay for it.

Your chosen manufacturer will also determine whether you have efficient solar panels. So, consider reviewing reviews and testimonials about their service before purchasing.

Check Your Location

Your location can affect your solar panel system’s efficiency after installation. If your roof doesn’t get much sunlight exposure or you live in a cold climate, you can expect the panels to produce less energy.

You might have to adjust where you place the solar panels or consider a different type before buying them. This way, you don’t have to worry about spending thousands on a system that doesn’t work as well as you thought.

Overall Cost

Most, if not all, solar power systems are expensive if you pay for them upfront. Their prices can vary on the type of panel, manufacturer, and financing option you choose.

Although solar energy gives you long-term savings, it costs a lot to get started. So, you want to consider how the price lines up with how well the system works.

At the same time, you want to ensure you are paying less for what you use. For example, if thin film panels produce enough power for regular consumption, you don’t have to go for monocrystalline ones. This way, you still pay a reasonable price based on your current lifestyle.

Size, Durability, Appearance

The downside of solar panel systems is that they are more than just a one-size-fits-all solution. The size, durability, and appearance vary depending on the panel type.

If your roof has little room, you might be unable to install monocrystalline panels because they require a lot of space. Polycrystalline and monocrystalline panels are best for homes more prone to roof damage because they withstand force better.

Some solar panels also look less attractive than others. If you value the appearance, you should see what they look like on your roof before selecting an option.

Reduce Solar Costs With Government Financial Incentives

Switching to solar energy can bring many benefits, but it is expensive. As a result, the government, state, and utility companies offer financial benefits to reduce solar costs.

It includes tax benefits like exemptions and credits, cashback and rebates, various financing options, and more. They help lighten homeowners’ costs to install and use solar power systems. At the same time, encourage more people to start using renewable energy. So, what do you think? You can check out the rest of our blog if you want to learn more about it!


Hi I am Jawad the Editor of Sunday N Magazine. The Sunday N Magazine is a platform dedicated to exploring every aspect of life including technology, business, health and lifestyle through engaging and thought-provoking to get the latest business and technology updates and trying to win the interest of readers.

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