The following is a summary of the main tax credits and incentives that are currently in place to make solar more affordable to those interested in installing a solar system in Washington. Click for a list of Washington utilities to find out more about your utility's solar programs including net metering, if your utility participates in the state production incentive program, interconnection, and more.
Washington State Production Incentive
NEW INCENTIVE PROGRAM:
The Washington State Legislature passed a revised production incentive program on July 1, 2017. Click for a summary of the bill.
Washington State Department of Revenue (UPDATED 8/24/17):
The Washington Dept. of Revenue has released a statement concerning changes to the Renewable Energy Cost Recovery Program. Below is language from the release which applies to system owners, sellers, and installers. Click to view the release. (PDF file)
Language from the release:
- Transfers the administration of the Renewable Energy Cost Recovery Incentive Program from the Department of Revenue (Department) to the Washington State University extension energy program (WSU); and
- Ends the sales and use tax exemptions for solar energy systems capable of generating 500 kilowatts or less after September 30, 2017.
Engrossed Substitute Senate Bill (ESSB) 5939.
System owners, sellers and installers
- Participants with systems already certified by the Department must reapply to WSU by April 30, 2018, to maintain certification and eligibility for incentive payments. These participants will continue to receive incentive payments for electricity produced through June 30, 2020.
- Participants with newer systems (systems capable of generating electricity on or after July 1, 2017) may apply directly to WSU for initial certification.
- The Department may only issue certifications for systems that were capable of generating electricity prior to July 1, 2017. The Department will accept applications for such systems through September 30, 2017, and no later.
Information related to program application data and PUT credits is not considered confidential tax information and is subject to public disclosure. For information about the new program, please contact WSU at (360) 956-2000 or firstname.lastname@example.org."
Washington State University's Energy Program (UPDATED 9/6/17):
Engrossed Substitute Senate Bill 5939 passed the Washington State Legislature this session and signed into law by Governor Inslee creates a new incentive program for citizens and businesses of Washington.
- It modifies tax incentives for renewable energy systems and provides guidance for recycling related components.
- The Washington State University (WSU) Energy Program will administer the new incentive program.
- Projects eligible for incentives under the new program include renewable energy systems, such as solar photovoltaic energy systems, anaerobic digesters, or wind generators used for producing electricity.
- Incentive rates for the new program are based on the fiscal year that the system is certified, project type, and if the system qualifies for a made-in-Washington bonus.
The WSU Energy Program has put together the attached Frequently Asked Questions (FAQ) document. WSU also has been working with the Department of Revenue and other state agencies that are involved in the program to achieve more clarity. Several matters still need additional clarification – which are being worked on.
WSU will add to the FAQ when additional information becomes available.
PREVIOUS INCENTIVE PROGRAM:
Below is a summary of the program prior to the July 1, 2017 passage of the new bill:
Passed unanimously by the Washington State Legislature in 2005, the Production Incentive was created using the following language.
"The legislature finds that the use of renewable energy resources generated from local sources such as solar and wind power benefit our state by reducing the load on the state's electric energy grid, by providing nonpolluting sources of electricity generation, and by the creation of jobs for local industries that develop and sell renewable energy products and technologies.” EXCERPT from RCW 82.16.110
By rewarding property owners for installing Made-in-WA solar systems at a higher rate, the hope was to launch clean renewable energy manufacturing in our state.
The Production Incentive is an annual payment based upon the total kilowatt hours (kWh) produced by a solar photovoltaic (PV), biogas, or wind system up to a maximum payment of $5000 annually.
Incentive rates are based upon a base rate of up to $.15/ kWh for equipment made out of state. The combination of a WA Made inverter with out of state solar panels earns up to $.18/ kWh. The combination of WA made panels with out of state inverter earns up to $.36 and when both the inverter and panels are Made in WA, the maximum incentive rate is $.54/ kWh for homes and businesses. Community Solar projects earn at a rate that is double the rate for an individual property owner (home or business owner).
The funding comes out of Public Utility Taxes that each utility would otherwise pay to the State. Utilities are charged with reading the meters and tracking the annual payments to customer generators.
Not only is there a cap of $5000 on the amount of funds any individual (or couple) can earn, there is also a cap of how much each utility can redirect out of their taxes they would be paying to the state. Each utility’s annual pool of funds available to pay the Production Incentive is capped at .5% of their taxable sales for the year.
The current Production Incentive program expires June 30, 2020 and no payments will be made for kWh generated after that date.
Contact your utility to find out if and how the caps have affected their implementation of the state incentive program. It could be different for each one. Some utilities simply closed their solar programs and are not allowing more people to join them. Others are reducing the payment to each participant and continuing to keep the doors open for new participants.
- The Washington Production Incentive is the primary reason why the growth of solar in WA has been so strong in recent years. View a PDF chart showing the number of solar systems added through December 31, 2016, courtesy of WSU Energy Office.
- The Washington State Department of Revenue (DOR) describes the parameters of the Cost Recovery Incentive program in this PDF.
- View a list of equipment approved for “Made in Washington” Renewable Energy Systems Cost Recovery Incentive payments.
- Link to the Law governing this incentive
Federal Income Tax Credit
The Solar Investment Tax Credit (“ITC”) is a federal tax credit for solar systems placed on residential (under Section 25D) and commercial (under Section 48) properties. In December 2015, Congress acted to extend the 30% tax credit through 2019 with a step down in subsequent years: to 26% in 2020, to 22% in 2021, and thereafter it is 0 (zero) for homeowners and 10% for businesses.
The Wind Production Tax Credit declines on a different schedule than the tax credit for solar. Learn more about wind from the American Wind Energy Association and the Distributed Wind Energy Association.
Sales Tax Exemption in Washington State
Solar PV systems of 10kW or less are exempt from sales tax. This exemption is available to both residential and commercial customers. This exemption will expire September 30, 2017. See "Washington State Production Incentive-NEW INCENTIVE PROGRAM above."
Most utilities offer incentives and rebates for energy efficiency upgrades that help their customers reduce their use of electricity. Review a comprehensive list of PUDs and utilities in Washington state.
Net metering allows system owners to receive credit for excess electricity produced by their system. Net-metered systems that produce more electricity than needed are credited for the excess production at retail electric rates on the next month’s utility bill. Credits carry forward month to month for a year period ending annually on April 30. Remaining credits are zeroed out on May 1 with no payment to the customer. Get more information.
For Businesses - MACRS Depreciation of Solar Energy Property
The Modified Accelerated Cost Recovery System (MACRS) is a method of depreciation for some tangible property for tax purposes. Qualifying solar energy equipment is eligible for a cost recovery period of five years. The market certainty provided by MACRS has been found to be a significant driver of private investment for the solar industry and other energy industries. For equipment on which an Investment Tax Credit (ITC) or a 1603 Treasury Program grant is claimed, the owner must reduce the project’s depreciable basis by one-half the value of the 30% ITC. This means the owner is able to deduct 85 percent of his or her tax basis. The amount of the project cost that is eligible for a Bonus Depreciation is based upon the year of installation.
Washington State Department of Commerce Energy Efficiency and Solar Grants
For higher education, local governments, state agencies and K-12 public school districts
Commerce received a $25,000,000 appropriation in the 2015-2017 state Capital budget to continue the Energy Efficiency and Solar Grants program. Eligible entities include state public higher education institutions, local government facilities, state agencies and K-12 public school districts. This program focuses on funding the best projects possible to increase energy and cost savings in the publicly-built environment. The grants are awarded through a competitive process and must be used solely for energy and operational cost saving and solar installations. Click for more information about the program.
There is a proviso in the upcoming biennial budget to continue funding the energy efficiency and solar grant program for the 2018-19 biennium. Click for more info.