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.
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 June 30, 2018. Get more information at WA Department of Revenue.
- Link to the Law governing this incentive: Systems > 10 kW
- Link to the Law governing this incentive: Systems up to 10 kW
Washington State Production Incentive
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 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.
NOTE: During the 2016 Legislative Session in Olympia, HB 2346 was introduced to address the problem of declining incentives and to keep adoption of solar moving forward. HB 2346 passed the House but did not pass the Senate. It would have raised the cap allowing utilities to spend up to 2% of taxable sales on solar incentives. It also would have created a new incentive program at lower rates to help continue the amazing growth of solar in our state.
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.
Snohomish County PUD, Chelan PUD and possibly others offer local incentives for homeowners and businesses that go solar. Inquire with your utility to find out if they offer any unique solar incentives. 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.