The following is a summary of the main tax credits and incentives that are currently in place to make solar more affordable to those who have solar installed to offset their own electrical use.
Washington State Renewable Energy System Incentive Program
Governed by RCW 82.16.165, a Production Incentive is paid per kilowatt hour (kWh) to those who install solar based upon the size of the solar system, date of certification/installation and whether or not the solar modules are Made in WA according to the following schedule:
|Fiscal Year Ends||Base Rate: Residential or Community Solar (per KWH)||Base Rate: Commercial or Shared Commercial Solar (per KWH)||Bonus for Modules (solar panels) Made in WA|
Systems installed after 6/30/2021 do not receive a WA State Production Incentive.
Solar systems of 1 kW through 12 kW are classified as “residential” regardless of the type of facility where they are installed. The maximum annual incentive payment for residential scale is $5,000/year. Solar systems larger than 12 kW are classified as “commercial” unless they are installed as a Community Solar Project. The maximum commercial annual incentive payment is $25,000/year.
The utility reads the newly added production meter and reports readings to solar customers. Production Incentive payments are made annually following the June 30 state fiscal year-end. Payments last for 8 years or until payments add up to 50% of the total system cost including sales tax, whichever occurs first. Utility participation in the program is voluntary. Payments are made after June 30 and by December 15.
Shared Commercial is a system that is owned or administered by an electric utility and is size 1 MW to 5 MW and serves at least five participants all of whom are located in Washington. Participating companies receive up to a maximum of $35,000 per year for no more than 8 years or until 50% of the system price including sales tax is reached.
Community Solar is a system not larger than 1 MW that is shared by many owners who purchase shares and share in the benefits of solar. Community Solar allows for participation by people who do not have good solar sites or who want a lower cost to participate. Community Solar projects must be created by utilities, non-profits or other local housing authorities. The same maximum of $5000/year for 8 years until 50% of total cost is earned back as with residential systems. Not more than 50% of a utility’s available pool of funds can go towards Community Solar participants.
The Washington State University (WSU) Energy Program is the administrator for this incentive program.
Residential Scale (1-12 kW): Pre-Approval is not needed. To receive the state incentive, the owner or the installer registers the system after it has been inspected and approved by the local authority having jurisdiction.
Commercial Scale, Shared Community, or Shared Commercial: These categories of projects are defined in the legislation. All require pre-approval from the WSU Energy Program before incentive funds can be obligated.
CAPS & LIMITS: There exist upper caps (limits) - per utility - on the total dollar amount that can be paid out for Production Incentives. The WSU Energy Program website shows progress toward reaching the caps. The utility cap is 1.5% of taxable power sales in calendar year 2014 or $250,000, whichever is greater. Furthermore, there exists an overall cap on the total amount of money available for this Incentive Program. The total program cost is limited to $110 million. Again, progress toward this cap is shown on the website.
Solar Systems that were installed under the previous incentive program will continue to receive incentive payments through 6-30-2020 as long as they were registered with the WSU Energy Program by April 30, 2018. Payment will be made between June 30 and December 15.
Links to additional information
- Learn more about the Renewable Energy System Incentive Program at the WSU Energy Extension website.
- The WSU Energy Program has filed both Emergency Rules and proposed Permanent Rules concerning the new production incentive program. Click for more information.
Click to view a list of utilities participating in the program.
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. Link to SEIA's website with a breakdown on the ITC.
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.
The federal government also offers income tax credits for the purchase of a variety of energy efficiency improvements. Click to learn more at Energy Star.
For businesses that go solar: 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.
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. Currently in Washington State, net metering is a one-for-one crediting system. Get more information.
- Link to the law governing this incentive
- Visit your utility’s website and search on “net metering” to learn about their specific requirements for interconnection to their grid and net metering.
Many 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. Check your utility’s website to find out what they have to offer.
Washington State Department of Commerce Energy Efficiency and Solar Grants
For higher education, local governments, state agencies and K-12 public school districts
The State Department of Commerce manages 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.