The following is a summary of the main tax credits and incentives that help make solar more affordable to those who have solar installed to offset their own electrical use.
Washington State Renewable Energy System Incentive Program (RESIP)
Update (6/14/2019): WSU Energy Program to discontinue review of incentive applications for new systems received after June 14, 2019. Click to read a release from WSU.
About the current Washington State Renewable Energy System Incentive Program:
In 2017 Engrossed Substitute Senate Bill (ESSB) 5939 directed the WSU Energy Program to launch and administer a new program for citizens and businesses of Washington known as the Renewable Energy System Incentive Program (New Program). Click to read an overview of the program.
Governed by RCW 82.16.165, a Production Incentive is paid per kilowatt hour (kWh) to those based upon the size of the solar system, date of certification/installation and whether or not the solar modules are Made in Washington.
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.
Payment rate is determined by the date on which the renewable energy system is certified. Once set, the payment rate does not change over the course of 8 years but expires when the owner receives back a maximum of 50% of their cost or 8 years whichever occurs first.
Payment rates are based upon the chart below. Participants are eligible for up to eight years of annual incentive payments on kilowatt-hours generated July 1, 2017 through no later than June 30, 2029, or until payments add up to 50% of the total system cost. Individual participant eligibility for a given rate, term, payment limit, and annual incentive payment amounts are determined by the Washington State Program Administrator, based on RCW 82.16, including the following incentive rate guidelines:
|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|
Incentive payments are made annually following the June 30 state fiscal year-end. Payments last for 8 years (at the rate determined by their certification date) 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. Utilities meter the kilowatt-hours generated by participants’ systems and following the close of the fiscal year on June 30, report production to WSU Energy Program and then make incentive payments to eligible customers as determined by the WSU Energy 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, and by the deadlines imposed by the program administrator.
Shared Commercial and Community Solar are defined in the legislation. They require pre-certification from the WSU Energy Program before incentive funds can be obligated:
- 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.
PER UTILITY CAP: There exist upper caps (limits) - per utility - on the total dollar amount that can be paid out for Production Incentives. The utility cap is 1.5% of taxable power sales in calendar year 2014 or $250,000, whichever is greater. The WSU Energy Program website shows progress toward reaching the caps.
STATEWIDE COST CAP: The state legislature imposed an overall cap on the total amount of money available for this Incentive Program. The total program cost is limited to $110 million which includes funds to be paid out under the previous or “Legacy” Incentive Program. Again, progress toward this cap is shown on the WSU Energy Program 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.
Links to additional information
- Learn more about the Renewable Energy System Incentive Program at the WSU Energy Extension website.
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. Learn more at the SEIA website.
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.
Case study: Qualifying for the Federal ITC through an LLC investment
Here is a case study of the Englewood Christian Church (Indianapolis, IN) concerning the purchase of a solar array and receving the tax credit via the formation of a limited liability company. Click to read the case study (PDF file).
Special thanks to Anne Hedin, volunteer with the Solar Indiana Renewable Energy Network (SIREN).
The Modified Accelerated Cost Recovery System (MACRS) For businesses that go solar, this 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 may 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 described above.
(Update May 2019): The 2019 Washington State Legislature updated Washington State’s solar net metering statute via E2SSB 5223. In summary, an electric utility must offer to continue to make net metering available to eligible customer-generators on a first-come, first-served basis until the earlier of either June 30, 2029; or the first date upon which the cumulative generating capacity of net metering systems equals 4 percent of the utility's peak demand during 1996. Click to read the summary. Click to read the full text of the legislation.
Net metering allows grid-connected renewable energy 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 but NOT year to year. Credits zero out on March 31 and a new net metering year begins. Therefore annually, a customer does not earn credits for more energy than they use that year. Monthly minimums or basic fees are not offset by net metering credits; credits offset per kilowatt hour usage. 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.
Sales Tax Exemption
Starts July 1, 2019 for system sizes under 100 KW. Different rules apply for systems 100 KW to 500 KW. Sales tax exemption will continue through December 31, 2029. Click to the bill report as passed during the 2019 legislative session.
(Update 6/21/2019): The Washington State Department of Revenue has released a special notice containing information and instructions concerning the sales and use tax exemption on purchases and installation of solar energy systems. Click for details. Additional background information is available at the DoR's 2019 Tax Legislation page.
Local Incentives for Energy Efficiency
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
Energy efficiency and solar grant funds projects result in energy and operational cost savings at state public higher education institutions, local government facilities, state agencies and kindergarten through 12th grade (K-12) public school districts. This program is awarded through a competitive process. Click for more information.