Tis’ the season for change! It’s a new year, a new decade, and a great time to take control of your power. Whether you’re tired of paying high electric bills and watching utility rates increase, or you’re ready to switch to clean power, now’s the perfect time to look into your energy independence.
There are a number of powerful financial incentives available to North Carolina residential, commercial, and nonprofit solar projects in 2020. When combined, these incentives can reduce the cost of installing a residential solar system by an average of 40% and a commercial solar system by an average of 40-70%. Just like those new year gym membership deals, not all of these incentives will be here to stay. Here’s a rundown of national and local North Carolina solar incentives you may be eligible to tap into this year.
Upfront Tax Disclaimer
We are not tax professionals (surprise!) and this post does not constitute professional tax advice or guidance. If you end up going on your solar journey with us, we can connect you with Lucas Tax and Energy, a CPA specializing in energy related tax issues, that we keep on retainer as a service to our customers.
New and existing homes that install solar in 2020 may be eligible to take advantage of two key residential solar incentives — the 26% Federal Solar Investment Tax Credit (ITC) and the Duke Energy NC Solar Rebate.
When these discounts are applied to our average sized residential solar system (around 8kw), you can expect to see roughly $10,800 off of our average 2019 turn-key price of $23,400. However, there are several requirements and caveats with each incentive to be aware of.
The 26% Federal Solar ITC was established in 2005 by the Energy Policy Act. At first it was intended to last one year, but after several sunny extensions we are sadly looking toward a 4% step down in 2021 and final sunset for residential systems in 2022. You can learn more about the history of the tax credit here.
For now, homeowners who pay federal taxes and have a solar system placed into service in 2020 are eligible for a tax credit worth 26% of the cost of their system. This means, for an average $23,400 system the homeowner can claim around a $6,000 credit when filing their 2020 taxes. In this example, if you owe $6,500 in taxes you will only need to pay $500 after claiming the solar ITC on your solar PV system ($6,500 – $6,000 = $500).
The great part is there’s no cap on the system value that can be claimed via the federal solar tax credit. However, there are limits on what is eligible to include in the system cost. System components that can be counted toward the credit include solar panels, racking/mounting equipment, inverters, balance of system (wire, conduit, junction boxes, etc), installation labor (including design, inspection, and permitting fees), and sales & use taxes.
*Notice: energy efficiency upgrades are not included on the above list! We have seen several solar companies try to include items like insulation, LED bulbs, smart thermostats, etc. as a solar system upgrade. These items are not eligible for the solar ITC. For a more comprehensive list of what is and isn’t eligible for the tax credit check out this post: “Solar Federal Tax Credit: What Is and Isn’t Eligible”.
The tax credit will be decreasing to 22% in 2021, so now is a great time to maximize savings on your investment. After 2022 the solar ITC will fade away forever for residential solar installations unless a new extension is passed.
The Duke Energy Rebate is a result of House Bill 589 which was developed collaboratively by clean energy advocates, Duke Energy, and the legislature to continue North Carolina’s strong track record of promoting clean energy. This incentive helps expand North Carolina’s growing solar movement, keeping in tradition with our status as the #2 solar producing state in the nation.
Homes in Duke Energy territory that install solar electric (PV) systems are eligible for a rebate from Duke Energy. The residential Duke Energy Solar Rebate is worth 60 cents per watt with a max rebate value of $6,000 (or 10,000 watts).
The rebate has an annual cap and is awarded on a first-come, first-served basis when the application opens online on January 2nd at 9am. Since the Duke Solar Rebate program began in 2017, the application process has become increasingly competitive each year. The 2018 rebate allocation reached capacity in about 10 days, while in 2019 it filled in a matter of hours, and in 2020 within just minutes.
As you can tell, the Duke Energy Solar Rebate is highly competitive and is not guaranteed. The 2020 residential Duke Energy Rebate has reached capacity with hundreds of homes on the wait list already. The next rebate allocation will open in January 2021.
Beyond the Federal Solar ITC and the Duke Energy NC Solar Rebate, there are no other major incentives at the state or national level. With many new players joining the hot NC solar market, we’d like to throw out a word of caution to be skeptical if you see a “NC state tax credit” on your solar proposal. As always, make sure pricing is transparent and terms are clearly defined. Here are a few other things to look out for on your solar proposal.
With that said, after the many complications, headaches, and heartaches of 2020 Duke Energy Rebate application, we have decided to offer our own temporary rebate in order to smooth out the boom and bust cycles the rebate calendar creates for our team. Reach out to our solar educator, Davis, to learn more.
There are even more solar incentives available for North Carolina businesses to take advantage of in 2020. When combined, the 26% Federal Solar Investment Tax Credit (ITC), 100% Bonus Depreciation, US Department of Agriculture (USDA) Rural Energy for America Program (REAP) Grant, and Duke Energy NC Solar Rebate make it possible for businesses to offset 100% of the cost of going solar with incentives.
While situations where all 4 of these incentives stack together to reach 100% offset are rare, most of our commercial solar customers will see savings of between 40-70% on their solar system with some combination of those incentives.
National solar incentives available to commercial businesses include the 26% Federal Investment Tax Credit, 100% Bonus Depreciation, and the USDA REAP Grant. Most businesses will be eligible for the Federal ITC and 100% Bonus Depreciation, however, the USDA REAP Grant has a few more requirements.
Since there is no cap on the amount you can claim via the Federal Solar ITC, businesses can also claim the 26% solar tax credit. Remember, this incentive is stepping down in 2021!
The dollar value lost between 2020 and 2021 only gets larger as a solar system’s price increases. For a 100 kilowatt commercial solar system priced at $200,000, the value of the credit is $52,000 in 2020 vs $44,000 in 2021 — a loss of $8,000. Once 2022 comes around, the Federal Solar ITC will remain at 10% for commercial solar installations unless legislation is passed renewing the tax credit.
The biggest difference between the residential and commercial version of the Federal Solar ITC is the option to “safe harbor” the tax credit for commercial solar projects. Safe harboring means that commercial project owners are able to preserve the current tax credit value (at 26%) even if they don’t complete the project in the year 2020.
There are a few different routes for safe harboring, but the most common is the “Five Percent Safe Harbor Test”. Under this option, solar projects can confirm they have started construction on their project in 2020 to qualify for the 26% tax credit by paying/incurring five percent or more of the total cost of the solar project. This is again time to restate that we are not tax professionals but that if you want to explore this option we can connect you with a CPA that specializes in tax issues related to solar projects to help build a plan that works for your situation.
Commercial solar systems are also eligible for 100% first year bonus depreciation. Most assets are depreciated over a long period of time, but by depreciating the entire solar system in the first year business owners are able to immediately save money on their taxes.
The value of depreciation depends on the business’ effective tax rate. For this example, let’s use a $100,000 system. In this case, if the business gets taxed at 20% bonus depreciation impact is $20,000 less taxes paid. If a business is taxed at 35%, the impact would be $35,000 less taxes paid. So depending on the business’ effective tax rate, this incentive could be even more valuable than the Federal Tax Credit for Solar taking another 20-35% off the cost of the system in the first year.
The USDA Rural Energy for America Program (REAP) Grant provides grants and loans to farmers and businesses for renewable energy projects, energy efficiency upgrades, and energy audits. Eligible farms and businesses can apply for a grant worth 25% of the project cost (up to $500k), with a minimum grant of $2500.
To qualify for the USDA REAP Grant, you must be a Agricultural Producer or Rural Small Business. You can check eligibility at usda.gov. Grants are awarded twice per year in the spring and fall. Applications are due to the USDA on April 30th and Oct 30th each year.
Individual or entity directly engaged in agricultural production whereby 50% or greater of its gross income is derived from agricultural production.
An entity or utility that meets the Small Business Administration’s (SBA) Small Business Size Standards by the North American Industry Classification System (NAICS) found in 13 Code of Federal Regulations (CFR) Part 121.
The April grant is open to projects above $80k size (that’s approximately the cost of a 35 kw solar system) while the October grant is only given to projects that cost less than $80k. To be on a confident timeline to compile and review the grant application for submission, we need to have the grant intake forms completed by the end of February. Reach out today to get started with your commercial solar project to make sure there’s time to get everything in order by the next REAP Grant deadline.
When it comes to North Carolina solar incentives for commercial projects, the Duke Energy Solar Rebate is the only incentive available at this time.
The Duke Energy Solar Rebate is also available to businesses who are Duke Energy customers that install solar. This rebate is valued at 50 cents per watt for businesses with a max value of $50,000 (100,000 watts). Just like the residential portion of the rebate, the commercial rebate allocation is also awarded to businesses on a first-come, first-served basis and is not guaranteed. The rebate application typically opens online on January 2nd, and is highly competitive filling within minutes every year. Unfortunately the 2020 Duke Rebate for commercial installations has also reached capacity. The next commercial rebate allocation will open in January 2021.
Since nonprofits do not have tax liability, they are not eligible for the 26% Federal Investment Tax Credit (ITC) for solar power. However, it is still a great time for nonprofits in North Carolina to consider powering up with the sun.
Nonprofits that are Duke Energy customers have a unique opportunity to add extra savings to their solar installation. The Duke Energy NC Solar Rebate is also available to nonprofits at 75 cents per watt with a max rebate value of $75,000 (or 100,000 watts). Unlike the residential and commercial portions of the rebate, there is still availability in the 2020 Duke Energy Rebate for nonprofits. The rebate is awarded on a first-come, first-served basis so if you are a NC nonprofit looking into going solar let us know today!
There are many reasons to go green, and several incentives that will save you even more. Going solar is a big decision, with a big reward. Let us know how we can help you tap into solar incentives and take control of your power this year.
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