This article was originally published Feb 12, 2020 and has since been updated for 2021.
Tis’ the season for change! It’s a new year 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 2021. 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 2021 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 2020 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’re excited to report this incentive will be here to stay for the next several years. The current 26% incentive was recently extended through 2022. It will drop down to 23% in 2023. 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 by the end of 2022 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 Duke Energy Solar 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. 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 40 cents per watt, up to 10,000 watts ($4,000 max rebate value).
The rebate has an annual cap and is awarded through a new lottery system. Starting in 2021, there are now two application enrollment periods — one on January 6th and the other on July 7th. Since the Duke Solar Rebate program began in 2017, the application process has become increasingly competitive each year which rebates are now awarded through a random selection process.
As you can tell, the Duke Energy Solar Rebate is highly competitive and is not guaranteed. The first half of the 2021 residential Duke Energy Solar Rebate that opened on January 6th has reached capacity for homes and businesses (nonprofits can still apply!). The next rebate cycle will open for applications at 9am on July 7th, 2021 until 9am on July 14th, 2021.
Because the rebate cannot be guaranteed, Southern Energy Management will default to not including the rebate in your solar savings analysis. We’re happy to educate and consult on the impact of the rebate, how to apply, and your likelihood of receiving the rebate if you’re interested. Regardless of the Duke Energy Solar Rebate, solar is still a great investment in North Carolina, especially with the extension of the 26% Federal Investment Tax Credit for solar!
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.
There are even more solar incentives available for North Carolina businesses to take advantage of in 2021. 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.
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 2023!
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 2021.
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 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.
More information about the Federal Tax Credit can be found on DSIRE.
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.
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.
More information about bonus depreciation can be found at DSIRE: MACRS Depreciation.
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.
More information about the USDA REAP Grant can be found at DSIRE.
The Duke Energy Solar Rebate is also available to businesses who are Duke Energy customers that install solar. This rebate is valued at 30 cents per watt for businesses up to 100,000 watts ($30,000 max rebate value). Just like the residential portion of the rebate, the commercial rebate allocation is also awarded to businesses through a new lottery system. The rebate application is highly competitive, and chances of receiving the rebate are very slim, especially for businesses. Unfortunately, the January 2021 Duke Rebate for commercial installations has also reached capacity. The next commercial rebate allocation will open in July 7th, 2021.
However, because the rebate cannot be guaranteed and is so competitive, Southern Energy Management will default to not including the rebate in your solar savings analysis. We’re happy to educate and consult on the impact of the rebate and how to apply if you’re interested. Regardless of the NC Solar Rebate, solar is still a great investment in North Carolina for businesses, especially with the extension of the 26% Federal Investment Tax Credit for solar!
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 2021 Duke Energy Rebate for nonprofits. The rebate is awarded to nonprofits 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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