The complete list of Arizona solar incentives and tax credits for 2023, plus how to take advantage.
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Arizona is a great place to go solar at home! The Grand Canyon State is the sunniest state in the country and there are a variety of financial incentives for homeowners who install solar in Arizona.
The biggest incentive remains the federal solar investment tax credit (increased to 30% as of August, 2022), but Arizona also offers its own state tax credit!
Arizona Solar Incentives
|State solar income tax credit||Residential Arizona Solar Tax Credit of 25%, up to $1,000, off your personal state income tax|
|State sales tax exemption||Solar energy systems are exempt from the state’s 5.6% sales tax and some cities and local governments also exempt solar equipment from their city privilege sales taxes, saving an additional 0.5-2%|
|State property tax exemption||Statewide exemptions for renewable energy systems, administered by local assessors|
|Solar rebates||The utility Salt River Project offers a $250 rebate for homeowners who install a demand management system (DMS) alongside their solar system|
|Net metering||No state mandate for net metering but some utilities offer programs such as net billing, with less than retail rate credits for exported energy|
State Income Tax Credit in Arizona
The Residential Arizona Solar Tax Credit offers a 25% credit, up to $1,000, off your personal state income tax. This is valid for the year you install solar, but any unused credit can be carried forward for up to five years.
The Arizona solar income tax credit has generous provisions, covering more than just solar photovoltaic systems. You can apply for the tax credit if you install solar domestic water heating systems, solar swimming pool and spa heating systems, photovoltaic phones and street lights, passive solar building systems (trombe walls, thermal mass, etc.), solar daylighting systems (excluding conventional skylights), wind turbines, and pumps powered by wind.
To receive the credit, you need to complete Arizona Form 310, Credit for Solar Energy Devices, and Arizona Form 301, Nonrefundable Individual Tax Credits and Recapture. Include Forms 301 and 310 with your tax return to claim this credit.
Your solar installer needs to provide a certificate stating that the solar energy device complies with Arizona’s solar energy device requirements. If you are installing solar yourself, you don’t need such a certificate, but your solar energy device must meet the required criteria.
Note that you only qualify for this tax credit if you purchase the solar energy system. If you take out a solar lease or sign a power purchase agreement (PPA), you don’t qualify for the credit.
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Solar Property Tax Exemption in Arizona
Arizona offers home property tax exemptions for added value from installing solar. Homeowners can take advantage of this exemption by providing their county assessor with documentation of their purchase and installation. The application must be submitted at least six months before the property valuations are issued for the year of installation.
You can find more details about the property tax exemption for solar in Arizona at the state legislature.
Solar Sales Tax Exemption in Arizona
Arizona offers an exemption from state sales tax for solar equipment. This exemption is for 100% of the sales tax on eligible equipment, including residential rooftop solar panels and solar water heaters.
The state sales tax in Arizona is currently 5.6%, meaning you can save around $1,000 in sales taxes on most home solar energy systems. Some cities and local governments also exempt solar equipment from their city privilege sales taxes, which can save an additional 0.5-2%.
Homeowners don’t need to do anything to take advantage of these tax exemptions. Instead, your solar installer will need to register with the Arizona Department of Revenue prior to selling or installing solar energy devices. The installer will include the sales tax exemption in their quote for installing your home solar energy system. If you see sales tax included on a quote, check that the installer is aware of the exemption and point them to Arizona Form 6015, Solar Energy Devices – Application for Registration.
Solar Rebates in Arizona
The utility Salt River Project offers a $250 rebate for homeowners who install a demand management system (DMS) alongside their solar system. The DMS must be installed by one of SRP’s Preferred Solar Installers and you have to enroll in one of SRP’s demand-based price plans to receive the rebate. You’ll also need to submit a W-9 tax form, and SRP requires all documents within 30 business days after your DMS is commissioned.
Qualifying DMS include the Inergy Smart Panel™ 3000 and the Brayden Automation Energy Sentry® 9388A DMS. These systems let you automate when major appliances run during on-peak hours. This way, you won’t have two major electricity hogs running simultaneously, meaning reduced peak demand and lower electricity bills overall.
In the hot Arizona summers, a DMS can help you control the temperature of your home while saving money. The set-and-forget technology turns on your air conditioning (a high-energy appliance) when electricity is cheapest, to pre-cool your home.
Net metering in Arizona
Arizona law no longer requires full retail net metering (thanks to a decision by the Arizona Corporation Commission in 2016). Some rooftop solar customers may be able to access full net metering depending on where they live and their available utility. In addition, rooftop solar customers who signed contracts prior to the 2016 ruling are eligible to keep their net metering rates for a set time period.
Going forward, utilities may offer net billing instead. Under this system, homeowners get credit for excess energy at an excess generation credit rate. This is lower than the retail rate of electricity. Typically, the utility will buy back exported energy from your solar system at a rate 5-30% lower than the price you pay to buy electricity.
Importantly, Arizona uses instantaneous netting for its net billing programs. This means that the utility tallies up the energy you draw from and feed into the grid in a short time period, often 15 minutes or an hour, then charges or compensates you at the retail rate or excess generation credit rate respectively.
Most net billing programs use a monthly calculation, which is simpler to understand and more cost-effective for homeowners than instantaneous netting. Under this system, your utility tallies up how much power you export to the grid and draw from the grid during the full month. You’re then charged or credited for the difference. With instantaneous netting, the electricity your panels generate during the day won’t offset the electricity you use in the evening. Instead, you sell your excess energy (at a loss) to the utility during the day and then buy (at a premium) the energy you need at night.
Ways to work with Arizona’s net billing law
In Arizona, it’s best to size your system to match your needs (and no bigger). You might also consider installing solar battery storage. That way, you can use the power produced by your solar panels as needed during the day and store any excess for later use, such as overnight or on less sunny days. You’ll draw less from the grid and you’ll export less to the grid, making for greater cost savings overall.
Solar batteries are expensive, though, so may not be worth the cost if you don’t stand to save much on your electricity bill. If, however, you produce a lot of electricity during the day and use a lot at night, a solar battery may pay for itself in cost savings and help you future-proof against rising costs of electricity.
Final thoughts on state solar incentives in Arizona
Arizona isn’t the most generous state when it comes to rebates and incentives for solar, but it remains a great place to go solar anyway. With a state exemption for sales and property taxes, and a generous 25% tax credit, homeowners can reduce their solar payback period right off the bat.
The biggest incentive for solar in Arizona is the sunshine, though, and the federal tax credit. Make sure to go solar before the end of 2022 (or 2023!) though, or you’ll miss out.