The complete list of Indiana solar incentives and tax credits for 2023
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Indiana is the crossroads of America, and it sure is sitting on the fence when it comes to solar. Indiana dropped from 6th in the U.S. for solar production capacity in 2021 to just 19th in 2022, according to the Solar Energy Industries Association (SEIA). The state only makes 1.1% of its electricity from solar, meaning it has a way to go to catch up with its neighbors.
Despite the slow uptake of solar in Indiana, SEIA notes that the cost of solar in the state has fallen by 50% in the last 10 years. The state was also making some progress in adopting solar energy and was on track to rank 5th in the U.S. by adding more than 5,625 MW of capacity in the next five years. However, in July 2022, legislators and utilities threw a wrench into the works by gutting net metering.
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With the absence of any significant state incentives for solar in Indiana, a fairly average cost of electricity, and less than average sunshine, you’d be forgiven for thinking solar was a bum deal in Indiana. The good news, though, is that homeowners save 7% off the cost of installing solar thanks to a state sales tax exemption, and can also file for a property tax exemption to avoid added costs from increased home valuations.
To really up its green energy game, though, Indiana could finally enact a Renewables Portfolio Standard with a solar carve-out. That would help create a market for SRECs in Indiana and give the whole industry a boost in the state.
Indiana Solar Incentives
|IN State sales tax exemption||Indiana doesn’t have a straightforward solar sales tax exemption but does provide an exemption under existing laws for some parts of a home energy system.|
|IN State property tax exemption||Indiana offers a Renewable Energy Property Tax Exemption for value added to your home after installing solar. For most renewable energy systems, the assessed value of the system is exempt from property tax.|
|IN Net metering||Indiana mandates net metering but recent rule changes have drastically reduced compensation for solar customers.|
State sales tax exemptions in Indiana
Indiana does not offer a specific solar sales tax exemption, but the Department of Revenue has clarified rules around exemptions for manufacturing equipment, tools, and machinery. Specifically, in 2014, the DOR ruled that solar PV arrays, including the modules, racking, and inverters were all exempt from the state sales and use tax in one particular case. The reasoning being that these pieces of an array are all essential for the production of electricity. However, the ruling noted that transformers and monitoring equipment were not exempt, and this interpretation has been extended by some to exclude batteries from the exemption as well.
Despite the caveats (which you can read about in the fine print of the law), this ostensible sales tax exemption for solar energy systems can save homeowners a cool 7% on installation costs upfront. If you’re confused about the sales tax on your installer’s estimate, check the math and ask for clarification.
State property tax exemptions in Indiana
Indiana offers a Renewable Energy Property Tax Exemption for value added to your home after installing solar. For most renewable energy systems, the assessed value of the system is exempt from property tax. For solar energy systems, however, the property tax exemption is equal to the out-of-pocket expenditures for the components and labor associated with the system.
To claim the exemption, homeowners must fill out Form 18865 and file it with their local county auditor. The installation must be completed and dated by December 31 of the year in which the homeowner wants to claim the deduction and the paperwork needs to be filed by January 5 of the following year.
Note that the exemption is no longer valid if the property changes owners. That means you can’t pass the exemption onto someone who buys your home, and you can’t ‘inherit’ an exemption if you acquire a home with solar already installed.
Net metering in Indiana
Indiana currently mandates net metering, but rules brought in on July 1, 2022, dramatically reduced customer compensation in the state. All five investor-owned utilities got approval from the Indiana Utility Regulatory Commission to change how credits are calculated and slash the rate paid for excess power homeowners send to the grid.
CenterPoint (previously known as Vectren) was the first of the utilities to take advantage of the law enacted in 2017. The company got approval to switch net metering customers to an instantaneous netting model. This means customers pay full retail rate for any energy they draw from the grid at peak times but are credited at a much lower rate for energy they put into the grid.
The other major utilities quickly followed suit, including AES, Indiana Michigan (I&M) Power, and Duke Energy. These utilities all now offer models using instantaneous netting.
Various advocacy organizations are challenging this interpretation of the law, including the Indiana Distributed Generation Alliance and Citizens Action Coalition. Arguing against the commission’s decision on CenterPoint, these pro-solar entities got a favorable ruling in the Indiana Court of Appeals. The matter is now before the state Supreme Court, with oral arguments scheduled for September 2022.
Customers served by NIPSCO can still enroll in a Feed-in-Tariff program to get credit for excess energy produced by home solar systems of 5-10 kW. Homeowners can either sell all the electricity back to NIPSCO at a rate of $0.1564/kWh or allot a portion to sell to NIPSCO while keeping the remainder for personal use. This purchase price is higher than the current cost of electricity, providing income for solar producers. Customers choosing this option also transfer their SRECs or equivalent to NIPSCO as part of the deal.
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Final thoughts on state solar incentives in Indiana
Oh, Indiana. Famous for being the birthplace of a whole host of basketball stars, you’d think solar would be a slam dunk in the state. Alas, there’s been little in the way of pro-solar legislation and some recent changes that made even the existing laws less favorable to homeowners wanting to go solar.
Still, the cost of solar has decreased in Indiana in the last decade, making home installations cheaper than ever. And savvy homeowners can take advantage of sales and property tax exemptions, some favorable net metering compensation through NIPSCO, and the federal solar incentive tax credit before it expires.