The complete list of Iowa solar incentives and tax credits for 2022, plus how to take advantage.
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Iowa used to have a generous solar tax incentive with bipartisan support, but that tax credit expired in 2021. Given the resurrection of the federal solar tax credit, there’s a chance this might come back, but Iowa homeowners shouldn’t hold their breath.
The Hawkeye State does offer a sales tax exemption for solar energy systems and a quite generous property tax exemption too (though it’s a bit convoluted, so definitely check with your installer and accountant!).
Some Iowa residents can also claim rebates for home solar energy and heating systems, depending on where they live and their utility service provider.
Finally, net metering is available in Iowa, but don’t expect to get rich off the proceeds. As with so many such programs, there’s a cap on credits and it’s best to sign up soon, before the programs fill up and incentives decrease.
Iowa State Solar Incentives
|Solar rebates in Iowa||No state solar rebates, but the City of Ames and the utility Waverly Light and Power offer rebates up to $500/kW and $3,500 for some home solar energy systems|
|State sales tax exemption||Some components of solar energy systems are exempt from the state’s 5-7% sales tax|
|State property tax exemption for solar||The state exempts the actual value of solar installations for 5 years, then exempts the market value indefinitely|
|Net metering in Iowa||Iowa law allows for net metering, but the rules aren’t especially generous, with credits capped and expiring annually|
Iowa state solar tax credit
In 2012, Iowa brought in a generous solar tax incentive with bipartisan support. In subsequent years, the Iowa legislature passed program expansions and improvements on a bipartisan basis three times. Alas, the residential solar energy system tax credit was always set to phase out along with the federal solar credit. This saw the value of the credit reduce in 2020 and 2021, and then drop to zero value for residential customers in 2022. Businesses can still claim a small tax credit for solar in 2022.
Under legislation signed into law on June 17, 2022, homeowners who installed a solar energy system that became operational before December 31, 2021, were granted an extension to apply for the tax credit until June 30, 2022. The law also allowed for proper review of any applications automatically denied due to the expiration of the residential Iowa Solar Energy System Tax Credit.
If you previously applied and had your application automatically denied, you’re asked not to reapply as this could cause delays in the system. Instead, the Department of Revenue will contact homeowners if it needs more information to process the application or will issue a tax credit certificate where relevant. Homeowners can then use this certificate to claim the tax credit on their 2022 taxes (i.e., when filing in 2023).
Solar rebates in Iowa
Iowa doesn’t offer any state solar rebates but residents of the City of Ames, Iowa, can access an Electric Residential Energy Efficiency Rebate. This program is set to expire at the end of 2022. It provides solar rebates of up to $300/kW of electricity generated during the utility’s peak. This is a bit different from straightforward nameplate capacity rebates, so make sure you understand how it works before applying or, indeed, before installing solar based on getting this rebate.
To claim the rebate, your system will need to be pre-approved by the City of Ames Electric Services. You’ll then need to wait until your system is installed, so you can fill out the application form with specific production information. You’ll need to calculate your system’s production by downloading an hourly estimate of your system’s generation over the course of a year and finding the greatest output that occurs at 5 p.m.
Note that the City of Ames reserves the right to any renewable energy certificates or credits associated with installations that receive the rebate. Given there’s currently no SREC market in Iowa, this isn’t a terrible deal. However, should there be rumblings about a renewable portfolio standard in Iowa later this year, homeowners may want to think twice about signing away their rights to SRECs.
Customers of Waverly Light and Power can also apply for a solar water heater rebate. This amounts to an incentive of $30 per square foot of collector area, capped at $3,500.
State sales tax exemptions in Iowa
In Iowa, solar energy equipment is exempt from sales tax. This can save homeowners 5-7% on the upfront cost of going solar, depending on where you live. Be aware, though, that this exemption only applies to panels, inverters, solar roof tiles or shingles, and energy transmission devices. Batteries, racking and mounting equipment, and installation costs are excluded and remain subject to the sales and use tax.
State property tax exemptions in Iowa
Iowa offers a Property Tax Exemption for Renewable Energy Systems, and the law has a few interesting aspects that work in favor of solar customers. Specifically, Iowa Code § 441.21(8) mandates a five-year exclusion of the value of any solar energy system from the assessment value of a property. The code (§ 441.21(8)(d)) also offers a permanent exclusion from assessed value any increase in market value of the building associated with an installed solar energy system.
What this means in practice is that after the five-year period, homeowners must include the actual value of their energy system in their property’s assessment value, but any market value added to the building is not included in the assessed value.
Let’s say, then, that you have a home valued at $200,000 and the homeowners add a $20,000 solar energy system. For five years, the homeowners don’t pay any additional property tax based on that $20k system. Then, after that five-year period, the homeowner’s property valuation will increase by $20k, but there will be no additional increase based on the market value of having solar installed. So, if a home with solar is typically valued at 4% more than a similar home nearby without solar, the homeowners won’t have to pay additional property tax based on that 4% increase in assessed value.
Convoluted? Yes. Overall beneficial to homeowners? Yes.
The original law notes that the exemption only applies to systems that generate electricity for on-site use. This caused some confusion over net metering customers in Iowa. However, the Department of Revenue (DOR) clarified the rules for net metered customers by including language to the effect that solar energy property that only makes inadvertent and unscheduled deliveries to the grid is not subject to a replacement property tax (under Iowa tax code 437A.3(27)).
Net metering in Iowa
Iowa brought in new net metering laws in 2017 when the Iowa Utilities Board approved net metering pilot programs proposed by MidAmerican Energy and Alliant Energy. These programs allowed customers to net metering only up to 100% of their own usage or maximum annual demand (depending on the utility). Currently, utilities offer compensation at retail rate for surplus energy exported to the grid. Previously, customers could carry credits indefinitely. Under the 2017 rules, customers have to cash out any credits annually at an avoided cost rate.
In 2020, new rules were enacted courtesy of Iowa S.F. 583. This legislation allows for changes to net metering rules to go into effect by July 1, 2027, or whenever statewide distributed generation penetration reaches 5%. Once one or both of those points are reached, the net metering programs must change to ‘value of solar’ methods of compensation. In general, this approach is less favorable for customers and more favorable for utilities.
Alliant Energy (Interstate Power and Light) offers net metering with instantaneous billing (every 15 minutes). Any surplus is credited at avoided cost rate, with the Inflow/Outflow Billing tariff applying only for up to 110% of a customer’s usage. The rules allow credits to be carried forward month to month, but customers can’t cash out any credits.
MidAmerican also offers a 15-minute instantaneous netting program where excess energy is credited as kWh credits for future billing periods. These credits expire annually in January or April, depending on your billing year. Customers can choose a reset date that works for them, however, meaning you can change your billing period to better use up credits during the winter months. To choose your annual calendar reset date, complete this Rate IO election form.
Under Iowa’s net metering rules, no homeowner is going to make money from net metering. However, many homeowners can at least partially offset the energy they draw from the grid, if they’re savvy about when and how they use energy.
Note that customers who install solar with a lease or under a power purchase agreement are not eligible for net metering through MidAmerican or Alliant Energy.
Final thoughts on state solar incentives in Iowa
Iowa ranks 32nd in the U.S. for installed solar capacity, according to the Solar Energy Industry Association (SEIA). This midwestern state generates less than 1% of its energy from solar, and there are few financial incentives for homeowners to help increase that contribution.
That said, Iowa does get a decent amount of sun, and some residents can offset their upfront costs with a nice solar rebate and sales tax exemptions. Depending on tax liability, homeowners going solar in Iowa could also recoup some costs through the federal solar tax credit. And while they’re not especially generous, net metering rules do allow homeowners with solar to offset some of their energy for lower overall utility bills.