Solar Incentives in California (2023 Guide)
California has the largest solar market in the United States, and the state plans to convert to 100% clean energy by 2045.
To encourage more residents to make the switch, the Golden State has drastically increased its number of solar tax credits in recent years.
Before signing up with a top residential solar company, find out how to save on installation costs with the This Old House Reviews Team’s California solar incentives guide.
California Solar Incentives, Tax Credits, and Rebates
Our team spent 50 hours researching California’s solar incentives and any state laws that affect new and current residential customers. Below is an overview of the state’s current solar policies.
Disadvantaged Communities – Single-Family Solar Homes (DAC-SASH)
The DAC-SASH program makes solar panel systems affordable for homeowners living in California’s top 25% most disadvantaged communities. You must meet certain income qualifications and be customers of one of the following utility companies:
- Pacific Gas and Electric (PG&E)
- San Diego Gas and Electric (SDG&E)
- Southern California Edison (SCE)
The program provides these communities with clean solar energy and gives its residents access to job training and employment opportunities in the solar industry. The DAC-SASH program, backed by California Public Utilities Commission (CPUC), runs through 2030.
More resources: Visit the GRID Alternatives website to apply.
Self-Generation Incentive Program (SGIP)
You can receive an up-front rebate for installing an energy storage system, such as a solar battery. The SGIP is a tiered-block program, meaning that the incentive’s value declines as more homeowners and businesses install storage systems.
To qualify, you must be a PG&E, SDG&E, SCE, or Southern California Gas Company (SoCalGas) customer.
The rebate value also depends on your solar battery storage size. The SGIP currently offers $200 per kilowatt-hour (kWh) of stored energy capacity.
As an example, let’s calculate your potential savings based on the popular Tesla Powerwall 2 battery. This solar battery includes 13.5 kWh of stored energy capacity. Based on the SGIP rebate, you could generate about $2,700 in savings.
We reviewed the application process and found it simple. Here are the steps to follow:
- Visit the CPUC website and click the “Find an Installer” tool
- Select one of the approved SGIP installers to complete your installation
- Have your installer file the necessary rebate paperwork
More resources: The California Public Utilities Commission (CPUC) website
Equity Resilience Rebate Program
SGIP offers an additional incentive to lower your solar system energy costs. The Equity Resiliency rebate applies to homeowners in low-income households, high-risk fire areas, and those who experienced Public Safety Power Shutoff (PSPS) events on two or more occasions.
Also known as de-energization, PSPS events occur during dangerous weather conditions or natural disasters and help reduce the risk of electrical infrastructure fires.
This program also applies to owners of critical facilities, such as electric well pumps, that provide services to the affected areas. If you fulfill any of these requirements, you qualify for a rebate of $1,000 per kWh—almost the entire cost of most energy storage installations.
More resources: Equity Resilience Program – CPUC website
Active Solar Energy System Property Tax Exemption
This tax exemption applies to any residential solar system purchase. You won’t pay additional property tax for your home solar panels.
Typically, home improvement projects increase your property value and taxes. However, the Active Solar Energy System exemption allows you to enjoy the added home value of a solar system without increased tax liability. This tax exemption law runs until 2025.
More resources: California State Board of Equalization website
Rancho Mirage Energy Authority Discounts and Rebates
If you’re installing a solar power system on a home in Rancho Mirage, the Rancho Mirage Energy Authority (RMEA) offers a $500 rebate to cover permit fee costs. This rebate is issued once the utility company grants permission to operate (PTO), meaning your system is cleared for operation.
More resources: Rancho Mirage Energy Authority website
Sacramento Municipal Utility District Stipend
The Sacramento Municipal Utility District (SMUD) offers rebates to residents for solar energy battery storage. Depending on residents’ participation level in SMUD’s voluntary program, My Energy Optimizer, rebates can go up to $2,500
More resources: Sacramento Municipal Utility District website
Solar Rights and Easement Laws
The California Solar Right Acts (CA Civil Code 714) protects a homeowner’s right to own a solar system and restricts homeowners associations (HOAs) from denying installation.
HOAs can place “reasonable” restrictions on solar systems that fall within the following parameters:
- The restriction cannot add more than $1,000 to a resident’s total solar costs
- The restriction won’t reduce solar system performance efficiency by more than 10%.
- Any restrictions must allow for an alternative system with comparable efficiency, cost, and energy-saving benefits.
More resources: Database of State Incentives for Renewables & Efficiency (DSIRE)
In addition to the above incentives, you can enroll in a local net-metering, or net energy metering (NEM), program. Most solar power systems generate more energy than your home requires. Net-metering programs allow you to sell this excess energy back to the local power grid for future electric bill credits.
As of December 2022, the NEM 2.0 program ended. Under this program, you received credits at the same rate you would’ve paid to receive power from the utility company. Starting April 15, 2023, California introduced the NEM 3.0 program that reduced those credits by 75%.
Homeowners now receive electric bill credits at the wholesale rate, i.e., the rate it would have cost the utility company to produce the electricity. State officials dropped the net-metering rate to encourage residents to invest in energy storage instead.
NEM 3.0 applies to any new solar installations occurring on or after April 15. If you signed up under the NEM 2.0 or NEM 1.0 program, you are locked in for 20 years after your PTO date. After that, you’ll move to the latest NEM program.
According to Wood Mackenzie, NEM 3.0 will impact California’s typical solar payback period. Previously, this period lasted between five and six years. With the lowered NEM credits, this period extends to 14 to 15 years.
Federal Solar Tax Credit
Another savings opportunity California residents can take advantage of is the federal solar tax credit, also known as the Investment Tax Credit (ITC).
This credit provides a federal tax reduction of 30% of your solar panel installation costs, but you must own the system and install it during a qualifying tax year. Unfortunately, you cannot use this tax credit if you’re leasing your solar power system or have a power purchase agreement (PPA).
While researching solar companies, our team noticed in several customer reviews that homeowners were frustrated with this solar incentive. In particular, they misunderstood how this tax credit is issued.
To clarify, the ITC is a tax credit, not a tax refund. A tax refund is paid out to the taxpayer, while a tax credit reduces the taxes you owe. The IRS won’t refund you if your annual taxes are less than the ITC. Instead, the remaining credit rolls over to the next tax period.
Despite the net-metering credit reduction, California offers other beneficial solar incentives to make solar conversion more affordable.
Although we covered the state’s most significant perks, there may be smaller city- or municipality-specific incentives worth exploring on your own. We recommend checking DSIRE for more information.
FAQ About Solar Incentives in California
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