Arizona’s Key Solar Incentives: A Breakdown

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Arizona, known for its abundant sunshine, is a prime location for solar energy adoption. With more than 300 sunny days per year, the state offers ideal conditions for harnessing solar power, making it one of the leading states in solar capacity. To encourage the use of solar energy, Arizona has implemented a variety of incentives, programs, and policies that make it easier and more affordable for residents and businesses to invest in solar technology. This article breaks down Arizona’s key solar incentives and how they can help you maximize your investment in renewable energy.

The Residential Clean Energy Credit

The Residential Clean Energy Credit, previously known as the Federal Investment Tax Credit (ITC), can reduce the cost of your solar panel system by 30%. This incentive covers the entire system, including equipment, labor, permitting, and sales tax.

To claim this incentive, you need to purchase your system with cash or a solar loan, as leasing does not qualify for the ITC. You must have a sufficient federal tax liability to use the credit, though any unused portion can be rolled over year-to-year until the ITC expires at the end of 2034. Direct payment of the ITC is only available to tax-exempt entities, such as nonprofit organizations.

Arizona State Residential Solar Income Tax Credit (Credit for Solar Energy Devices)

Homeowners who installed a solar energy device in 2021 should submit Form 310 with their individual income tax return and Form 301.

A solar energy device collects and transfers solar energy for heating, cooling, electricity, mechanical power, or solar daylighting, including wind generators.

Arizona offers a 25% credit on the cost of a solar device, up to $1,000. The total credit for the same residence cannot exceed $1,000.

The Renewable Energy Production tax credit is for generators with at least 5 megawatts capacity and is not for residential use. No preapproval is required for the residential Solar Energy Device tax credit claimed on Form 310.

Solar and Wind Equipment Sales Tax Exemption

Arizona exempts sales tax for retail and contractor installation of solar energy devices, including wind generators and pumps. The exemption covers various solar technologies but excludes components like batteries and controls not integral to the system. H.B. 2429 in June 2006 removed the $5,000 device limit. S.B. 1229 in 2012 extended the exemption to net metering transactions and the sale of renewable energy credits (RECs). Solar energy retailers must register with the Arizona Department of Revenue using Form 6015 to access these exemptions, with no expiration date for retailers.

SunWatts Renewable Energy and Rebate Program

Mohave Electric Cooperative (MEC) offers rebates of 5 cents per watt, up to $2,500, for residential and small commercial members who install photovoltaic (solar), wind, or solar water heating systems. To receive the SunWatts rebate, members must submit their reservation and application before work begins, and can schedule an appointment with MEC’s Energy Management Specialist for assistance with the process. The rebates are funded by a surcharge on member bills mandated by the Arizona Corporation Commission.

Solar for All

• The Community Power Coalition (CPC) will enhance the US Department of Energy’s National Community Solar Partnership and Community Power Accelerator program through its SFA initiative, “Powering America Together.” Led by Inclusive Prosperity Capital, Inc., CPC includes experienced community solar experts who have contributed to the Community Power Accelerator. This program aims to develop low-income community solar projects, reduce carbon emissions, lower energy costs, and promote quality jobs, community wealth-building, energy resilience, and equitable workforce development. 
• SFA Arizonans aims to extend the benefits of Arizona’s abundant solar resources to low-income and disadvantaged communities. This initiative will implement innovative market mechanisms to expedite solar deployment in underserved areas through rooftop installations, neighborhood projects, and solar-plus-storage systems. These efforts will promote equitable solar development across urban, rural, and Tribal areas, providing immediate savings on electricity bills and substantial reductions in greenhouse gas emissions.
• Hopi Utilities Corporation, in partnership with Arizona State University and the Hopi Renewable Energy Office, will implement residential solar and storage systems on the Hopi Reservation. This initiative targets the Hopi Tribe, which faces chronic underservice, high poverty rates, and severe energy disparities. With 35% of Hopi households lacking electricity and frequent outages for those connected, the program will benefit low-income and unelectrified households by leveraging financing and tax incentives without upfront costs to residents.
• GRID Alternatives‘ WIN-SFA program leverages extensive experience in Tribal communities to maximize benefits for Tribal households, advance energy sovereignty, and address environmental degradation and climate change. By providing grants, incentives, and technical support from experienced organizations, WIN-SFA will bring solar power to thousands of Native American households nationwide, promoting equitable renewable energy deployment.
• Led by GRID Alternatives, a coalition of ten nonprofit solar and affordable housing providers has developed SANAH to maximize benefits for households and communities. SANAH aims to expand solar and storage access for income-qualified households, deliver significant energy savings, reduce pollution, and combat climate change. The program also offers efficiency improvements, electrification benefits, and supports equity, workforce development, and community resilience.

Net Metering in Arizona

Arizona’s net metering policy has undergone significant changes in recent years. The state previously had a full retail-rate net metering program, but it has since shifted to a net billing system. Under net billing, solar customers can still sell excess electricity back to the grid, but instead of receiving the full retail rate for that electricity, they are compensated at a lower rate, known as the “export rate.”

While this change reduces the financial returns of net metering, it still provides an opportunity for solar customers to offset their energy costs. The current export rates vary by utility, so it’s important to check with your utility provider to understand the specifics of how you’ll be compensated for your excess solar energy.

Utility-Specific Solar Incentives

Arizona is home to several utility companies that offer additional incentives to encourage solar adoption. These programs provide financial support for customers who install solar systems and are designed to make solar more accessible. Some key utility programs include:

• Salt River Project (SRP): SRP offers a residential battery storage incentive, which provides customers with up to $1,800 in rebates for installing a qualifying battery storage system alongside their solar installation. This incentive can help homeowners store excess solar energy for use during peak demand times or power outages.

• Tucson Electric Power (TEP): TEP offers a residential solar program that provides solar customers with upfront incentives for installing qualifying solar systems. TEP also has net billing in place, where customers can sell excess solar energy back to the grid at a set export rate.

Renewable Energy Standard and Tariff (REST)

Arizona’s Renewable Energy Standard and Tariff (REST) requires utilities to generate 15% of their electricity from renewable sources by 2025. This mandate has led to increased investment in renewable energy technologies, including solar, across the state. While REST itself is not a direct incentive for homeowners, it helps drive the growth of solar energy in Arizona by encouraging utilities to offer more incentives and support for renewable energy projects.

Arizona’s abundant sunshine and favorable solar incentives make it one of the top states for solar energy adoption. From federal tax credits and state tax exemptions to utility-specific programs and net billing, there are numerous ways for residents to reduce the cost of going solar. These incentives not only lower the upfront expenses but also help maximize long-term savings on energy bills. For Arizona homeowners and businesses looking to transition to renewable energy, understanding and leveraging these key incentives is essential for making solar power a smart and cost-effective investment.

Disclaimer

The information provided herein is for informational purposes only and is accurate as of the time of publication. Please be aware that the solar energy landscape, including technology, regulations, incentives, and market conditions, changes frequently. Therefore, it is essential to consult with qualified experts and professionals before making any decisions regarding solar energy installations or investments. This will ensure that you receive the most current and applicable advice tailored to your specific circumstances.