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Solar Incentives in California (2023 Guide)

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By Alexis Carthan Reviewed By Roger Horowitz 6/8/2023

California has the largest solar market in the United States, and the state plans to convert to 100% clean energy by 2045. To help with this effort, the Golden State offers multiple incentives to reduce the cost of going solar and make it more accessible. These incentives give you a tax credit, an up-front rebate, or another way to increase your solar panel system’s return on investment (ROI). 

We’ve detailed various California solar incentives you can use to save money so you can make a more informed decision before choosing a top solar company.

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California Solar Incentives, Tax Credits, and Rebates

California residents receive various solar incentives based on their location and financial situation. For example, all Golden State residents can use the state’s Solar Rights and Easement Laws, but only Sacramento residents can use the Sacramento Municipal Utility District Stipend. 

We’ve listed an overview of California’s current solar incentive programs and policies, what they offer, and how to obtain them.

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.

We reviewed the application process and found it to be simple. Here are the steps to follow:

  1. Visit the CPUC website and click the “Find an Installer” tool.
  2. Select one of the approved SGIP installers to complete your installation.
  3. Have your installer file the necessary rebate paperwork.

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.

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)

California Solar Panel Costs

The average cost of solar panels is roughly $17,640* for a 6-kilowatt (kW) system, which is the most common system size. This price is before applying any solar incentives. Most installation companies price solar systems based on their wattage, with the average price being $3–$4 per watt. According to EnergySage, the average price of a 6-kW system in California is $15,240. However, applying the federal solar tax credit reduces this price by $4,572.

Your total cost and ROI depends on which payment method you choose. We’ve detailed each solar financing option below.

  • Cash purchase: An up-front cash payment offers the best ROI and long-term savings. Paying for the system outright eliminates interest rates, credit checks, and loan fees. You also qualify for any solar incentives and credits available since you own the system.
  • Solar loan: A solar loan is the second-best payment option. Selecting this method allows you to own your solar system without paying a significant amount up-front. Instead, you make monthly payments over a fixed period. You can also use solar incentives because you own the system. However, you’ll pay more for the system in total due to interest rates.
  • Solar lease: A solar lease lets you rent the system rather than buy it. This payment option is best for homeowners who don’t qualify for loans or can’t afford a large up-front cash payment. However, a solar lease disqualifies you from incentives since the solar company owns the system. Because the system is rented, it also doesn’t increase your home value like a cash purchase or loan.
  • Power purchase agreement (PPA): A PPA involves only paying for your monthly energy use. Think of it as if you’re still paying your regular electricity bill, but for solar energy instead of grid-tied power. Your contract will outline your expected rate, which will be lower than the utility rate of electricity. Many solar companies also include system maintenance and repairs with PPAs, but you won’t own the system and are disqualified from taking advantage of tax rebates or other incentives.

*Cost figures are based on a 2023 report from EcoWatch.

California Net-Metering

California also offers a net-metering, or net energy metering (NEM), program. If your system is grid-tied—meaning it’s connected to the power grid—you can send excess electricity your home doesn’t use back to the grid. You then receive a credit toward your energy bill for the amount of electricity you sent back. State officials decreased the value of these credits by 75% to encourage residents to invest in energy storage, such as solar batteries, instead.

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. 

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Benefits of Going Solar

Going solar offers many benefits to homeowners. Here are some of the biggest.

  • Clean energy: Going solar allows you to rely less on fossil fuels that emit gasses harmful to the environment. As a result, you reduce your carbon footprint.
  • Increased home value: Solar panels increase your home’s value. The Department of Energy (DOE) finds that homes with solar panels sell quicker throughout the country, increasing a home’s value by an average of $15,000. Selling a solar-powered home could result in a profitable ROI.
  • Lower utility bills: Fossil fuels are expensive. Solar panels allow you to use clean energy instead, reducing your monthly electric bills or even eliminating them entirely. This is especially beneficial for homes that use electric-powered appliances.

Is Going Solar Worth it?

Installing solar panels is a large investment, but it can return big savings. Based on our research, solar panels are worth it in California given the state’s many incentives and large quantities of sunlight. The average payback period for a solar system is between six and 10 years. However, California’s new net-metering programs make it closer to 10 or longer. The state’s net-metering program may allow you to generate additional savings and income after passing your payback period.

Our Conclusion

Though California reduced its credits for net-metering, it offers many other incentives to make solar conversion more affordable. We’ve covered the most significant incentive programs in our guide, but there may be smaller city- or municipality-specific incentives worth exploring on your own. We recommend checking DSIRE for more information.

Use our tool below to connect with some top solar installation companies. You can also read our guide on the best solar companies in California to determine which provider best matches your needs.

FAQ About Solar Incentives in California

How many times can you claim the solar tax credit?

You can only claim a solar tax credit once, when you first install your system. However, some tax credits roll over to the next year if the taxes you owe are less than the credit.

How long do solar panels take to pay for themselves?

The time it takes for solar panels to pay for themselves varies according to the amount of energy your system produces and how much tax incentives and rebates lower your initial cost. On average, solar panels take nine to 12 years to reach a payback period.

Does California have a free solar program?

California does not have a free solar program. In fact, no state currently has such a program. Instead, California offers tax incentives and rebates to reduce solar panel installation costs.

What is NEM 3.0 in California?

The NEM 3.0 program allows residential California solar owners to earn utility bill credits for their excess energy. Under the previous NEM 2.0 program, customers were paid the retail rate for their excess energy. When the NEM 3.0 program began on April 15, 2023, the payout rate decreased by about 75% to a wholesale rate. Although customers can benefit from these energy savings, the payout isn’t as beneficial as the previous program.

Our Rating Methodology

The This Old House Reviews Team is committed to providing comprehensive and unbiased reviews to our readers. After over a thousand hours of research on solar companies, interviews with experts, and common customer needs, we’ve created a detailed rating system for solar providers based on six factors:

  • Solar equipment, installation, and services (25%)
  • Warranty and performance guarantees (25%)
  • Brand reputation and certifications (15%)
  • Financing options (15%)
  • Experience (10%)
  • Availability (10%)

Total scores are divided by 20 for a final 5-point rating scale.

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