Arizona is a state that other states should look up to for solar. It’s doing incredibly well at pushing renewable energy to the forefront and we’re excited to explore the incentives that make solar possible in this state.
Ranking 5th out of all states for solar energy, it currently possesses enough solar-generated power to run over 1 million homes – a massive 6,557MW, which is projected to rise to almost 10MW in the coming years.
It’s by no accident that Arizona is ranking so highly. Despite many people assuming that Florida – nicknamed the “sunshine state” – is the USA’s sunniest spot, it’s actually Arizona that receives the most sunshine overall.
And what’s a sun-soaked place like Arizona perfect for? You guessed it – solar energy!
Let’s take a close look at what the state of Arizona is doing to encourage its uptake.
In a Nutshell
- A 25% state tax credit (max $1,000) applies to residential solar installations only.
- 100% property tax exemption applies to the increased value added by a solar installation.
- Solar equipment (excluding batteries) is exempt from sales tax.
- Where selling excess energy to the grid is concerned, Arizona has a net billing policy in place.
- Arizona residents and businesses that go solar can also enjoy the federal 30% tax credit.
- Farmers and agricultural businesses can apply for a REAP grant for up to 50% of the cost of a solar installation.
Arizona Solar Incentives
First, let’s check out the incentives that the state of Arizona offers its residents.
It’s a shame this is restricted to residential solar installations and doesn’t include business or commercial solar. In any case, anyone who installs a solar system for their home can receive a 25% credit for their state tax liability.
Things to know:
- The credit is for 25% of the cost of the solar installation, capped at $1,000
- Those who don’t have any state tax liabilities won’t benefit
- The credit can be carried forward by up to five years
- One-time use only
- This is an ongoing incentive with no clear indication of when it might end
To apply for the tax credit, download this form.
Whether your solar installation is residential, commercial, or industrial, you can benefit from a 100% property tax exemption for the additional value that’s added to the property.
This exemption is continuous and begins from the moment your solar equipment is installed and placed into service.
The exemption includes a range of solar equipment, such as:
- Passive solar technology
- Solar water heaters
- Solar space heaters
- Solar pool heaters
- Solar thermal electric
- Solar thermal process heaters
- Other solar-powered appliances
To qualify for the property tax exemption, you must provide your county tax assessor with documents that confirm the purchase and installation, including installation costs.
You must submit the paperwork six months before the notice of full cash value is issued for the initial valuation year.
Solar Equipment Sales Tax Exemption
Arizona also removes 100% of the sales tax that would normally be applied to the cost of a solar installation, making it cheaper overall to get it in the first place. This exemption applies to approved installers and developers of both residential and commercial solar.
According to DSIRE, most cities in Arizona would usually apply 0.5% to 2% sales tax on the cost of solar equipment, so this is what you could save.
Unfortunately, the sales tax exemption doesn’t extend to solar batteries or equipment that didn’t form part of the initial installation.
To benefit from this incentive, your chosen solar installer must be registered (or willing to register) with the Arizona Department of Revenue (ADOR).
Net Billing in Arizona
Selling your excess solar energy to the grid in exchange for credits has long been one of the biggest draws and incentives for going solar. Net metering is the most favorable system, given that customers are paid the full retail rate for their excess energy.
However, Arizona doesn’t have net metering; instead, it has something called “net billing.”
Net billing is where you can still send your energy to the grid, but you will be compensated at a lower rate – called an “excess generation credit rate” – than you would in a net metering system.
Utility companies are free to set their own excess generation credit rate, so depending on your provider, you may be stuck with something unfavorable. Therefore, if you are able to switch utility providers, we recommend picking the one that offers the best rates.
As an example, utility provider APS paid the following rates in previous years:
|Credit amount per kWh
|Average retail rate
There are a couple of rules in place that prevent the amount you receive from varying too wildly:
- The rate can be lowered from one year to the next but only by a maximum of 10% year on year.
- When you go solar, you are locked into the rate that currently applies for ten years. For example, those who got solar in 2023 will receive 7.6 cents per kWh for the next decade.
Although this isn’t as good as net billing, it’s still decent and the current rules provide some reliability and certainty.
Keep a keen eye on this, though. In August 2023, a proposal to end the 10% cap and reduce rates by 37% was voted down. The victory was short-lived, however, as a new proposal to slash rates is currently under review.
This throws the future of Arizona’s net billing policy into uncertainty. We, for one, hope that the results of the latest proposal are favorable.
US-Wide Solar Incentives
On top of Arizona’s solar incentives, you can also take a look at the US-wide incentives.
Now extended until 2033, the solar tax credit gives you a healthy 30% credit to offset your federal tax obligations. This amount is calculated as a percentage of the total cost of your solar installation.
Things to know:
- Credits can be backdated up to three years and carried forward up to five years
- Solar installations must have been placed in service in 2022 or later or started the construction phase in 2033 or earlier
- It must be installed on US soil and not be leased to a tax-exempt entity
- Only new or limited previous-use equipment qualifies
Installations placed in service in 2033 and 2034 can still get a tax credit albeit at a reduced percentage, and it ends completely in 2025.
Here’s what you get:
- 2033: 26%
- 2034: 22%
- 2035: 0%
Commercial and business solar installations have an added advantage. They can achieve bonus tax credits by fulfilling certain criteria. Click on the links to understand more about each one:
To get the tax credit, fill out form 8962 and attach it to your tax return.
Since our clients at 8760 Solar are based in the farming and agricultural industry, we had to include this incredible incentive.
If your application is successful, you get a grant for up to 50% of the cost of a solar installation ($1 million max). Additionally, REAP can act as a guarantor for financing up to 75% of the cost of the installation.
We’re thrilled that all of 8760 Solar’s clients who applied for the grant have been successful so far. The application process can be tricky and lengthy, but we help you through it every step of the way.
The remaining application windows for the REAP grant in its current form are:
- March 31, 2024
- June 30, 2024
- September 30, 2024
The REAP grant will continue after September 2024 but the amount you can get may change.
To qualify for the grant, farms and agricultural businesses must:
- Have no outstanding delinquent federal taxes, debt, judgment, or debarments
- Be classified as a sole proprietorship, a partnership, a corporation, a tribal corporation or business, a coop, or an electrical utility
- Conform to 13 CFR 121 size standards and be located somewhere with a population of 50,000 or less
- Have at least 50% of your gross annual income coming from agricultural operations
To apply, head here.
Should I Get Solar if I Live in Arizona?
As the sunniest state in the USA, Arizona is the best place to get solar, and with all the available incentives and tax credits, it may be more affordable than you think.
This is especially true for farmers, as with the addition of the REAP grant it’s entirely possible to see 100% + return on investment within the first year alone.
If you’re worried about the proposed changes to the net billing policy, don’t be. Although it would be a shame to lose it, you can still significantly reduce your energy bills by using your self-generated electricity. And you can always invest in a solar battery rather than sending your excess energy to the grid.
To understand more about going solar, we invite you to get in touch with our team at 8760 Solar. We’re the specialists when it comes to supplying and installing solar equipment for our rural businesses.
Text “READY” to 719 470-0254 or get in touch via email: email@example.com and we’ll get back to you in a flash.
Frequently Asked Questions
Does Arizona Offer Solar Incentives?
Arizona offers a maximum $1,000 state tax credit for residential solar installations only. Additionally, solar equipment is exempt from sales tax, and solar installations are exempt from property tax.
Are Solar Panels Worth It in Arizona?
Arizona ranks 5th among states for solar energy. It has a number of great incentives to lower the cost of a solar installation. Plus, it’s the sunniest state in the USA, making it the absolute perfect place to get maximum efficiency from your solar panels.
What Is the Average Cost for Solar Panels in Arizona?
According to EnergySage, the average cost of solar panels in Arizona is $12,129 for a 5kWh solar energy system before any incentives are applied. However, solar installation costs are determined by their placement, size, and type, so they can vary greatly in price.
Can You Sell Power Back to the Grid in Arizona?
Arizona has net billing in place. This means utility companies can choose the amount you are compensated for every kWh you send to the grid. Currently, the compensation rate cannot be reduced by more than 10% from one year to the next, and whatever rate is available when your solar installation goes into service is the rate you’ll get for the next ten years,