Arizona solar 101: must read before you buy solar panels

The US government wants more people to go solar: it’s a modern and green way of getting energy. This is why the Solar Investment Tax Credit (ITC) program was developed. It allows American citizens to claim 30% of the cost of their installation as an income tax deduction. The cost here is not only solar panels, but also shipping, installation expenses and more. For example, if your system overall made you spend $10,000, the government returns you $3,000. To claim the ITC, complete all the necessary forms and submit them when filing your taxes.

Arizona has its own state tax program to encourage people to go solar. It is similar to the ITC: you can get a return of 25% of the cost of your system with a maximum cap of $1,000 – whichever is lower. This program runs independently from the ITC, so you can apply for both and lower the price of your PV system even further. You can find full instructions and all necessary forms here. After you fill in the papers, submit them when filing your taxes. Please note that installers must furnish you with a certificate stating that your solar equipment complies with Arizona's solar energy device requirements.

This program was designed for commercial solar installations of at least 5,000 kW (5 MW) capacity installed before January 1, 2021. This date has passed, but if you already have an installed system, you can apply for this credit until your installation is 10 years old. According to the guidelines, first you have to get a certificate from the Arizona Department of Revenue. To get one, send them an application: the Department accepts applications from January 2 to January 31 each year until 2030. Tax credit by itself depends on the amount of electricity you produce. With a solar system you get from 4 to 1 cent for kWh, depending on the age of your system, but the tax credit can’t surpass $2 million dollars in one year.

You can sell into the grid all the excess energy that your system produces, which is called net billing in Arizona. Utility companies offer different rates for electricity. As of June 2021, for example, Arizona Public Service offers 10.45 cents per kWh, Tucson Electric Power gives 8.68 cents per kWh, and UNS Electric buys a kWh for 10.35 cents. Unfortunately, the rates decrease by about 10% every October: the consequences of the 2016 shift from net metering to net billing in Arizona. The good news is that once a new customer joins in on the program, the rates lock in for him for 10 years.

Renewable Energy Credits are certificates granted to any person or entity upon generation of each MWh of clean electricity. Unlike with Net Metering, you don’t need to sell any electricity to get credits. The value of RECs is always changing, which makes them similar to stock market assets. Based on the available data, selling RECs could mean anywhere from $300 to $1,000 annually for a 10 kW solar system. To participate, you have to contact the Arizona Corporation Commission. After that, you can create a REC account with the Western Renewable Energy Generation Information System (WREGIS) to begin storing and selling your credits.

Any solar equipment or solar elements don’t add any value to property, according to Arizona Revised Statutes, and thus you don’t have to pay taxes for it. The Arizona property tax exemption program was established in 2006, and so far there is no expiration date in sight for it. Basically, it allows you not to worry about what a solar system might cost you in terms of taxes. Keep in mind that while having solar panels in Arizona doesn’t change your taxes, it still increases the market value of your house.

In Arizona, there are no sales taxes applied to any equipment for harvesting solar energy. This program has been in place since 1997. Overall, it makes solar panels in Arizona 5-6% cheaper than in other states with no sales tax exemption program. Note that the sales tax exemption does not apply to batteries, controls, etc., that are not part of the solar system.

To build a solar system in Arizona, you need to get a permission for it first. They are issued at the local level and requirements for a permit differ from counties and municipalities. The fees for it depend on the size of a system plus the cost of installation and inspection. Sometimes, but not always, the officials need a stamp of a professional engineer which raises the fee. In 2008 the state published a general standard for these permits, and if you are interested in what the document contains, take a look at this paper.