The Inflation Reduction Act in 2023 changed tax credits for solar and battery installations.
A bit of background
The Investment Tax Credit and Section 25D credit was originally enacted by the federal government in 2006. That previous law provided for a tax credit of 30% of the cost of a new solar array. The law had a sunset provision that reduced the tax credit and it was set to be 22% for 2023 and only 0-10% in 2024 and beyond.
The cost of a solar array becomes tougher to justify without a significant tax credit. Ideally, your solar array can create as much energy as you consume if not slightly more while costing no more than your standard consumption costs you. This cost-benefit relationship became very difficult to line up without close to 30% in tax credits.
Inflation Reduction Act changes
The Inflation Reduction Act reverted the tax credit for residential solar installation to 30% and extended the sunset to December 31, 2032. In 2033 the credit will drop to 26%, then 22% in 2034, and 0% in 2035.
The new law added a tax credit for battery storage as well. Energy storage projects that have a capacity of at least 3kw for residential projects or 5kw for business projects now receive a tax credit of 30% until 2032 as well.
Does solar make sense for you?
The real answer here depends on your specific project. Solar companies do a great job of using satellite imagery to evaluate the costs and benefits of a solar installation project. They can give you a really good idea of the potential production of your particular solar array based on the particular roof slope, the direction of that slope, your GIS location, and tree cover.
If your roof is in poor condition or needs to be replaced, you may need to replace your roof before installing solar. And if you have a Homeowners Association, make sure solar panels are permitted in your neighborhood. Last, the upfront investment may need to be paid in cash or financed with a solar loan. If you’re interested in the energy savings without the upfront cost, you may want to consider leasing equipment. However, purchasing a system outright helps you maximize the financial benefits.
Using your past electricity consumption data, we can compare your average daily KW production to the cost of that production after the tax credit. To figure out the value of the system and the expected payback period, we need the gross cost of the system, annual savings on energy consumption, and savings credits and rebates (local and federal). Your net cost is the gross cost less incentives and rebates. Compare the net cost with the annual energy savings and rebates. A typical payback period is 8-14 years for a solar system with a life of about 25-35 years.
If you have great sun exposure with properly aligned roof angles, a solar array can be a wonderful addition to your home. If you are lucky enough to be able to produce that energy with enough efficiency to net an amount over your usage, batteries can be a great addition to your home as a power generator.
The first step is to talk to your solar companies to get proper numbers and then run the numbers with your financial professionals. Since this is a relatively pricey project, you should receive bids from at least 3 companies. Compare the size of the system (in watts) with the total price and find the price per watt. This may range between $2.20-$4.00 per watt, but the average in Texas is $2.87.