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A Complete Guide To Solar Panels In Arizona

Oct 24, 2022

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Arizona homeowners installed a record amount of solar panel power in 2021 in hopes of lowering their utility bills and reducing their carbon footprint. With approximately 300 days of sunshine each year, Arizona’s climate seems like a perfect opportunity for homeowners to meet both goals by producing clean energy.

Let’s explore the data behind this record addition of nearly 300 megawatts (MW) of rooftop solar panel installations to help you decide if a solar array makes sense for your home.

The Cost Of Solar Panels In Arizona

As solar technology has developed, the hard costs of solar systems – the components that comprise a solar system – have decreased. Today’s panels use less silicon during manufacturing than they once did, and solar panel manufacturers have found other ways to reduce production costs.

While soft costs such as solar installer employee salaries and permitting have increased, installing a solar array in Arizona is 50% less expensive than it was 10 years ago.

The out-of-pocket price range for installing a 5-kilowatt grid-tied solar panel system in Arizona is estimated at $12,500 – $16,800 before any incentives from government agencies or utility companies.

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Home Solar Incentives In Arizona

Arizona homeowners have plenty of incentives to install solar panels. These incentives are available primarily from the federal government and Arizona state government. Utility companies in Arizona don’t offer significant incentives, with Phoenix area utility company Salt River Project (SRP) stating that, “SRP no longer offers incentives for solar installations now that the solar market has matured.”

Let’s explore the most significant incentives for Arizona residents. Some of these incentives may also apply to businesses.

Federal Solar Tax Credit

The federal solar tax credit, also known as the solar investment tax credit (ITC), is the most significant incentive for homeowners nationwide to install solar. It was scheduled to expire at the end of 2023, but Congress extended and raised the credit as part of the Inflation Reduction Act of 2022.

Now, the federal tax credit will allow eligible homeowners to deduct 30% of the cost of solar energy systems installed through the year 2032. That number goes down to 26% in 2033 and 22% in 2034.

The ITC covers the total system cost, which includes labor and equipment costs (solar panels, inverters, mounting hardware and battery storage). In some cases, the ITC may also cover the cost of upgrading the home's electric panel.

Arizona State Residential Solar Tax Credit

The Arizona State Residential Solar Tax Credit provides a credit for 25% of the solar system cost, with a $1,000 maximum. If the credit is higher than a homeowner’s tax liability that year, they can roll it over for up to 5 years.

Arizona Solar And Wind Equipment Sales Tax Exemption

This incentive provides qualified buyers a 100% exemption on sales tax for eligible equipment, including photovoltaics, solar water heat, wind, solar pool heating, daylighting, passive solar heat, solar thermal electric and solar space heat. To take advantage of this exemption, buyers are required to purchase from registered sellers.

Arizona Energy Equipment Property Tax Exemption

Solar panels often increase property values. Sometimes, though, higher property values also mean higher property taxes. The Arizona Energy Equipment Property Tax Exemption exempts 100% of the increased property tax amount associated with the solar array. This incentive also applies to other renewable technologies.

SRP Demand Management System Rebate

Minimizing on-peak energy use can help solar homeowners avoid higher electricity prices. Salt River Project (SRP) offers a $250 rebate on certain models of demand management systems if homeowners have them installed by one of SRP’s preferred solar installation companies.

APS Residential Battery Pilot

Arizona Public Service (APS), one of Arizona’s biggest utility companies, is trying to learn more about how solar panel energy storage performs in assisting the electrical grid. The battery pilot offers up to $3,750.

One option provides up to $2,500 for sharing battery system performance data with APS, based on $500 per installed watt-hour of battery capacity. Alternatively, if the customer agrees to share up to 80% of the battery’s capacity for up to 100 events per year, APS will provide $500 per installed watt-hour, along with an additional $1,250.

Mohave SunWatts Renewable Energy And Rebate Program

Mohave Electric Cooperative (MEC) offers customers with solar panels a rebate of 5 cents per watt, up to a maximum system size of 50 kilowatts (kW) with a cap of $2,500. Solar battery energy storage is also available for a rebate with batteries purchased and installed after January 9, 2022, that meet the utility company’s technical specifications.

Net Metering In Arizona

Net metering, a billing method that credits solar homeowners for excess solar power they generate and feed into the utility grid, can be a major incentive for installing solar panels. In Arizona, though, a contentious history exists between net metering advocates and utility companies.

Advocates believe net metering benefits the general public by lowering the cost of electricity and reducing emissions. Utility companies often counter that solar homeowners don’t pay enough for maintaining the grid.

Many Arizona utility companies use a system called net billing that provides some compensation, but not as much as states where net metering is required. They also charge a fee to connect to the grid, which is common across the country, and higher rates based on time-of-use (TOU) plans.

Understanding Arizona’s Net Billing System

Net billing allows utility companies to pay Arizona homeowners less than the retail rate for the excess electricity they provide. For example, if your solar array generates 20 kilowatt-hours (kWh) one day but only uses 14 kWh, the utility company would have to compensate you for the additional energy you’re feeding back into the grid. With net metering, utility companies would have to pay a higher “retail rate.”

In Arizona, utility companies are allowed to charge a wholesale rate or solar export credit. These rates fluctuate by utility company and may change over time.

Arizona Solar Export Credit Compensation Per kWh

If APS, SRP or Tucson Electric Power provide electricity in your area, here’s how you’ll be compensated under net billing for the renewable energy you produce.

APS

Approximately 9.4 cents/kWh

SRP

Approximately 2.8 cents/kWh

Tucson Electric Power (TEP)

Approximately 7.8 cents/kWh

UniSource Energy Services (UES)

Approximately 9.32 cents/kWh

Solar Companies In Arizona Are Growing The Industry

As of the end of Q2 in 2022, Arizona had nearly 140 solar installers in operation and they ranged from national companies like Palmetto Solar to local companies. Arizona also had nearly 60 manufacturers and more than 100 other companies supporting the solar industry. As of 2021, solar-focused organizations within the state employed nearly 8,300 people, and these organizations had installed nearly 229,000 solar projects by the end of Q2 in 2022.

In addition to installing renewable energy systems, these Arizona solar companies advocate for more favorable solar policies.

FAQ: Arizona And Solar Panels

Here are a few common questions from Arizona homeowners about solar panels.

Do I need a backup battery for a solar home in Arizona?

While Arizona hasn’t made headlines for rolling blackouts or major power outages, solar-plus storage projects, also known as hybrid solar systems, are on the rise. Nationwide, the number of solar projects with batteries from companies like Tesla and Sonnen has nearly quadrupled since 2017. 

A home battery can also reduce energy costs when using electricity during peak periods.

Is solar worth it in Arizona?

Arizona’s net billing increases the payback period of a solar panel system compared to states with net metering. Estimates on payback periods vary from 7 to 12 years.

Solar homeowners in Arizona are still likely to have a lower energy bill and have their systems pay for themselves, especially with the federal and state incentives. The Energy Information Administration (EIA) estimates that in Arizona, the average monthly cost of electricity is $131.35 which adds up to $1,576.20 a year.

How much you save depends on the total cost of your solar panel system, your energy needs, how much energy you generate, your utility company’s net billing prices and local electricity prices.

Can I make Arizona greener by going solar?

If you’re as concerned about the environment as your bank account, solar is a sure winner in Arizona. Based on a recent study from the Georgia Institute of Technology (Georgia Tech), every 10 kW of solar capacity in Phoenix would keep more than 23,000 pounds of carbon dioxide out of the atmosphere in Arizona. That’s more than three times that of Portland, Oregon, and nearly double the benefit of solar in Los Angeles, where energy production is cleaner than the grids in Phoenix.

The Bottom Line: Solar Can Be Worth It In Arizona

To save money on electric bills, solar panels can be a good long-term investment for Arizona residents. This is especially true with incentives that lower installation costs. While net billing can lengthen the payback period, locking in lower rates per kWh will help you control your utility costs. Those who want to reduce their carbon footprint can go solar knowing that they’re reducing the state’s dependence on natural gas-powered energy sources.

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Rocket Solar does not provide legal or tax advice. The information herein is general in nature and should not be considered legal or tax advice. Consult an attorney or tax professional regarding your specific situation.

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