The Federal Solar Tax Credit
Makes Solar Panels Affordable

A federal solar tax credit is the easiest way to make installing solar panels affordable. A person or company installs photovoltaic (PV) cells and pays the full purchase price. However, a portion of that price is then refunded as part of the tax return. This makes solar power much more competitive to install.

Both the United States and Australia use federal solar tax credits to encourage installing solar panels (in Australia, these are called renewable energy credits). However, they are not the only governments encouraging the use of renewable energy instead of fossil fuels. Britain uses feed-in tariffs to make solar panels profitable, and Canada has incentives set up at the provincial and local level.

Differences Between Feed-in Tariffs and Tax Credits

  • A feed-in tariff focuses on operations and generates income for the owner of solar panels.

  • Federal solar tax credits focus on the purchase price and reimburse owners for the cost of installing the panels.

  • Feed-in tariffs are annual payments; a tax credit is a one-time payment.

Solar Tax Credits in the United States

Since the 1970s, the United States government has worked to fund solar power programs. Today, the main avenues to do so are through tax credits, grants, and loan guarantees. These help pay for new solar panel installations.

The federal government offers a tax credit of 30% of the net cost of any new solar panel system, with rebates from utility companies deducted from that. Before 2009, no one could receive more than $2,000. However, systems installed after December 31, 2008 can receive a credit of 30% of the net cost, regardless of the amount.

As part of the stimulus package, the Treasury Department will offer a cash grant instead of an after-the-fact tax credit. This alleviates some of the cash flow worries that many homeowners and solar industry entrepreneurs face. Since 2009, the government has disbursed $936 million in grants to about 2,200 solar projects.

In addition, the federal government guarantees loans for renewable energy projects. Homeowners can add the cost of such projects to the mortgage and have that covered by either the Federal Housing Administration or the Veterans' Administration, if one of the purchasers is a veteran. The Department of Energy offers a similar program to commercial ventures. These various incentives mean that about 1,800 megawatts of solar power will come online in the United States this year.

Feed-in Tariffs in the United Kingdom

In 2010, Gordon Brown's government enacted a system of feed-in tariffs by which the government would pay owners of solar panels for generating electricity. Instead of reimbursing a portion of the cost of the panels, feed-in tariffs provide income in a series of annual payments for electricity generated and fed into the main electrical grid. However, the British coalition government of David Cameron has decreased the tariffs available.

Feed-in tariffs are funded by a surcharge for electricity consumers but budget cuts resulted in a cap on the limit of tariffs that could be awarded. In addition, small-scale installations will have preference for these tariffs, which may be advantageous for homeowners. However, larger solar power projects will see cuts of as much as half of the feed-in tariff rate.

Feed-in tariffs were seen as a success. More than 30,000 solar power systems were completed in the first year and more were going to be built prior to the announcement of cuts. However, several companies sued the government to stop cuts of the feed-in tariff, arguing that the government had promised not to make any changes until April 2013 and then made the cuts with insufficient reason for doing so earlier.

Solar Tax Credits for Canada

Canada does not currently have any tax credits for solar power installations, much to the dismay of many Canadians. Some provinces and municipalities do offer incentives to add solar panels, but they are currently not nationwide.

Australia's Renewable Energy Certificates

Rather than a simple federal solar tax credit, as in the United States, Australia uses a complex system of renewable energy certificates to reimburse purchasers of solar panels. These credits are meant to reflect the productivity of solar panels in various locations. Australia is divided into 4 zones with varying numbers of renewable energy certificates that each zone can access.

Currently, renewable energy certificates are redeemed for $35 each, resulting in the following breakdown of subsidies:

  • Zone 1 = $3,780

  • Zone 2 = $3,570

  • Zone 3 = $3,255

  • Zone 4 = $2,730

In addition, some states have systems of feed-in tariffs, though that is not national.

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