Arizona solar rebates and incentives: 2024 guide

Solar panel systems in Arizona are expensive, but incentives from the state and federal governments can help you reduce the upfront cost. Between the federal tax credit and other state-specific incentives, you can save thousands on solar panels, making them well worth the investment. Here's how you can lower the cost of solar if you live in Arizona.

As an Arizona homeowner, you have access to some great incentives that can substantially improve your return on investing in solar panels. The two below are some of the most impactful ways to bring down your solar costs. 

Residential Clean Energy Credit

The Residential Clean Energy Credit, formerly known as the federal investment tax credit (ITC), can reduce your solar panel system's cost by 30%. Your entire system qualifies for this incentive, including equipment, labor, permitting, and sales tax.

When you file your federal income taxes, you can claim this incentive as a credit towards your federal tax bill. Just keep in mind that to qualify for the ITC, you need to purchase your system either with cash or a solar loan–if you lease your system, you won't be eligible. 

You also need a high enough tax bill, though you can roll over any remaining credit year-to-year until the end of 2034 when the ITC expires. The only time you might be eligible for a direct payment for the ITC is if you're a tax-exempt entity, like a nonprofit organization.

Credit for Solar Energy Devices

When it comes to clear cut state solar incentives, it doesn’t get a lot simpler than the Credit for Solar Energy Devices. If you live in AZ, you'll get a credit worth 25% of your solar panel system cost, up to $1,000, towards your AZ state income tax bill.

The system can be installed on either your primary or secondary residence, but you can only claim $1,000 per year. If you don't have a big enough tax bill to claim the full credit, you can rollover unused credit for up to five years.

In addition to the great rebates and incentives above, Arizona also offers tax exemptions for solar panel systems. The solar sales tax exemption ensures that you won't have to pay a sales tax on your system, while the solar property tax exemption means you don't need to pay a higher property tax for adding solar panels to your house.

Arizona no longer offers net metering, but if you connect your solar panel system to the grid, you can benefit from net billing. Net billing is similar to net metering in that you earn credits when you send excess electricity from your solar panels to the grid. When the sun isn't shining and you need to pull electricity from the grid, your utility will apply the credits to your bill. However, the credits are worth a lot less with net billing compared to net metering, which means you won't save as much on your electric bills. 

In Arizona, the value of your bill credits is based on the avoided cost rate, or what your utility company would otherwise pay for the electricity. This is much lower than the retail rate, which is what they charge you for electricity. The avoided cost rate varies by utility, but there's some standardization in that they all use a methodology developed by the Arizona Corporation Commission (ACC). 

Arizona's current net billing policy stipulates that the compensation rate can't drop by more than 10% annually. The new rates go into effect on October 1st of each year. However, in October 2023, the ACC started exploring whether it should allow larger annual decreases in compensation. You're locked into the compensation rate at your time of interconnection for up to 10 years.

Your credits will carry over indefinitely. If your credits exceed a certain balance (which varies by utility company but is generally $10-$25) at the end of the annual period, your utility company will give you a check for them.

Some utility companies, like Arizona Public Service, Tuscan Electric Power, and UniSource Energy Services also require residential customers to sign up for its time-of-use rates to participate in net metering. This means your electricity cost will vary depending on the time of day, day of the week, and time of year. 

Learn more about Arizona's net billing programs:

Arizona doesn't offer any state-specific battery incentives, but all batteries above 3 kWh are eligible for the 30% federal tax credit. Batteries are great for increasing your energy independence and providing protection from blackouts in Arizona.

Since Arizona doesn't offer net metering, batteries can also help you get the most out of your solar panels. You can use them to store excess solar energy for us later on, instead of sending it to the grid. This can help you avoid receiving bill credits below the retail rate.