Written by Sarah Hancock | September 19th, 2019Sarah Hancock is passionate about green living and sustainability. She frequently writes about renewable energy and manages the Solar blog at BestCompany.com.
Arizona Solar Overview
As one of the sunniest states in the country, Arizona is abundant in natural solar resources. Although current policies in the Grand Canyon state aren’t the most solar-friendly, there are some decent solar incentives to take advantage of in Arizona that will put cash back in your pocket when you install a solar energy system. And with all that sun, home and business owners still have the ability to save quite a bit of money with solar.
Here’s an at-a-glance description of the current benefits and drawbacks of switching to solar in Arizona:
Benefits of going solar in Arizona:
- Lots of sunshine to take advantage of
- 30% federal tax credit
- 25% state tax credit (up to $1,000)
- 100% property tax exemption
- RPS of 15% by 2025 with 2.25% solar carve out
- Multiple financing options available
- Good for the environment
Drawbacks of going solar in Arizona:
- Relatively low electricity prices
- No performance payments
- No sales tax exemption
- Mostly exhausted solar rebates
- No statewide net metering policy
- No concrete policy for plugging into the grid
We break down and explain each of these items in the article below.
Cost of Solar in Arizona
Prices of solar in Arizona have fallen 47 percent over the last 5 years, and as of 2019, the average price per watt for a solar energy system purchased outright in the Silver State is approximately $2.95. For an average-sized 10 kilowatt system, this comes out to be $29,500 before tax credits and other local incentives are applied. After incentives are applied, the cost drops to about $19,500.
In terms of price per kilowatt-hour of energy used, those with solar panels in Arizona will pay only about $0.08 per kilowatt-hour. This is low compared to the average price of electricity from the utility, which is currently about $0.12 per kilowatt-hour. Utility prices are expected to go up over the next several years, which means that Arizonans who switch to solar now will see their savings increase over time.
Considering this, as well as inflation and financial benefits from available incentives, the average home or business owner in Arizona who purchases a solar energy system could expect to recoup their solar investment in about 11 years. After that, they will essentially be able to use the energy production from their solar panels to power their house or office building for free or for a very low rate.
In fact, over the life of the solar energy system, the average Arizona resident could reasonably expect to save upwards of $25,000.
Arizona Solar Financing Options
When it comes to solar financing, residents of Arizona have several options available to them: outright purchase, loans, leases, and power purchase agreements.
In Arizona, purchasing a solar panel system outright will provide you with the biggest savings in the long run, but it does require that you to pay for your system in full upfront. However, since you’ll be the owner of the system, you’ll get to take advantage of the 30 percent federal investment tax credit and any local incentives that are available, which will help you to recoup a good portion of the cost of installing solar panels in the first year. In addition, you’ll own the solar equipment and the energy it produces. In about 11 years after it pays itself off, all the electricity produced by the system will be pure profit.
Although this option is not feasible for everyone, you may want to consider it if you can swing it. Some solar companies will even offer a discount if the system is paid for in full upfront.
Getting a loan to finance your solar PV system in Arizona is a great way to get started with solar if you are interested in solar ownership but don’t have the cash to pay for the system upfront. Many solar installers partner with banks or companies that specialize in providing loans for solar projects. These loan companies typically offer contracts ranging from 5 to 20 years and interest rates between 1.99 and 4.99 percent, depending on your credit score and the length of the loan. Common benefits that come along with getting a solar loan include the ability to take advantage of federal tax credits and available local incentives, as well as the option to pay off the loan early with no prepayment penalties.
With a loan, it will take about 5 years longer for the system to pay itself off than it would with an outright purchase. However, after about 16 years, you’ll be the exclusive owner of the solar energy system and the energy it produces, essentially allowing you to power your home or business for free for the remainder of the system’s life.
Leasing a solar panel system for your home essentially means that you will be renting the system from a solar company or a third-party financier for the duration of a contract, which is generally 20 years, at a locked-in monthly rate. Solar leasing typically does not require the homeowner to put any money down upfront, but because the solar company owns the system, the customer does not get to take advantage of tax credits, net metering, or long-term financial benefits.
Since electricity prices in Arizona are slightly lower than the national average, your solar lease payment will likely be about the same as your current electricity bill without solar at the beginning. However, electricity prices are expected to increase over time, which means you should still end up saving a few thousand dollars over the life of the contract, and let’s not forget the positive impact you’ll be making on the environment by supporting clean energy.
Power Purchase Agreements
Power purchase agreements are similar to leases in that the homeowner typically does not have to put any money down and a third party owns the system. However, instead of renting the system at a locked-in rate, the homeowner buys the electricity produced by the system at a set rate.
The solar savings a PPA customer in the Grand Canyon State will receive won’t be as hefty as they would for someone in place with higher electricity prices. However, because Arizona receives so much sunshine and solar PV systems can produce at a high energy efficiency, it is still possible to save money with a PPA. Although savings will be slim in the first few years, as electricity rates rise over time, so will solar PPA savings.
Arizona Solar Incentives
While Arizona is lacking in terms of performance payments and sales tax exemptions, the state does offer a variety of other solar incentives, including a state tax credit, solar rebates, and property tax exemptions.
There are two tax credits you need to be aware of when switching to solar. The first is the 30 percent federal tax credit that anyone in the United States who owns their solar panel system can qualify for. Because these credits are given on a 1-to-1 basis according to your tax liability, you will want to have an idea about what your federal tax liability is to know how many years it will take for you to take full advantage of this tax credit.
The second is the state tax credit. This will differ depending on which state you live in. If you install solar panels in the Grand Canyon State, you’ll get an Arizona solar tax credit of 25 percent of the total system cost (up to $1000), which can be used toward your state income tax bill.
Some states offer tax exemptions on the sales and property tax of solar energy systems, while other states don’t offer tax exemption incentive programs of any kind.
Arizona stopped offering a solar sales tax exemption back in 2016, but the state does still offer a 100 percent solar property tax exemption. This means that even though the value of your home will likely increase due to the addition of solar panels, your property taxes won’t.
Many utility companies offer rebates to homeowners that own a solar panel system. These rebates are similar to those that you’d receive on an electronic or appliance purchase and result in money back in your pocket after the solar installation.
At one point, a solar rebate program was offered by almost every Arizona utility company. Unfortunately, a majority of these Arizona solar rebates have now been exhausted. However, there are still a handful of rebates available for residential customers of Duncan Valley Electric Cooperative (up to $500) and Mohave Electric Cooperative (up to $2,500). If you are a customer of one of these co-ops and are considering making the switch to solar, act quickly so that you can take advantage of a solar rebate.
Performance payments reward solar owners for the renewable energy their panels produce on an ongoing basis. Utility companies will typically either offer a per-kWh bonus for electricity produced or pay you a fixed amount for credits earned.
Unfortunately, Arizona currently does not offer a solar performance payment incentive program of any kind.
Arizona Solar Policy Information
Current solar policies in Arizona are not incredibly favorable for home and business owners. Although the Grand Canyon State does have a Renewable Portfolio Standard with a solar carve out, it’s not an incredibly aggressive goal. Additionally, Arizona does not have a statewide net metering program or a clear interconnection policy.
Net metering refers to utility companies crediting solar owners for the excess power that they feed back into the grid from their solar energy system. During the day while solar panels are generating power, the meter typically runs backwards and sends surplus energy to the grid, as many homes aren’t consuming as much energy as their system is producing. At night, when the system is no longer producing energy, most homes pull energy back from the grid to cover their electricity needs. Through net metering, solar owners are able to generate credits to help offset any electric bills they receive from their utility company for tapping into the grid.
Arizona does not currently have a statewide net metering policy in place. Instead, the Arizona Corporation Commission allows each utility company to set its own net metering policies and rates for renewable energy systems. As of 2019, net metering rates for major utilities in Arizona are as follows:
- APS: Payment to solar customers of $0.1161 per kWh for any excess solar energy generated, rate is locked in for 10 years for systems installed before September 1, 2019
- SRP: Time-of-use rate schedule with increased monthly flat fees and demand charges, but low per-kWh rates depending on energy usage
- TEP: Payment to solar customers of $0.0964 per kWh for any excess solar energy generated, rate is locked in for 10 years
Top solar companies in Arizona are well-versed in local net metering policies, so we recommend consulting with your preferred solar installers for more specific information about the net metering policy that you will be subject to based on your utility.
Renewable Portfolio Standard
Utility companies are required by their state legislature to make sure that a certain percentage of their energy production comes from renewable energy sources, such as solar, by a specific date. If the utility companies in the state do not comply with Renewable Portfolio Standard law, they will be heavily fined. Therefore, states that have a large RPS requirement usually have great incentives up for grabs from the utility companies in that state.
Arizona’s current RPS requires that at least 15 percent of electricity production in the state must come from renewable energy by 2025. While it’s a good thing that the state at least has an RPS, this goal is not incredibly aggressive, especially compared to some other states in the country.
However, Arizona’s RPS does have a solid solar carve out that requires at least 2.25 percent of the state’s energy to come from solar power, which is advantageous for home and business owners interested in switching to solar and often results in more availability of financial incentives.
Interconnection standards have to do with the requirements involved when it comes to connecting a solar system to the grid. It’s important to know if your state has any additional requirements that must be met in order to get your home solar system plugged into the grid.
Currently, Arizona does not have a distinct statewide policy in regards to interconnection. Rules vary from utility to utility, so it’s wise to consult with your preferred solar company to know what to expect as far as connecting to the grid.
Arizona Solar Statistics
To date, Arizona has installed over 3,700 megawatts of solar, enough to power more than 552,000 homes in the state with solar energy. Arizona ranks seventh in the nation in projected solar growth, and more than 2,800 additional megawatts of solar are expected to be installed in the Grand Canyon State over the next five years. Currently, there are over 450 solar companies and more than 7,500 solar jobs in Arizona.
Interested in a solar quote? Check out the top-rated solar companies in Arizona and read reviews from verified solar customers.