Why the Solar Tax Credit Is Better Than The Solar Renewable Energy Certificate 

Solar Power Is Generating A Lot Of Interest In “Green Energy”

Investing in green energy products is top of mind for many of your High-Net-Worth/Ultra-High-Net-Worth (HNW/UHNW) clients, with more than 40% of UHNW clients expressing interest in sustainable financial products.[1]  Green energy is generated in a myriad of ways. Still, solar draws the greatest interest from individuals because it’s something you can do immediately.

Can You Sell The Solar Power Your Roof Panels Generate And Make Money? 

Theoretically, you can sell your solar power to your local utility and perhaps make money. Still, it’s a complicated process for a small amount of money. Besides, you can only do this in six states: Delaware, Illinois, Maryland, Massachusetts, Nevada, and the District of Columbia. Other states may include solar as part of a broader category. The EPA provides extensive and easy-to-understand information on the entire subject here. 

Renewable Portfolio Standards (RPS)

If you live in one of those six states, your state must have Renewable portfolio standards (RPS). These are defined by the US Energy Information Administration/US DOE as: “…policies designed to increase the use of renewable energy sources for electricity generation. These policies require or encourage electricity suppliers to provide their customers with a stated minimum share of electricity from eligible renewable resources.” [2]

Your State’s RPS Must Have A “Solar Carve out”

Because there isn’t a national standard in place, many states have created their own programs. States require utilities to generate a certain percentage of electricity from an approved list of renewable resources. But a utility doesn’t have to use all of them. They can just use one. These renewables include biofuels, geothermal, wind, and solar. To sell the solar power you generate from your rooftop solar panels, your state must have a “solar carve-out” in its RPS. This provision mandates utilities to generate a certain percentage of their renewable energy by using solar power.

Solar Tax Credit

The investment tax credit for solar is different from the solar carve-outs in a state’s Renewable portfolio standards (RPS). Because the tax credit is part of the US tax code, it applies to every state. Getting the solar credit is far easier and probably worth more to your clients than the Solar REC. According to the US Department of Energy:

• The federal residential solar energy credit is a tax credit and not a tax deduction.
• A credit allows you to take the amount you owe in income taxes and subtract the credit, reducing the amount of tax you owe on your 1040.
• Your system must become operational in the tax year you are claiming the credit, and your home must be located in the US.
• You can install the system in your primary home or secondary home.
• There is no maximum amount that can be claimed.
• You can go here to get the details from DOE [3]

 

Program Will Sunset At End Of 2023

In December 2020, Congress passed an extension of the solar investment tax credit which provides a 26% tax credit for systems installed in 2020-2022 and 22% for systems installed in 2023. The tax credit expires on January 1st, 2024, unless Congress renews it, so your clients need to move on this soon.

 

Resources:

[1] capgem-world-wealth-report-billionaires-invest-in-sustainability

[2] eia.gov/energyexplained/renewable-sources/portfolio-standard

[3] https://www.energy.gov/eere/solar/homeowners-guide-federal-tax-credit-solar-photovoltaics

 

Contributing Writer: Subject Matter Expert Charles McCain

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