California Solar Incentives And Tax Credits (2023)

By Tamara Jude

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California is known for being an environmentally conscious state and is committed to aggressive clean energy goals over the next 20 years. Officials plan to achieve carbon neutrality by 2045, one of the most ambitious renewable energy goals in the United States. With one of the country’s largest solar markets and several cost-saving solar incentives, California is an ideal place to go solar. 

If you’re considering a move to solar, this guide can help you find the best statewide solar incentives to lower your investment costs. We also offer recommendations for the Golden State’s best solar companies. 

 

 

Overview of California Solar Incentives

The chart below outlines the available federal, state, and local solar incentives for residential customers:

Incentive Incentive typeSummaryOccurrence

Disadvantaged Communities – Single-Family Solar Homes (DAC-SASH)

State

Offers financial assistance of up to $3 per watt for qualifying low-income residents

One-time

Self-Generation Incentive Program (SGIP)

State

Offers up to $200 per kWh for solar battery installations

One-time

Equity Resiliency Program

State

Includes rebates for $1,000 per kWh for energy storage systems

One-time

Active Solar Energy System Property Tax Exemption

State

Eliminates property tax for solar system installations

One-time

Local City and Utility Company Rebates

Local

Additional rebates and incentives are offered at the city and utility level

Varies

CA Solar Rights and Easement Laws

State

Protects homeowners from HOAs preventing solar system installation

Ongoing

Net-Metering

Local

Allows you to earn energy credits in exchange for excess energy

Ongoing

Federal Solar Tax Credit

Federal

Provides a federal tax credit for up to 30% of installation costs

One-time

 

 

California Solar Incentives, Tax Credits, & Rebates

California offers several solar programs and incentives for homeowners. These programs help lower the cost of solar panels and add-on battery storage. California also has programs designed to make solar more affordable for low-income households. Beyond financial incentives, the state protects homeowners‘ right to own solar panels. 

Our team spent more than 80 hours researching applicable federal, state, and local incentives and laws that support residential solar owners. Below is an overview of California‘s solar incentives, programs, and laws. 

Disadvantaged Communities – Single-Family Solar Homes (DAC-SASH)

The California Solar Initiative (CSI) started the DAC-SASH program to make solar more affordable for low-income households. The program offers one-time, up-front incentives to help reduce solar panel costs. You must meet the following criteria to qualify for the program:

• You’re a current utility customer with

  Pacific Gas

  and Electric (

  PG&E

  ), San Diego Gas and Electric (

  SDG&E

  ), or

  Southern California Edison

  (

  SCE

  ).

• You live in a qualifying

  low-income

  area, own your home, and live there full-time

• You live in affordable housing as outlined by

  Public Utilities

  Code 2852

• Your household income falls within or below 80% of your area’s median household income

You’ll begin by applying on the GRID Alternatives website. If approved, you could receive up to $3 per watt in solar rebates for a new system. If we apply those savings to an average 5 kilowatt-hour (kWh) system, you could save up to $15,000 on installation.

Our team reviewed the application process and learned that it requires several steps and significant paperwork. Some steps involved include verifying qualification, homeownership, income, and affordable housing status. Although you may feel discouraged by the lengthy process, it’s worth it to lower initial solar costs and benefit from long-term energy savings. 

Additional resources: You can begin your application at the GRID Alternatives website. 

Self-Generation Incentive Program (SGIP)

SGIP rewards homeowners for adding battery storage to their home solar system. California is prone to outages due to rolling blackouts or natural disasters, and solar batteries can help power your home in these emergencies. Created by the California Public Utilities Commission (CPUC), this program provides a one-time rebate of up to $200 per kWh of solar battery storage capacity. Adding high-capacity energy storage, such as the Tesla Powerwall, will extend your solar system’s energy efficiency, leading to more electricity bill savings. 

The SGIP is a tiered-block program, meaning its value gradually decreases as more customers sign up. If you’re considering applying, you should act fast. Eligibility requirements include the following:

• You must be a

  PG&E

  ,

  SCE

  ,

  SDG&E

  , or Southern

  California

  Gas Company (SoCalGas) customer

• Your installation must be completed by an approved

  SGIP

  installer

• Your home must be located within the

  eligibility

  area

   

Most of the paperwork is handled by your battery installer, making this application process much easier than other incentive programs.  

Additional resources: Check the CPUC website for further details.

Equity Resiliency Program

Another SASH program, the Equity Resiliency Program (ERP) offers energy storage rebates. The program is geared toward low-income families who live in high-risk fire areas or have experienced two or more Public Safety Power Shutoffs (PSPS). A PSPS, or deenergization, occurs when utility companies shut down electrical power to reduce electrical infrastructure fire risk. This may happen during natural disasters, such as wildfires or flooding. 

SASH program participants can also qualify for ERP. Under this program, you could receive a rebate of $1,000 per kWh—almost enough to cover an average solar battery’s cost. 

Our team discovered that the ERP application was similar to the DAC-SASH programs. If approved for SASH, you won’t have to start the application from scratch, but you must supply additional paperwork detailing your installation address, professional installer, battery cost, and storage system capacity. Despite the tedious paperwork, this program nearly eliminates solar battery costs and helps you save even more on energy bills. 

Additional resources: Review the Equity Resiliency Program (ERP) for more details.

Active Solar Energy System Property Tax Exemption

This tax exemption applies to all California solar residents and removes the burden of added property tax. Most home improvement projects result in a property value boost. A move to clean energy has the same effect, with solar panels raising your home value. As home value increases, so do your property taxes. However, in California, you’ll benefit from higher property value without the extra taxes. 

There is no application process required. This is an automatic benefit for residential solar owners. 

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Additional resources: Complete tax exemption details are on the California State Board of Equalization website.

Additional Local Rebates and Credits

You’ll find additional solar rebates and incentives through your city or municipality. These programs vary by area and could include one-time rebates or credits to reduce rooftop solar or energy storage costs. Certain utility companies offer extra savings for converting to solar energy. 

Rancho Mirage Energy Authority (RMEA) offers exclusive rebates to future and current solar customers. RMEA customers who install a new system or expand their current one receive up to $500 in a one-time solar rebate. You must be enrolled in RMEA for one year, own property, and be enrolled in the NEM program to qualify. 

Sacramento Municipal Utility District (SMUD) provides a voluntary tiered incentive program called My Energy Optimizer. Each tier offers additional savings and rebates based on your home upgrades. Here is an overview of the tiered payouts:

• The Starter level provides $50/kWh or up to $500

• At the Partner tier, you can earn $150/kWh or up to $1,500

• The Partner+ level increases your savings to $250/kWh or up to $2,500

Each tier has specific enrollment requirements. For example, the Partner+ level requires Tesla Powerwall ownership to qualify. 

We recommend checking the Database of State Incentives for Renewables and Efficiency (DSIRE) for a current list of local solar incentives. 

California Solar Rights and Easement Laws

The California Solar Rights Act (or CA Civil Code 714) protects residents from homeowners associations (HOAs) restricting their right to own and install solar panels. HOAs can enact “reasonable” restrictions on solar installations if they do not violate the following rules:

• Any restriction won’t exceed $1,000 in additional

  installation costs

• Restrictions won’t impact a solar system’s efficiency or performance by up to 10%

• HOAs must allow alternative systems with equivalent efficiency, cost savings, and overall cost

California Net-Metering

Net-metering (or net-energy metering) benefits homeowners with high-efficiency solar panels. High-performing systems generate more power than your home may need, resulting in unused excess energy. Net-energy metering allows you to sell this energy back to the power grid in exchange for energy credits from your electric company. Those credits apply to future bills, helping lower grid-tied power rates. 

In California, net-metering once served as one of the best ways to accumulate extra solar system savings. However, this policy changed for California recently. On April 15, 2023,  California shifted to the Net-Energy Metering 3.0 (NEM 3.0) plan. Under the new plan, homeowners receive energy credits at a rate 75% lower than previous payments. 

The difference is in the payback that utility companies use. Under the old NEM 2.0 program, homeowners received a 1:1 ratio for credits at the retail rate. The same rate you would pay for 1 kWh of power from the company was the same amount you earned back. Under the NEM 3.0 plan, you receive a lower wholesale rate, or the price it costs an electric company to produce 1 kWh.

Since NEM 3.0 offers less benefits, California‘s government officials encourage residents to invest in energy storage systems instead. This extra energy provides backup power during low-sun days, overnight, or blackouts. 

Thankfully, NEM 3.0 isn’t retroactive for current NEM 2.0 customers. The new policy only applies to new solar installations starting on or after April 15. Customers currently enrolled in NEM 2.0 can benefit from the higher credits for 20 years starting from their activation date. After that, they’ll move to the latest net-metering program. 

Although net-metering credits have decreased, you can still benefit from long-term savings. Each utility company rate varies, so we recommend checking with your local utility company and speaking to a rep about net-metering options. If installing energy storage is a better investment for you, we suggest using the Self-Generation Incentive to reduce battery costs. 

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Federal Tax Solar Credit

The federal government offers additional savings to make going solar more affordable. Thanks to the 2022 Inflation Reduction Act, the federal solar tax credit now provides a credit equal to 30% of solar panel system installation costs. The credit drops to 26% in 2023 and 22% in 2034. It will end after that unless renewed.

This credit is applied to your federal tax liability during tax time, helping to lower your owed taxes for that year. You can roll the remaining credit to the next year if it exceeds your owed federal tax amount. 

You must legally own your solar system to qualify. This is determined by your chosen financing option. If you pay in cash or take out a solar loan, you automatically qualify as the legal owner. With solar leases or power purchasing agreements (PPAs), ownership remains with your solar provider, so you won’t be able to use the federal tax credit.

 

 

California Solar Costs

Installing a solar power system in California costs around $16,380, according to EcoWatch.com. This averages out to $2.73 per watt—higher than the national average of $2.66. Despite these higher installation costs, California residents benefit from better long-term savings by moving away from fossil fuels. Federal and state solar incentives will also lower your solar panel costs. 

Let’s calculate for a 7 kWh solar system. Based on the per-watt rate, your system would cost $19,110 (7,000 x $2.73). We can immediately reduce those costs by 30% using the federal solar credit, lowering your investment to $13,377. That’s a savings of $5,700 before applying any other solar incentives. If you add a 13.5 kWh solar battery, you can use the SGIP incentive to save an additional $2,700. Additional city, municipality, and utility company credits lower costs even more. 

We recommend researching all available credits to make your up-front costs as low as possible. Solar experts we’ve spoken to recommend discussing available incentives with your solar company. Many companies are knowledgeable about local incentives and will assist with the applications. 

 

 

Is Going Solar in California Worth the Investment?

Yes, going solar is a worthwhile investment in California thanks to the state’s aggressive green energy push, leading solar market, and cost-saving incentives. Though the state reduced its net-metering credits, you can still save money with high-performing solar panels paired with solar storage. State officials will continue providing solar incentives as they push to meet their 2045 net-zero goals.

 

 

Our Recommendation

California offers excellent solar rebate programs, tax credits, and incentives that reduce up-front costs and enhance your solar system’s performance. We recommend reviewing each program’s requirements and preparing all the necessary documentation beforehand. Depending on the program, you may be required to complete additional paperwork before seeing financial benefits. 

We recommend getting at least three quotes from top California solar companies to find the best home system. We recommend Momentum Solar if you’re looking for a company to handle your solar project from start to finish. Invest with SunPower if you’re looking for one of the highest-efficiency solar panel systems on the market. If diverse financing options are your main concern, consider Sunrun.

 

 

California Solar Incentives FAQ

What is the California Solar Initiative?

The California Solar Initiative (CSI) handles all solar incentives for the three major investor-owned utility companies: Pacific Gas and Electric Company (PG&E), San Diego Gas and Electric (SDG&E), and Southern California Edison Company (SCE). These incentive programs include rebates for schools, nonprofits, businesses, and residential solar projects. The CSI also provides solar rebates for affordable housing programs, including the Single-Family Affordable Homes Program (SASH). 

Does California offer any tax incentives for solar?

Yes, California offers several solar tax incentives. Homeowners receive property tax exemptions for the added value of solar panels and qualify for the federal solar tax credit, which knocks 30% off of installation costs. Unfortunately, California no longer offers a sales tax exemption for residential solar panels.

Will NEM 2.0 be grandfathered?

Yes, NEM 2.0 is grandfathered for existing customers with solar systems installed on or before April 14, 2023. You can remain under this program for 20 years from your activation date. After that, you’ll move to NEM 3.0 or the latest net-metering program.

What are some benefits of going solar in California?

California leads the country in residential solar installations and promotes clean energy use to its residents. The state receives abundant sunlight throughout the year, making it the ideal environment for solar power. According to the Solar Energy Industries Association (SEIA), California solar panel prices have dropped by 53% over the last 10 years. In addition, the California government plans to convert to 100% clean energy by 2045 and supports this initiative with several solar incentives and rebates.

 

How We Chose the Top Solar Companies

We researched and analyzed dozens of solar panels and solar installation companies. We then formulated a rating system based on each solar installer or manufacturer’s services and products. We weighed several significant factors, including the solar panels’ quality and type of solar panels offered, the customer support network, warranty lengths and limitations, and additional benefits such as mobile apps for monitoring and customer service. 

Speaking directly to representatives, we determined how each solar company personalizes its solar panel installation for each home. We also analyzed each company’s warranty options to ensure their product and performance guarantees match or exceed industry standards. 

We evaluated each provider based on their rating and history with the Better Business Bureau (BBB) to determine reputation. In addition, we analyzed the 100 most recent Google Reviews for each provider across various locations and branches.

Read more: Our Methodology

The solar industry in California is about to change, and, unfortunately, not for the better. On December 15, 2022, the California Public Utilities Commission (CPUC) unanimously voted to pass an update to its Net Energy Metering (NEM) program. This update is called NEM 3.0, and it’s set to replace NEM 2.0 on April 14, 2023.

California’s new NEM policy will see customers of major utility companies receive 75% less for the electricity they send back to the grid compared to the average amount of the current model. Customers using solar panels can receive an average rate of 30 cents per kilowatt-hour under NEM 2.0, but under NEM 3.0, this rate would be reduced to only 8 cents per kilowatt-hour. Thankfully, California residents and businesses can be grandfathered into the NEM 2.0 system for 20 years if their installers file interconnection applications before April 13.   

Ready to go solar and take advantage of the NEM 2.0 while you can? Get a quote from our top three picks for solar installation in California.

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What is NEM 3.0?

NEM 3.0, also called Net Billing or the Net Billing tariff, is a change in California’s net metering policy. The bill is not retroactive, so anyone with a solar power system will continue using NEM 2.0 or NEM 1.0, whichever policy was active at the time they signed up. Only customers of Pacific Gas and Electric Company (PG&E), Southern California Edison (SCE), and San Diego Gas & Electric (SDG&E) will be affected. 

Several major changes are coming in NEM 3.0, but the largest is the value of exported electricity. Net metering is a system by which homeowners who produce electricity through solar power can send excess energy back into the grid to offset their remaining electricity bills. Until now, California’s net metering policy has been retail rate – a one-to-one system that values the electricity sold back to the utility company at the same amount the company would charge. Under NEM 3.0, they’re switching to a cost avoidance system. 

An avoided cost system is the lowest amount a company can pay customers under the Public Utility Regulatory Policies Act of 1978, or PURPA. Under this model, the company pays the customer the amount of money it would have cost it to produce that amount of electricity, which is significantly less than what it typically charges (retail rate). To further complicate things, the rates for each customer will vary by month and by hour. If that sounds complicated, well, it is. Ultimately, the math works out to customers receiving, on average, 75% less for the electricity they sell back to the grid. This chart from the California Public Utility Commission titled Decision Revising Net Energy Metering Tariff and Subteriff shows how much less customers can expect to receive. 

Image Source: State of California Public Utilities Commission

Final Thoughts on NEM 3.0

This new proposal is not all bad, and there are a few upsides to NEM 3.0. The initially proposed solar taxes that were part of the bill have been dropped. These taxes would have added up to around $60 a month for solar panel system owners, but they have been scrubbed from the bill. Next, this system incentivizes solar batteries by altering the rate of returns for solar energy. Looking at the above chart, you can see that the electricity price and export rate skyrocket from 4:00 p.m. to 9:00 p.m. With a solar battery, homeowners could store their excess power, then deposit it all during these times, maximizing the amount of money sold per kilowatt-hour. While NEM 3.0 won’t ever provide the same amount customers get under the current system, they can offset the damage with careful planning so long as they have a solar battery. 

Overall, this decision is a massive disappointment for solar advocates in California. This state has been one of the leading figures in green energy, with its previous NEM policies supporting 1.3 million customers in producing 10,000 megawatts of renewable power, most of which came from solar power. While not all elements of this bill are for the worst, we cannot help but feel like this is a massive step backward. 

We recommend getting your solar installation soon if you’re looking to be grandfathered in from NEM 2.0. Use our tool below to get estimates from solar professionals near you.

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