As more individuals, businesses, and governments recognize the importance of investing in renewable energy projects, a framework of policies and regulations has been established to promote the widespread adoption of solar power.
Solar photovoltaic (PV) systems are increasingly sought after for residential and large-scale renewable energy projects.
However, with federal initiatives such as the investment tax credit, state-level renewable portfolio standards, and local government mandates, understanding the financial incentives, exemptions, and subsidies available can sometimes be a minefield.
Learn more about the solar energy development process, interconnection procedures, power purchase agreements, solar energy laws, and the role of public utilities and electric utilities in growing the solar electricity generation industry.
Why Solar Policies And Regulations Are Important
Solar policies and regulations promote the widespread adoption of renewable energy sources, including solar PV systems, rooftop solar, and solar energy systems.
These policies, implemented at local, state, and national levels by governments and regulatory bodies, provide a framework for developing and integrating renewable energy projects. By setting clear guidelines and standards, such as renewable portfolio standards (RPS) and qualifying criteria, solar policies ensure a consistent and sustainable approach to energy production.
This reduces reliance on fossil fuels and mitigates the environmental impacts associated with traditional energy generation.
These regulations also create an attractive investment climate, attracting project development and financial incentives while establishing tariffs and power purchase agreements to encourage renewable electricity sales and a more diverse energy industry.
Federal Policies, Programs, And Regulations
The United States has implemented various federal policies, programs, and regulations to drive the growth of solar energy across the nation. These initiatives aim to incentivize solar development, support research and innovation, and regulate the integration of solar power into the national energy grid.
- The federal government provides the Federal Investment Tax Credit (ITC), commonly called the solar tax credit, to homeowners who install solar panel systems. It allows individuals to claim a tax deduction of 30% of their solar installation expenses from 2022 to 2032.
- The Modified Accelerated Cost Recovery System (MACRS) provides an accelerated depreciation schedule for commercial solar energy equipment. This five-year schedule reduces the income subject to federal taxes and provides additional value based on the owner's tax rate.
- The Public Utilities Regulatory Act of 1978 (PURPA) has expanded solar energy growth in the U.S. by requiring utilities to purchase power from qualifying facilities (QFs) at an "avoided cost." QFs include small power production plants (80 MW or less) and cogeneration facilities.
- The Federal Energy Regulatory Commission (FERC) controls the interstate distribution and transmission of oil, natural gas, and electricity, particularly focusing on wholesale power markets, transmission investment, and electric reliability. However, FERC does not oversee retail electricity sales or approve electric generation facility construction, as those responsibilities are primarily managed at a state level.
- The Solar Energy Technologies Office (SETO), a part of the U.S. Department of Energy (DOE), funds solar technology research and development to enhance their affordability, reliability, and domestic impact on the grid. SETO's initiatives target various aspects of the solar market, including technical improvements in photovoltaic (PV) systems, grid performance, and the development of new business models.
- The DOE has set ambitious cost targets to make solar electricity economically competitive without subsidies, aiming to achieve significant cost reductions for utility-scale, residential, and commercial-scale solar by 2030.
- The U.S. Energy Information Administration (EIA), a non-partisan agency within the Department of Energy, collects comprehensive energy data and provides analyses, market forecasts, and long-term forecasts. Their free-access resources, such as the State Energy Data System (SEDS) and Electric Power Annual, offer valuable state-specific information on energy consumption, production, generation, prices, and even distributed solar data.
State Policies, Programs, And Regulations
- A Renewable Portfolio Standard (RPS) requires utilities to generate a specific percentage of their energy from renewable sources like solar, wind, biomass, geothermal, and hydropower. Utilities can meet the requirements by developing their own renewable resources, purchasing renewable electricity, or acquiring Renewable Energy Certificates (RECs).
- A Renewable Energy Certificate (REC) represents one megawatt-hour (MWh) of renewable energy, while Solar Renewable Energy Credits (SRECs) are a type of REC specifically generated by solar energy. SRECs are created in markets with solar set-asides forming a section of the Renewable Portfolio Standard (RPS), encouraging utilities to acquire SRECs from retail customers or own solar installations to meet set-aside mandates.
- Net energy or net metering compensates utility customers for any surplus electricity they export to the grid, typically generated by distributed solar PV systems. The program works by netting the imported electricity against the exported electricity at the end of each billing cycle, with customers either receiving a credit for excess exports or being billed for net electricity consumed.
- Net metering program design typically includes eligible technologies, system and program size caps, customer types, net excess generation, and REC ownership.
- Virtual net metering is a variation of net metering that allows customers to receive credits on their electricity bills for their share of energy production from off-site solar projects, enabling the growth of community solar programs. This policy eliminates the need for customers to have on-site PV systems, providing an opportunity for broader access to solar energy and its benefits.
- Third-party financing, also known as third-party ownership, has been a popular method for installing residential and commercial solar energy systems, allowing customers to access solar projects without upfront costs. Traditionally, although power purchase agreements (PPAs) and solar leases have been the two common models for third-party financing, more residential customers now opt to make cash purchases and take out loans for solar installations.
- Under a power purchase agreement (PPA) for third-party ownership, a project developer builds, owns, and operates a solar energy system at a customer's property, selling electricity to the customer at a predetermined rate. The customer benefits from solar energy without the upfront installation costs, while the developer receives revenues from electricity sales, solar renewable energy credits (SRECs) deals, and tax incentives.
- Solar leases offer a similar structure to power purchase agreements (PPAs) but with a focus on leasing the solar system itself rather than paying for the cost of electricity. The developer retains ownership of the PV system, is responsible for system maintenance, and receives any solar renewable energy credits (SRECs) and available tax benefits.
- State clean energy funds support various renewable energy initiatives, energy efficiency programs, and assistance for low-income households. These funds are financed through a slight additional charge on electricity usage, as well as through voluntary contributions and settlements from utility companies.
- States utilize their clean energy funds to provide low-interest loans or loan guarantees to facilitate enhancements in energy infrastructure, such as distributed solar initiatives. These loans differ across states. For example, Massachusetts implemented the Mass Solar Loan program, which extended low-interest loans for solar installations and offered extra loan assistance for lower-income individuals.
- On-bill financing and repayment enable utilities to assist customers in financing renewable energy projects. Customers receive loans from state energy offices, financial institutions, or utilities themselves, with loan payments directly incorporated into their monthly utility bills for repayment.
The DSIRE Database
The DSIRE database serves as a valuable resource for home and business owners to find relevant incentives. Your solar installer should have a comprehensive knowledge of federal and state solar policies, as well as local regulations.