Solar tax credits are available for anyone who buys a solar panel system. This is a way of the government encouraging solar energy buyers.

Why would they do that?

Well, there are several reasons. USA is the only developed country not to have ratified the Kyoto Protocol, a worldwide agreement to reduce greenhouse gases. However, they still recognize the importance of cutting on these gases.

Encouraging people to adopt solar power is one effective way of reducing greenhouse gas. Every kWh of electricity produced by solar panels saves approximately 1.6 pounds. So a typical 1kW system would save around 1.4 tonnes of greenhouse gases each year.

So by encouraging the growth of solar energy, the government can reduce carbon emissions.

There are also several environmental and business groups lobbying for solar energy support. A situation is developing now where certain tax credits are due to expire december 2008. This could cause an upheaval in the solar energy industry, because many companies rely on these rebates for their bottom line.

The problem with federal tax credits, is that they are soon to expire. Right now, various groups are lobbying to get them extended in the new Renewable Energy bill. Other groups are fighting against this.

So these tax credits only apply to solar systems "placed in service" from January 1, 2006 through December 31, 2008. The federal tax credit gives you back 30% of the cost of the solar system. This comes to you as a tax credit. For residential solar systems, the maximum credit you can get is $2,000.

For businesses, the credit is the same (30%), but there is no maximum value.

There are quite a few types of solar incentives. There are federal incentives which are available throughout the whole of the USA.

Then there are state incentives. These are particular to each state. Some states, like California and New York have set aside large funds to subsidise solar energy. Other states are less proactive in this area.

There are also incentives particular to cities - ie. Palo Alto has it's own solar program, as does Los Angeles.

Finally, some power companies have their own solar programs. So if you buy electricity from a certain power company, you may be eligible for a subsidised solar panel system.

Power companies also sponsor solar energy by buying back electricity from the homeowner. So if you are making more solar power than you can use, often you can sell it back to your power company.

What's worth realising is the reasons why power companies do this. It might be part of the companies environment policy, or public relations. It might be state legislated. There are often REC's involved.

REC stands for Renewable Energy Credit. REC's are a new currency invented in the climate of global warming. They provide a way for companies to 'offset' the greenhouse gases that they create.

If you produce solar power, or plant trees, you are reducing greenhouse gases. You are also creating REC's. Another company, eg. a coal fired electricity company, can buy these REC's from you. By doing so, they are 'offsetting' the greenhouse gases they create from burning coal.

The idea is that by buying REC's from you, a coal company is making the creation of REC's profitable. The plan is to create a market around REC's, and grow an environmentally friendly economy.

There are many views on the workableness of this program. However, what's worth noting is that when a utility buys your solar power at a good rate, this sometimes includes selling them the REC's. There is nothing wrong with this, it is carbon emission offsetting in practise. It's worth noting how the transaction works.

Each state program has its prescribed way of applying for a solar incentive. Some require application before, some can be applied for afterwards. It's definately worth looking at the DSIRE website (see links above) for the incentive requirements before you install a solar system.

Most states require the solar system to be installed by a reputable installer, and have a warranty. This is very much in line with how you would want to do things as well.

Often a program will have specifiations. eg. to be eligible, your solar power system must supply half of your home power needs. By talking to a solar panel installer, you can determine what your power needs are, and how much will be supplied by solar panels.

As with most things, the earlier you go and talk to the department, the better. State department are usually willing to help, and can supply you with all the information you need.

Do you think tax credits are helping or hindering the solar industry?

I have heard both sides of the story:

On the one hand, tax credits are growing the solar industry. They acknowledge the true environmental cost of supposedly "cheap" coal technology.

On the other hand, dependence on government subsidies can lead to a weaker economy. Solar power must be able to compete $ to watts with coal if is to spread rapidly. Also, relying on government incentives that can expire (as they are about to) makes investing riskier.

So, what are your thoughts on the matter?