Solar Panel Cost in Arizona (2023 Local Savings Guide)
By Dan Simms /
In this EcoWatch guide on solar incentives in Arizona, you’ll learn:
Solar installation costs in Arizona are about the same as the national average. A mid-sized 7 kilowatt (kW) solar energy system in Arizona costs about $18,270, while the national average is about $18,620.
After factoring in the federal solar investment tax credit (ITC), the cost of a 7 kW system in Arizona drops to around $12,790 while the national price hovers around $13,035.Making, in our opinion, solar in Arizona worthwhile.
While every American homeowner can take advantage of the ITC, Arizona homeowners are fortunate enough to have several more financial incentives to lower the cost of going solar. It’s likely because Arizona has a Renewable Energy Standard (RES) that requires that electric utilities must generate 15% of their energy from renewable sources by 2025.1
For example, if you take advantage of the ITC and the Arizona state tax credit, you can bring the cost of a 7 kW system from $18,270 down to a much more affordable $11,790. And that’s not factoring in the money you’ll save from lower electricity bills which you can calculate your solar savings for a better idea on how much you can save.
You can see a quick overview of the incentives available to Arizonans who install residential solar power systems below. We’ll explain these perks in more detail throughout this article.
|Solar Incentives in Arizona||Incentive Type||Description||Occurrence||Estimated Dollar Amount You Can Receive|
|Federal Solar Investment Tax Credit (ITC)||Federal||Residential solar panels purchased and installed by December 31, 2032, are eligible for the 30% Federal Solar Tax Credit (ITC).||One time: Credit is applied when you file your taxes during the year your system is installed. If credit is greater than what you owe in taxes, credit can roll over up to five years.||Roughly $9,000 in tax credits for the average 11.5 kW system|
|Residential Solar Energy Tax Credit||State||Solar energy systems in Arizona get a tax credit equivalent to 25% of their value or $1,000, whichever is less.||One time: Credit is applied when you file your taxes during the year your system is installed.||Up to $1,000|
|Solar Equipment Sales Tax Exemption||State||Solar panels are exempt from Arizona’s 5.6% sales tax, which means immediate savings when buying equipment.||One time: Tax is avoided when you purchase your solar panel system.||Roughly $1,680 on the average 11.5 kW system|
|Energy Equipment Property Tax Exemption||State||Any increase in home value after installing solar panels is not taxed in Arizona.||Ongoing: Your solar panel system won’t be included in your home’s assessed value where property taxes are concerned.||Varies based on home value|
|Net Billing||Local||Investor-owned utilities are required to purchase your excess solar energy at an excess generation credit rate that hovers around 75% of the electricity cost. The credit will be used to lower your electricity bill.||Monthly: Your net billing credits will be applied to your monthly electricity bills.||Varies based on how much power your solar panels produce and which utility provider you have|
|Local incentives||Local||Several solar incentives and rebates are offered by utility companies and municipalities throughout Arizona.||Depends on solar program and solar energy device installed.||Depends on program and solar energy device|
The federal solar tax credit or ITC is the biggest solar incentive program available in the Grand Canyon State, worth up to 30% of your entire system cost.
Arizona is the sunniest state in America, so as you’d imagine, solar panels work extremely well here. However, Arizonans also use a lot more energy compared to most Americans. For context, the average American consumes 886 kilowatt-hours (kWh) of electricity per month, while the average Arizonan consumes 1,058 kWh per month.
Because of the high usage, the average Arizonan would need to install an 11.5 kW system, which costs roughly $30,015, to power their home. But after applying the federal tax credit, that price drops down to $21,010 — a savings of $9,005.
Arizona homeowners who install solar panels have been able to take advantage of the ITC since it was created back in 2005, but the credit has seen several changes since then. Most recently, in August of 2022, thanks to the passage of the Inflation Reduction Act, the tax credit was bumped from 26% back up to 30% of the system value.
The ITC will be available at the following rate schedule:
Needless to say, if you’re thinking about installing solar panels in Arizona, you should do so sooner rather than later.
If you find tax season daunting, rest assured that a trustworthy solar company will help you through exactly how to claim the federal solar tax credit during your solar installation. We also recommend working with a tax professional when filing your return.
Below are the five steps you will follow when claiming your federal solar tax return in Arizona:
Remember, your solar tax credit will only offset the taxes you owe on your return. If the taxes you owe are less than the credit you earn, the credit will roll over year after year.
The EcoWatch team nearly jumped for joy when the ITC was raised and extended by Congress in 2022. We love the federal ITC because it makes solar more accessible to more people.
Although the cost of solar has dropped significantly in the last decade, we still understand that it’s a huge investment. Solar panel system costs in Arizona can range from $13,000 to $40,000 depending on the system size, solar equipment brand and solar installation company you choose. That’s not an expense that everyone can afford.
But thanks to the federal tax credit, the price tag range for a solar panel system in Arizona is bumped down $9,005 to $21,010.
Additionally, because it’s offered nationwide, the federal solar tax credit is widely understood and not too complicated to claim.
The downside? The ITC only makes sense if you owe several thousand dollars in federal taxes over the next five years — that’s how long the credit rolls over.
The Arizona income tax credit for solar panels is available statewide and is worth 25% of your system’s installed costs or $1,000, whichever amount is less.2 To qualify, your system size needs to be at least 5 kW and it needs to be on land you either own or lease.
According to our market research and data from top solar brands, the average cost of solar panels in Arizona is $2.61 per watt of solar capacity, which means the average 11.5 kW system costs around $30,015 before incentives.
In Arizona, you can claim a total tax credit of $10,005 for a solar system at this price:
After applying both incentives, your total cost for an 11.5 kW solar panel system in Arizona comes out to $20,010.
The combination of federal and state tax credits makes solar panel systems more affordable because you’ll recover a large portion of your investment on your next tax declaration.
Similar to the federal tax credit, Arizona taxpayers will claim the statewide solar tax credit when filing their annual taxes.
To claim the Arizona tax credit, you’ll need to complete the following actions:
Again, we recommend contacting a certified public accountant (CPA) to ensure that your solar tax credits are filed correctly.
Most states won’t offer you a statewide tax credit to encourage you to go solar, so we here at EcoWatch love that Arizona has this incentive.
Arizona’s solar tax credit is easy to claim. It’s just one more stop in your tax filing journey — which we know can be long and tedious. But if you choose a good solar installation company, they’ll give you helpful advice on how to make the process as smooth as possible.
We wish there wasn’t a $1,000 cap on the Arizona solar tax credit because 25% of total system costs would be worth much more than that for many homeowners. But hey, $1,000 off isn’t too bad of a deal. And again, it’s more than most states offer.
Any time you buy something in Arizona, you’re charged an extra 5.6% in sales tax. Unless you’re buying eligible solar equipment.
Thanks to Arizona’s solar equipment sales tax exemption, your purchases of
solar panels, solar batteries, solar water heaters, solar inverters and other qualifying solar products are 100% tax-exempt.
For an 11.5 kW solar panel installation, the state sales tax exemption saves you more than $1,680 in upfront costs. That’s huge.
Fortunately you don’t have to do anything to claim the solar sales tax exemption in Arizona because it’s automatically applied to all qualifying solar equipment sales.
Not every state offers a sales tax exemption, so it’s definitely a great solar benefit for Arizonans. It’s also applied automatically, which means you don’t have to take any extra steps to benefit from this solar incentive.
Did you know that installing solar panels has been shown to increase home value? Thankfully in Arizona, your property taxes won’t bump up with it.
Typically, home upgrades — like a new roof or an in-ground pool — increase your property value, which in turn raises your property taxes. But the State of Arizona has a law that requires the added home value from solar panels be excluded from your tax assessment.
It’s hard to quantify exactly how much you’ll save thanks to the property tax exemption because it’s based on some variables like where you live and how many solar panels you install. But we can come up with an average figure using the following:
Calculating with the above numbers, Arizona’s property tax exclusion for solar equipment would save you about $180 on average. But of course, your savings could be a lot bigger if you have higher property taxes.
Similar to Arizona’s solar equipment sales tax exemption, you won’t have to complete any extra steps to claim Arizona’s solar property tax exemption.
Not every state offers a property tax exemption, so we believe this is a great benefit for Arizonans. It also means that installing a solar panel system is a worthwhile investment even if you’re planning to sell your home before the panels’ 25-year life expectancy is up.
According to a study from Zillow, homes with solar panels sell for about 4.1% more than homes without.3 That means adding solar panels could lead to an extra $17,553 in home value in Arizona, where the average home is currently valued at $428,120 (as of November 2022).4
Unfortunately, Arizona’s net metering program has been phased out after a controversial decision by the Arizona Corporation Commission in 2016.5 Instead, Arizona has net billing, and sadly, it’s not quite as beneficial as net metering.
Net metering is a billing arrangement in which your utility provider gives you credit for unused energy your solar panels produce and send to the electric grid. Those credits are applied to your electricity bill to reduce your cost for the energy your utility supplies you when your solar panels aren’t producing (like at night).
With net metering, most utilities are required to pay solar homeowners the full retail rate of electricity for the energy their panels send to the grid — this is true net metering. But unfortunately, net metering is not available in Arizona.
Net billing works just like net metering except that the extra energy your solar panels produce is credited at less than the retail rate — called an excess generation credit rate or export rate — that’s determined by your utility.
This rate is typically between 60% and 95% of the cost of electricity in Arizona. The current retail rate of electricity in Arizona is about 16 cents per kWh, so you can expect to be compensated between nine and 15 cents per kWh of solar energy you send to the grid.6
The rate you’ll be paid for net billing varies by your utility, its electricity rates and the year you install solar panels. For example, Tucson Electric Power (TEP) had a compensation rate of about eight cents per kWh up until September 30, but it recently dropped to seven cents per kWh, where it will remain through September 2023.7
Arizona Public Service (APS) and UNS Electric have slightly higher excess generation rates, priced at roughly nine cents per kWh. Side note: solar homeowners with APS who have a “Saver Choice” electric plan are charged for sending their electricity back to the grid at a rate of 93 cents per kWh.8
|Arizona Utility||Excess Solar Compensation Rate|
|Arizona Public Service (APS||$0.09 per kWh|
|Tucson Electric Power (TEP)||$0.08 per kWh|
|UNS Electric||$0.09 per kWh|
Rates vary depending on your electricity plan. All figures accurate as of November 2022.
Are you a customer of the Salt River Project or a municipal utility? These utilities don’t fall under the jurisdiction of the Arizona Corporation Commission and therefore aren’t subject to statewide net billing requirements. However, they may offer other solar incentives, which we’ll dive into in the next section.
Another downside of net billing in Arizona is that the program uses “instantaneous netting.” This means the utility looks at how much electricity your solar panels produce in a short time — like an hour — and compares it to how much electricity you consumed in that hour. The excess solar energy production during that interval is what will be credited as the export rate.
Instantaneous netting is going to further decrease the amount of energy savings you’ll see with solar because it takes such a small time interval into account instead of tallying up how much solar panel production you produce over time — like a month — versus consumption, which would likely be much higher. That’s typically how net metering works.
The good news is that you won’t have to do much work to get started with net billing because your solar installer will do it for you.
While going solar may be new to you, solar companies in Arizona are very familiar with the process and should be able to take care of necessary applications for net billing and grid interconnection with your utility company.
We’ve made it pretty clear that net billing is not as great as net metering. But that doesn’t mean that you can’t still make money from going solar in Arizona.
Let’s put it this way. With current Arizona utility rates, net billing might take your bill from $150 a month down to $50 thanks to your excess solar production. That’s still a $100 savings. But if Arizona had net metering, it could bring your bill down to something like $30 a month.
We’d love to see Arizona bring back true net metering, but it doesn’t seem likely. Net billing rates also seem to be tapering off, so we recommend you take advantage of this Arizona solar incentive while you can.
You may be eligible for other incentives and solar rebate programs depending on your utility and the type of photovoltaic solar system you install.
Below are some local solar incentives available in Arizona, but we encourage you to ask your specific utility and municipality about other incentives that may be available to you.
Most Arizona utilities also offer rebates for other energy-efficiency home improvement upgrades like HVAC systems, home energy audits, windows and more.
At this point, we’ve discussed all of Arizona’s solar incentives in full. If you’re installing solar panels in the Grand Canyon State, we recommend taking advantage of as many solar perks as you can.
However, you may not get the chance to apply to every eligible incentive due to application deadlines or restrictions. If you’re wondering which incentives you should prioritize, here’s our ranking:
It seems as though Arizona is in the process of de-incentivizing solar rather than making it more attractive for homeowners — likely because it’s close to meeting its RPS goal.
Many homeowners are already reaping the benefits of going solar in Arizona, with the state ranked fifth highest for solar installations.9 Arizona saw the largest increase in residential solar installations in the U.S. in 2021, with more than 250 megawatts (MW) installed.
Because of solar popularity and profitability, the state doesn’t seem to see the need to continue offering incentives for people to go solar. It’s unfortunate but understandable. And going solar is still well worth it for Arizona residents.
Read More About Going Solar in Arizona
At EcoWatch, we’re happy to get questions about the process and costs of getting rooftop solar from Arizona residents. Below are some of the questions we see most often, along with our responses. If you have specific questions that aren’t answered here, reach out to our team of solar experts at email@example.com.
Solar Renewable Energy Certificates (SRECs) or Transition Renewable Energy Certificates (TRECs) are credits that solar users can earn for their solar production. They sort of work like the stock market.
If your state has an active SREC or TREC market, you can earn one credit for every 1,000 kWh your solar panel system produces. The average solar user will earn about one credit per year. Then you can sell those credits for money, with the values dependent on the current market value for that state.
Unfortunately, Arizona doesn’t have an active SREC or TREC market at this time.
No, you can’t go solar for free in Arizona — or anywhere else, for that matter. Be wary of solar companies that offer free solar panels. What they’re really advertising (in a sleazy way) is a pitch to sign a solar lease or power purchase agreement with their company.
Under these solar financing agreements, a solar company installs solar panels on your home for no money down (hence, the misleading use of the word “free”), and you then pay a monthly rate for the clean energy those panels produce. But you won’t be eligible for any of the solar incentives we’ve outlined in this article if you lease your system.
The Inflation Reduction Act bumped the federal solar tax credit up to 30% of the total cost of a home solar panel system. In Arizona, this leads to an average savings of $9,005 on an 11.5 kW system.
The act also created several rebate programs for energy efficiency upgrades and electric vehicle owners. You can read more about how the Inflation Reduction Act rewards you for going green here.
The Arizona Solar Energy Tax Credit is worth 25% of your total solar system cost, capped at $1,000. A modest 5 kW system in Arizona is about $13,050, so we anticipate most Arizonans who go solar will hit that $1,000 cap.
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