Tennessee Solar Incentives (Rebates, Tax Credits & More in 2023)

In the table below, we’ll include information about each solar incentive available in TN, as well as an estimated savings each can provide.

What Do Tennesseans Need to Know About the Federal Solar Tax Credit?

The federal solar tax credit allows you to write off a large portion of the cost of a new solar power installation on your federal taxes. This incentive is offered by the federal government, which means it’s available to every U.S. taxpayer. 

It’s not a cash-back program, but instead can bring down how much you owe for that year. Unused credit can carry over for up to five years in total. Currently, you can take a credit of up to 30% of the cost of your solar power system.

The credit was first available for solar installations completed in 2005 and was equal to 30% of the system value. That rate was available until 2022, when it dropped to 26%. It was then scheduled to dip to 22% in 2023 and get discontinued in 2024.

However, in August 2022, legislators passed the Inflation Reduction Act (IRA), which made significant and positive changes to the credit. First, it pushed the expiration date back to 2035. Second, it bumped up the rate for installations done before that year. The new rates based on the year you go solar are below:

• 30% for systems installed between 2022 and 2032 — this retroactively increased the rate for installations done in 2022 but prior to August when the bill was signed
• 26% for systems installed in 2033
• 22% for systems installed in 2034
• The credit will no longer be available starting on January 1st, 2035

Given that the typical cost of a solar energy system in the area hovers around $29,880, the 30% credit would be equal to as much as $8,964. Solar systems are more expensive in Tennessee than in most other states, so the credit amount is well above average. You can use a solar calculator to estimate your total potential credit amount.

How to Claim the Federal ITC in Tennessee

Claiming the federal credit is a simple process that shouldn’t take more than a few minutes. You can follow the steps below to make sure you get access to this perk.

• Step 1: Complete the installation of your solar energy system.
• Step 2: When you’re ready to file your taxes for your installation year, print out IRS form 5695. 
• Step 3: Complete the form and provide it to your accountant or file it alongside your taxes.

If you use TurboTax, HR Block or another tax software to file, you won’t need to follow those steps. Your tax prep program should automatically ask you about renewable energy systems you installed. In that case, you can skip printing the IRS form and just answer the questions in the software.

EcoWatch’s Opinion on the Federal ITC in Tennessee

The federal credit is one of the most advantageous perks available in most states, and that’s certainly the case in Tennessee. With no state tax credit or other significant perks available, solar customers should absolutely file for the federal credit.

Not only does it take just a few minutes to get access to the credit, but it provides a massive potential value of as much as $8,964.

We should mention, though, that this amount isn’t guaranteed. It isn’t a solar rebate. You’ll only be able to see that kind of return if you owe more than that on your income taxes. You can push unused credit forward for four additional years, which means you’ll need to owe at least $1,793 per year for five years to take full advantage.

What You Should Know About the Green Energy Property Tax Assessment in Tennessee

Normally, when you carry out any home improvement that makes your home more valuable, that improvement will make your property taxes go up. This happens because your tax amount is based on the actual value of your home. Since installing a PV system on your property will raise the value, it would normally cause a significant bump in your taxes.¹

Thankfully, the Green Energy Property Tax Assessment program limits how much of your system’s value is considered when determining your property value. It caps the tax rate on PV equipment at 12.5% of the system value, which is about $3,586 based on the average system in Tennessee. As such, you’ll see your property taxes go up after installing solar panels, but not nearly as much as you typically would without this exemption.

Given the typical property tax rate of 0.56%, that’s around $147 per year you’ll save on your tax bill or around $2,940 in total over the 20 years your system is expected to hold value.² Keep in mind this doesn’t take into account depreciation.

This perk can also be used for other renewable energy sources, including hydropower, biomass, geothermal and wind power.

How to Claim Tennessee’s Property Tax Exemption

One of the best parts about this exemption is that it’s automatically applied, so you don’t have to take any action to ensure you get access to the perk. When your local tax assessor is determining your assessed value, he or she will just ignore the bulk of your system’s value. The savings will automatically be reflected on your property tax bill.

EcoWatch’s Opinion on the Property Tax Exemption in Tennessee

This is an outstanding perk to have access to because it’s automatic and doesn’t take any effort or time to claim. You simply install your panels, and your property tax hike will be limited automatically. The potential savings of nearly $3,000 make this a great value.

Net Metering in Tennessee

Net energy metering (NEM) is a policy of earning credits for excess energy production from your utility provider that helps you avoid future electric bills. 

When your panels generate more energy than your home is using, you earn bill credits, which roll over and keep utility bills down. NEM is an outstanding policy that helps limit the panel payback period and maximizes your energy savings over time.

Unfortunately, the Tennessee Public Utilities Commission (PUC) doesn’t mandate that utility providers offer NEM. Most of the major energy providers in the state don’t choose to offer the policy, including the Tennessee Valley Authority (TVA).

However, TVA does offer a similar incentive known as the Green Power Providers Program, which buys back excess energy through interconnection at the avoided-cost rate.

If you do have access to the program, it will help push you up to and beyond the average lifetime savings in the area of $19,688. It’s difficult to say exactly what the program will save you, as that depends on many factors, like your system size, your typical monthly electric bills and more.

While NEM has been popular and, historically, massively beneficial to solar customers, the policies in many states are becoming less and less appealing. Customers are increasingly finding rates dropping and programs disappearing entirely.

Even if your local utility company does offer NEM, it’s possible that the availability or credit rate will change in the future.

How to Enroll in Net Metering in Tennessee

Enrolling in net energy metering is a more or less automatic process for most customers to whom it’s available. You can follow the steps below to make sure you get access if you are eligible.

• Step 1: Contact your energy company and ask if NEM is available to you. If it is, confirm the credit rate and ask the representative to confirm if you have a bidirectional meter installed. This is required for your power provider to keep track of energy being imported and exported from and to the electric grid.

• Step 2: Choose a solar panel installation company. We recommend asking the sales rep of each company you’re considering if they will enroll you in NEM. Most reputable local installers in the area will handle the application for you if the policy is made available to you.

• Step 3: Complete your solar project installation.

• Step 4: Check your utility bills after the installation to make sure your bill credits are being applied to your account.

EcoWatch’s Opinion on Net Metering in Tennessee

Net energy metering is an outstanding perk in Tennessee, but only if you have access to it. Unfortunately, most customers will not.

We’d love to see the policy adopted throughout the state, but given the lack of an RPS goal and the slow adoption rate for photovoltaics in general, according to the Solar Energy Industries Association, we don’t see that happening any time soon.

For homeowners who do have access, this perk can significantly boost long-term energy savings, help pay down the system much more quickly and reduce monthly energy bills.

This policy is helpful no matter where you live, but it’s especially useful for Tennesseans, who have well-above-average energy consumption each month.³ Plus, it takes no time or effort for most customers to enroll, making it even more valuable.

Local Solar Incentives in Tennessee

In some states, local electric companies and individual cities offer additional perks for solar customers. While there are no rebates or benefit programs specifically for installing solar equipment in the state, below are some perks for energy efficiency home improvements.

• Knoxville Utilities Board Electric Vehicle (EV) Charging Station Rebate Program: Customers of this utility provider can get up to a $400 rebate for installing a level-2 EV charger in their homes.⁴

• Bristol Tennessee Electric Service (BTES) Energy Savings Loan Program: BTES customers have access to affordable and low-interest loans for up to $10,000. This financing option can be used to purchase heat pumps, insulation and new energy-efficient windows and doors.⁵

• Middle Tennessee Electric Membership Corporation (EMC) Residential Heat Pump Loan Program: This is a financing option for customers of this electricity provider to get low-cost loans for installing heat pumps. Financing is available for between $2,000 and $15,000 and for up to 10 years. The interest rate is capped at 10%.⁶

• Murfreesboro Electric Department (MED) Residential Heat Pump Loan Program: As the name suggests, this is a financing option for MED customers seeking to purchase heat pumps. The financing terms include a maximum 7% interest rate, a maximum 10-year loan term and a maximum financed amount of $15,000.⁷
• MED Energy Efficiency Rebate Program: This is a rebate offered to MED customers who carry out energy efficiency home improvements, including heat pump installations and water heaters. The maximum rebate amount is $1,000 for single-family homes.⁸
• Electric Power Board of Chattanooga Energy Efficient New Homes Program: Builders constructing new energy-efficient homes in the service area of this utility provider are eligible for a rebate of up to $3,000.⁹ In some cases, the savings provided can be passed onto the homeowner.

Which Tax Incentives Are The Best In Tennessee?

Not all of the incentives available in Tennessee are equally valuable. Below, we’ll discuss the top three can’t-miss perks we recommend. For two of them, you won’t need to anything at all to enjoy the benefits.

The Federal Solar Tax Credit

As is the case in most states, the federal credit is by far the most valuable perk available in Tennessee. It takes just a few minutes to apply for and provides an average potential value of nearly $9,000. Plus, it’s available to all customers, unlike net energy metering and the local energy efficiency incentives.

The Property Tax Exemption

The solar panel property tax exemption is another valuable perk that we absolutely love to see offered for PV equipment. This incentive helps reduce the financial burden of going solar over time, helping solar customers avoid around $2,940 they would otherwise pay in property taxes over the lives of their systems. This perk is also automatic and requires no effort or time to enroll.

The Sales Tax Exemption

The sales tax exemption is another great perk that is automatic and doesn’t require you to file any paperwork or take any action to enjoy it. Your system total will simply not include sales tax, so you get automatic savings when you convert to solar. With an average value of just over $2,000, this is another important incentive for keeping conversion costs to a minimum.

What’s The Near-Term Outlook For More Incentives In Tennessee?

At the moment, there are no plans in place for Tennessee’s solar incentives to get more or less valuable in the next few years. The federal credit is available until 2035, and the local perks — namely, the tax exemptions — don’t appear to be in danger. These incentives are rarely discontinued, even in states like Tennessee with no RPS goal.

Unless the state sets its first RPS goal, we also don’t foresee new perks becoming available. We’d love to see NEM get mandated throughout the state, but that’s very unlikely, especially since the program has been downgraded in many other areas rather than improved.