July 2, 2008	2008-R-0388
State and Federal Incentives for Solar Energy
By: Kevin E. McCarthy, Principal Analyst

You asked for a description of (1) federal and state incentives for solar power and (2) the state’s net metering law, which requires the electric companies (Connecticut Light and Power and United Illuminating) to buy excess power produced by solar technologies and certain other renewable energy resources. OLR Report 2008-R-0367 provides similar information regarding wind power.

summary

Federal law provides a 30% income tax credit up to $2,000 for the purchase and installation of residential solar electric or solar water heating systems. This credit expires at the end of this year.

The state’s Clean Energy Fund offers rebates through designated installers for the installation of solar photovoltaic (PV) systems on one to four unit residences and nonprofit and governmental facilities. The rebates cover approximately half the cost of the system, up to a maximum of $45,000 for residential customers and up to $50,000 for nonprofit and governmental organizations. The state exempts solar electric and space and water heating systems and related equipment and installation services from the sales tax. It requires municipalities to exempt certain solar technology systems from the property tax. Finally, customers can sell power they generate from solar technologies to electric companies and competitive suppliers to help them meet the state’s renewable portfolio standard, which requires the companies and suppliers to get part of their power from renewable resources.

The state’s net metering law requires electric companies to buy the excess power produced by solar electric and certain other renewable energy technologies. The customer receives a credit for the power, at the company’s retail rate, against his electric bill.

incentives for solar power

Federal

Federal law provides a 30% income tax credit up to $2,000 for the purchase and installation of residential solar electric and solar water heating systems (other than hot tubs and pool heaters). An individual can take credit for both types of systems. Solar water heating property must be certified for performance by the Solar Rating Certification Corporation or a comparable entity endorsed by the state where the property is installed.

The credit is calculated based on the individual’s expenditures excluding financing provided under federal, state, or local energy programs. Expenditures include labor costs for the onsite preparation, assembly, or original installation of the system and for piping or wiring to connect the system to the dwelling. If the credit exceeds tax liability, the excess amount may be carried forward to the next taxable year. To be eligible for the credit, a system must be placed in service or activated between January 1, 2006 and December 31, 2008. Further information about the incentive is available at www.dsireusa.org.

State

The Connecticut Clean Energy Fund offers rebates through designated participating installers for Connecticut residents and nonprofits and governmental organizations that install solar PV systems on their homes or at their facilities. For systems up to five kilowatts (enough power to serve most homes), the program offers a performance-based rebate up to $5 per watt for system and installation costs to a maximum of $25,000. For larger systems, the rebate is up to $4.30 per watt for the next five kilowatts of generating capacity. Nonprofit and governmental organizations are eligible for a rebate of up to $5 per watt, up to a maximum of $50,000. Further information about the program, including a complete list of eligible installers, is available at www.ctcleanenergy.com/solar.

The state exempts solar electric and space and water heating systems and related equipment and installation services from the sales tax. It requires municipalities to exempt from the property tax solar electric technologies installed in one- to four-unit residential buildings on or after October 1, 2007. It also requires municipalities to exempt any passive or active solar water or space heating system installed in any type of building at any time.

The state also requires electric companies and competitive suppliers to obtain part of their power from solar and other class 1 renewable resources. The proportion is currently 5% and will rise in several steps to 20%. The law requires the companies and suppliers to get an additional 3% of its power from class I or class II resources (e.g., the power produced from resources recovery facilities) each year. It allows companies and suppliers to meet this renewable portfolio standard by buying power or the renewable energy credits associated with this power from residential net-metering customers.

net metering

Connecticut has a net metering law (CGS § 16-243h) that requires the electric companies to purchase the power produced by solar and other renewable energy technologies with generating capacity up to 2 megawatts. A megawatt is the amount of power needed to serve between 750 and 1,000 homes.

If a customer supplies more electricity from these technologies to the electric distribution system than the company delivers to the customer, the company must credit the customer for the excess by reducing the customer’s bill for the next monthly billing period to compensate for the excess power produced by the customer in the previous billing period. (In effect, the meter runs backwards for the excess power produced.) The electric company must carry over the credits earned from one monthly billing period to the next. If there are still credits at the end of the billing year, the electric company must pay for them at its wholesale cost for power. A customer who generates electricity from a generating unit with a capacity of more than ten kilowatts must pay the competitive transition assessment and the systems benefits charge based on his gross, rather than net, consumption. (A kilowatt is the amount of power used by ten 100-watt light bulbs.) These charges pay for various public policy costs and account for about 7% of a typical residential customer’s total bill.

KM:ts