Note: This article has been updated to reflect policy changes that have taken effect with the passage of the Inflation Reduction Act (IRA).

Compared to perception or availability (the sun is everywhere, right?), solar is an underutilized source of energy. In fact, solar sources generate 115 billion kWh of energy, making up only 2.8% of U.S. utility-scale electricity generation just ahead of biomass and geothermal sources. Due to the relative inefficiency of solar panels, the imbalance of peak generation to peak demand, and the amount of space needed, it may take decades before solar generation contributes significantly to the American power grids.

Outside of utility-scale energy generation, the U.S. Energy Information Administration also estimates that 49 billion kWh of electricity was generated from small-scale solar systems in 2021. The grid may not feel the effects of these small systems, but they could have a massive impact on your business. Paired with a variety of state and federal tax incentives and rebates, solar could help your business reach new heights.

Solar Investment Tax Credit

The solar investment tax credit began in 2011 and provided a “tax credit that can be claimed on federal corporate income taxes for 30% of the cost of a solar photovoltaic (PV) system that is placed in service during the tax year.” A tax credit is a dollar-for-dollar reduction in the amount of income tax you would otherwise owe.

This ITC was set to expire but in December 2020, Congress extended this incentive and provided a 26% credit “for systems commencing construction in 2020-2022, 22% for systems commencing construction in 2023, and 10% for systems commencing construction in 2024 or thereafter.” This all changed with the passage of the Inflation Reduction Act (IRA) in August 2022. The most significant climate bill in American history restored the solar investment tax credit to 30% retroactive to systems put in service after January 1, 2022 and remaining at that level until 2033 before decreasing to 22.5% in 2034, 15% in 2035, and, finally, 0% in 2036.

Eligible Expenses

This incentive was to crafted to maximize the potential of installation and usage of solar power. As such, the eligible expenses that the current 30% federal solar tax credit can be used towards extend beyond the solar panels themselves. Inverters, racking, installation, energy storage devices, and more all qualify for the incentive. That means that the cost of an energy storage solution like Joule Case can be included. While Joule Case is not a solar panel manufacturer or installer, storage is the key to unlocking this energy source’s full potential. When the sun isn’t an option, like at night or on a cloudy day, you’ll need to pull power from somewhere! That’s where batteries come into play.

Business Benefits

Investing in solar isn’t cheap. But, it could still be the right choice for your business. Compared to alternatives, solar generation is the best option to achieve the balance between energy independence, business mobility, and cost-effectiveness. We say it all the time here at Joule Case, “Generators are cheap to buy but expensive to run.” Conversely, solar generation paired with battery storage is a larger upfront investment, but there are minimal (if not zero) ongoing costs related to maintenance, downtime, and fuel. With this in mind, the return on investment for a solar system compared to a fossil-fuel burning generator is quicker than you might think. Tax incentives only shorten this ROI period. 

Other Resources

This post only gives an overview of the solar investment tax credit—a federal incentive. There are a variety of other state and federal incentives that you may be able to take advantage of. The Database of State Incentives for Renewables & Efficiency (DSIRE) provides a comprehensive, central repository of policy and incentive information on the local, state, and federal levels.

For instance, by scanning the DSIRE you can quickly find that:

• Californian businesses can exclude 100% of the value of a solar energy system from their property tax
• North Carolina businesses can exempt 80% of the appraised value of a "solar energy electric system"
• Texas allows a corporation to deduct the cost of a solar energy device from the franchise tax by either deducting the total cost of the system from the company’s taxable capital OR deducting 10% of the system’s cost from the company’s income
• In New York, the purchase of solar-energy system is 100% exempt from sales tax

These are just some of the many incentives that exist for businesses that install solar. We highly recommend exploring all that is available to you and your business with your tax advisor.

Disclaimer: We are experts at advanced power systems—not law and taxation. We highly recommend consulting your attorney and accountant to understand how to fully take advantage of the tax incentives that might be available. This article does not constitute professional tax advice or other professional financial guidance. And it should not be used as the only source of information when making purchasing, investment, or tax decisions.