California solar tax incentives comprise both federal and state incentives. One major federal incentive, the Investment Tax Credit (ITC), offers a 30% tax credit for solar panel installations. State laws include Net Energy Metering 3.0 & 2.0, 1.0 (NEM), Self-Generation Incentive Program (SGIP), and solar programs for disadvantaged communities.

California is known for its maximum solar installations; according to the Solar Energy Industries Association (SEIA), California saw steady deployment of solar panels in Q3 2024 from NEM 2.0 pipeline projects. Similarly, the commercial solar segment installed 535 MWdc in Q3 2024, 17% more than in Q2 2024 and 44% more than in Q3 2023. 

In this blog, we will cover how you can save on solar panel installations through federal and state incentives and how homeowners and commercial projects can save through 544,432 green building incentives worth more than USD 70 billion for projects with eligibility and potential.

Understanding Incentives For Solar In California

Federal Laws: Investment Tax Credits (ITC)

The Investment Tax Credit (ITC) offers a 30% tax credit for solar panel installations. 

For Residential Property:

Solar panel installations on residential property receive a 30% tax credit under section 25D of the tax code.

For Commercial Property:

A 30% tax credit on solar panel installations on customer-sited commercial solar systems and large-scale utility solar farms under Section 48 of the tax code. 

Treasury Guidance, issued by the U.S. Department of the Treasury Review: 

This focuses on revised tax credits for commercial property based on wages and apprenticeship standards. 

The new tax credit applies to commercial projects two months after Treasury approval, as follows: 

Base tax credit 6%- if labor & apprenticeship standards are NOT fulfilled

Additional 24% tax credit - if labor & apprenticeship standards are fulfilled. 

Thus, a base credit of 6% + an additional tax credit of 24% = a total 30% tax credit. 

Note: Commercial and utility-scale solar projects that began construction before 31st December 2023 are eligible for the old 22% or 26% tax credit under ITC. The projects that commenced after this are eligible for the 30% tax credit under the (Inflation Reduction Act) IRA-ITC.

PACE Financing for Solar Panel

Property Assessed Clean Energy Programs (PACE) is a financing for solar installations under federal law that allows residents to pay loans on solar panel installations through their property taxes.

Commercial PACE loans are available in all U.S. states except California, Florida, and Missouri, which offer only residential PACE loans. Under this, the borrowed loan amount can be repaid through the homeowner's property tax over 10 to 30 years.

State Laws for California Solar Incentives  

The California Solar Initiative (CSI) was one of the General Market Programs for solar that was introduced to support solar installations for low-income households. This initiative included various subprograms such as:

• Single-family Affordable Solar Housing Program (SASH) (closed)
• Multifamily Affordable Solar Housing Program (MASH) (closed)
• CSI-Thermal Program (closed)

This initiative was discontinued on 31st December 2016. However, new solar programs are introduced under state laws.

Net Energy Metering

Net Energy Metering (NEM) is the new solar program in state law that sells excess energy to the grid after meeting the onsite load. This gives the solar owners bill credits that can be used to offset the electricity bill when they use electricity from the grid during times when their solar panels aren’t producing sufficient energy, such as rainy or cloudy days.

NEM 1.0 was launched in 2016, and NEM 2.0 was launched in 2016 and was operational till 14th April 2023, after which NEM 3.0, or the Net Billing tariff (NBT), came into operation. 

Difference between NEM 1.0, 2.0, and 3.0

Key Highlights:

• Rate of Energy: NEM 1.0 was allowed at any rate for the energy, whereas NEM 2.0 provides energy rate based on Time-of-Use (TOU), i.e., depending on the time of the day and demand of energy at the grid, and NEM 3.0 provides energy rate based on the electrification of TOU, i.e., special TOU for customers who use EV.

• Bill Credits:  NEM 1.0 & 2.0 offers bill credits equal to the amount customers pay for electricity. For example, if a customer pays USD 0.50/kwh for electricity to the grid, the customer gets the same USD 0.50/kwh bill credits for the energy sent to the grid. NEM 3.0 (Net Billing Tariff) offers lower credits based on the energy demand at the grid during export.

• Interconnection Fees: NEM 1.0 had no interconnection fee, whereas NEM 2.0 and 3.0 have a one-time fee of USD 94-145 dollars. 

Self-Generating Incentive Program (SGIP)

The self-generating incentive program (SGIP) is a program that provides rebates for existing, new, and emerging distributed energy resources.

Qualifying Technologies:

• Wind turbines
• Waste heat to power technologies 
• Pressure reduction turbines
• Internal combustion engines
• Microturbines
• Gas turbines
• Fuel cells
• Advanced energy storage systems.

Application Process

There are two application processes: 

Two-step application process: 

All residential projects

Non-residential projects less than 10 kW

Three-step application process: 

Non-residential projects greater than 10 kW

Three-Step Application And Approval Process:

1. Reservation Request Form (RRF)
2. Proof of Project Milestone (PPM)
3. Incentive Claim (ICF)

Budget of SGIP

Funds totaling $813,400,000 were authorized for 2020–2024, with reservations available until 31st December, 2025.

The budget allocation for 2020-2024 ratepayers are as follows: 

Under SGIP, Program Administrators (PA) will issue incentive reservations with the funds until 31st December 2025. If likely unspent, the funds will be transferred by PAs between the budgets allocated before 31st December 2025.

Active Solar Energy System New Construction Exclusion

The property tax incentives for installing an active solar energy system in the form of a new construction exclusion. It is not a tax exemption. 

For example, if your current property tax is USD 5,00,000, and you add a new construction to your existing property, your total property tax increases to USD 5,50,000. To avoid this additional construction tax, you install an active solar energy system estimated at USD 25,000 - 30,000. Under the active solar energy system new construction exclusion, your new construction at the existing site will be excluded from tax calculation.

Active Solar Energy System

This incentive is effective from 18th September 2022 and is extended until the 2025 - 26 fiscal year. This incentive will be discontinued on 1st January 2027.

Disadvantaged Communities – Single-Family Solar Homes Program

The Disadvantaged Communities – Single-Family Solar Homes program (DAC-SASH) program provides solar incentives in California for low-income people in disadvantaged communities (DAC). It was approved and officially launched by CPUC in Resolution E-5020 on 19th September 2019. The handbook for the program was approved in 2022.

DAC-SASH Program:

Solar on Multifamily Affordable Housing (SOMAH)

Solar on Multifamily Affordable Housing (SOMAH) provides incentives for solar photovoltaic energy systems for multifamily housing. 

It was launched under the Assembly Bill (AB) 693 (Eggman, Chapter 582, 2015). In 2023, the Legislature passed Senate Bill 355 (Eggman, 2023) to adjust and expand the SOMAH eligibility criteria and extend the program through 2032.  

Key Components of the SOMAH Program:

Incentives for customers go up to USD 3.50 per AC Watt (Alternating Current) for load-serving tenants and USD 1.19 per AC Watt for load-serving common areas.

•  
• Encourages solar system installations in California's disadvantaged communities across the state.
• Emphasizing the explicit goal that incentive solar systems lower tenant energy bills.
• A budget of up to USD 100 million annually, collected through June 2026, from the electric IOUs' Greenhouse Gas Auction Proceeds for this solar program.

Disadvantaged Communities - Green Tariff (DAC-GT)

Disadvantaged Communities - The Green Tariff (DAC-GT) program allows customers to benefit from solar energy if they are not eligible for SOMAH and DAC-SASH programs. This program applies to customers from DAC who meet the income eligibility requirements for the California Alternate Rates for Energy (CARE) and Family Electric Rate Assistance (FERA) programs. PG&E, the program administrator, launched the DAC-GT program in February 2020.  

DAC-GT program

Community Solar Green Tariff (CSGT)

The Community Solar Green Tariff (CSGT) allows communities to work with non-profit or government "sponsors" to organize community siting locations.  This allows residential customers and sponsors to benefit from government-led incentives. 

Community Choice Aggregators for the program are Clean Power Alliance, CleanPowerSF, East Bay Community Energy, Marin Clean Energy, Peninsula Clean Energy, and San Diego Community Power. 

Current Status of California Solar Tax Incentives?

In 2025, President Donald Trump issued an executive order declaring a National Energy Emergency. Under this, laws related to issuing loans, leases, and permits for renewable energy projects such as solar and wind farms are halted. A National Energy Emergency Council is also established to create a strategy to focus more on fossil fuels as an energy source under the slogan "Drill baby Drill." 

Under the new president's administration, the federal law - ITC is on hold until further order from the white house, and new solar and wind farm projects will be affected. The projects that have already received funding before the executive order remain unaffected. 

How To Check My Eligibility For Solar Programs In California?

Maximize your savings on the project’s cost by knowing the program eligibility. Blackridge Research & Consulting has partnered with IncentiFind to help you maximize your savings through incentives, tax credits, and subsidies at the state and federal levels.

Register using the link below to boost your project savings from over 544,432 green building incentives applicable for your project - 

• Check Incentives for Residential Project
• Check Incentives for Commercial Project 

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