Arizona Solar Incentives: AZ Power Payback Program, Rebates, Solar Credit

Georgette Kilgore headshot, wearing 8 Billion Trees shirt with forest in the background.Written by Georgette Kilgore

Solar Panels | March 18, 2024

Man holding out a solar panel to the state of Arizona solar incentives, providing cash and instructions for how to lower the cost of solar panels in Arizona using AZ energy buyback program, Arizona solar tax credit for solar energy devices.

Thanks to green initiatives, the cost of solar panels in Arizona has been mitigated by the implementation of Arizona solar incentives.8 Being the second sunniest state in the country, solar panels are a great investment if you are living in Arizona.

Additionally, your savings can increase when you take advantage of the incentives and rebates that the state provides to lover the cost of solar panels in Arizona.

Some of these incentives have expired and are no longer available, while new ones have come up to replace them. With these incentive programs, you can save thousands of dollars when installing solar in your homes or in commercial solar installation, and in the long run, it will save you plenty of electricity bills.

The following guide outlines the Arizona solar incentives, solar credits, and rebates available to residents in the state to lower the cost of solar panels in Arizona, and provides information Arizona payback program and other benefits both residents and businesses can use to install solar energy systems in Arizona.

Solar Panels: Arizona Solar Farms

Arizona is one of the sunniest states in the nation and as such, installing solar panels seems ideal.1

The state operates 93 solar plants, providing green energy options for users.

In addition to these farms, home solar panel installation can be utilized to harness electricity from the sun.

However, solar systems may not be a great option for everyone.

Map showing locations of solar plants in Arizona using yellow markers and Arizona solar panels with a US cut out showing the location of the state of Arizona.

You must analyze your property and determine the expected return on investment before going solar in your home. There are several factors to consider to determine if solar is right for you.

They include:

  • The energy uses in your home
  • The cost of solar panels in Arizona
  • Average payback period in the state
  • Average buy-back rates
  • Your roof’s exposure to the sun
  • Solar outlook in Arizona

#1 Your Home’s Consumption of Electricity

The price of solar energy arrays is based on the size of the array in watts or kilowatts. You determine the size you need based on your average monthly energy bills.

The more the power consumption, the more solar panels you need.This means more space will be required for higher energy amounts.

While power consumption drives up the price, it also means that you will save more on electricity bills each month when your panels start working.

Homeowners who do not consume much power will not benefit as much when converting to solar. A good rule of thumb is that homeowners who consume less than 500kWh per month might not get a worthwhile return of investment when installing solar panels.

However, moving to a clean energy system that can also be used to send excess power to the main grid (providing electricity to others) is a motivator for many families to go solar.

Electricity consumption above that amount will make a solar system worth it financially as well.

On average, a household in Arizona uses about 1,114 kWh per month. This means that most homes in the state will greatly benefit from installing solar panels.

You should examine your utility bills for past energy uses to determine where your household falls in terms of energy consumption.

#2 Cost of Solar Panels in Arizona

On average, the price per watt for solar panels in the state of Arizona is $2.61 and this is way below the national average of $2.66. Additionally, a standard system size requirement is about 11.5kW.

This means that a typical system will cost you about $22,211 to $30,015 after you factor in the federal solar tax investment credit.

Graphics of cost of solar panel installation in Arizona showing technicians installing a solar panel system on a house atop a cutout map of the state of Arizona and the average cost at the bottom.

This number may be difficult to justify but you must consider that solar arrays are valuable in areas with high electricity rates where homeowners consume a lot of electricity.

It’s important to note that while the price of electricity in AZ is way below the national average, the overall consumption of electricity is very high.

The AZ averages about 1,114 kWh per month and the national average is 893kWh for comparison. As a result, investing in solar panels produces a more significant return on investment in Arizona than in most other places in the nation.

#3 Arizona Average Solar Payback Period (Solar Panel Cost Calculator Arizona)

Solar panels usually pay for themselves and also bring in additional savings through monthly energy savings. Solar panel payback period is the time it takes for these monthly savings to offset the upfront cost of installing the array.9

The Arizona average solar payback period is usually 12 years. This period is similar to the national average.

Most homeowners in the states pay off their systems between 10 and 15 years. Experts recommend using a solar calculator or have an expert assess your household to provide an estimate of your payback period.

Anything longer than 15 years means that the overall savings of the home are much lower than the national average. Though the homeowner will still save money in the long run, they will take longer to recuperate their initial investment.

#4 Arizona Average Solar Buy-Back Rates (Energy Buyback Program)

Several states in the US provide a net metering program. This program, also known as the Energy Buyback Program, lets the homeowner sell excess power produced by their solar arrays to their local power company for a credit on their energy bill.

Unfortunately for Arizona, the state government does not mandate net metering.2 As a result, utility companies in the state usually do not offer any sort of energy buy-back program.

This increases the solar panel payback period and reduces the residents’ return of investment in the long run.

Since there’s no Arizona average solar buy-back rates, many residents usually install solar batteries alongside their solar arrays. Even though this undoubtedly increases the total installation expense, usually by several thousands of dollars, it dramatically offsets the homeowner’s electrical rates.

This is because you will get power through the night as well as on those rare days that are cloudy or rainy. When you install a solar battery, you can improve your payback period and return of investment in the long run.

#5 Roof Exposure to the Sun (Arizona Daily Peak Sun Hours)

Solar panels need direct sunlight to produce sufficient energy. In other words, the more the roof’s sunlight exposure, the more efficient the solar system.

However, the reverse is also true.

Map of the state of Arizona with each county colored to show the daily peak sun hours in each Arizona county ranging from 5.03 to 5.99 daily hours of sunlight.

Since Arizona gets more than 300 sunny days every year, which is more than most states in the US, it is highly likely that solar panels will peak in efficiency in any location in the state.

Even so, you should consider some individual factors that affect peak efficiency. For example, if the roof is shaded by buildings or trees, then your home might not be an ideal location for solar conversion.

You should also consider the direction your roof faces because in the US the roofs with best access to sunlight are west, or south facing roofs.

#6 Solar Outlook in Arizona: Current Renewable Energy Consumption

Among all the states in the US, Arizona is the third-best state for solar panel installation. This is because the state is exposed to abundant sunlight and the state and federal governments provide outstanding solar incentives.

Solar equipment price in Arizona is $2.61 per watt, way below the national average making solar even more valuable in the state.3,10

Solar power in AZ is favored most over other renewable energy resources though some residents are skeptical over where going solar is beneficial.

Pie chart showing Arizona renewable energy consumption including Arizona wind energy, biomass energy, geothermal energy, hydroelectric energy and solar energy in the state of Arizona for 2022.

The skepticism is caused primarily by the lack of net metering and consumer resistance to the industry. However, going solar is extremely worthwhile because of its long lasting benefits and the attractive incentives that the government provides.

Is Solar Worth It in Arizona? (Arizona Solar Incentives)

Solar energy in the United States of America is massively beneficial especially in sunny states like Arizona which receives more than 300 days of very intense and direct sunlight.

Highlighted below are some of the environmental and financial benefits of solar in AZ to help you decide if it’s best for your home.

Saves on Electricity Bills

If you are a homeowner, you know that the biggest advantage of going solar is the reduced electricity bills you get after installation. However, very few people know just how substantial the solar savings can be.

In a state like Arizona, the standard monthly energy bill is above the national average at around $136.70. If a resident opts for solar, they can save as much as $1,640 each year.

However, to save this much, you will need a solar storage solution because Arizona does not have a net metering policy.

In general, the homeowner will pay off their solar panels with energy savings after approximately 12 years. After the pay off, the remaining 13 to 15 expected years of the lifespan of the panels, the homeowner will save about $24,000 on electricity bills.

This amount will probably be higher because of the historic increase in electricity rates that will not stop any time soon. Choosing solar will help you avoid the price spikes that will help you lock in a lower rate for 25 to 30 years.

Lowers Taxes and Allows Access to Other Incentives

While Arizona does not provide a mandated net metering policy, it has loads of solar incentives available. Arizona solar incentives reduce your upfront fees for solar installation and make converting to solar more appealing.

Some examples of these solar incentives include:

  • The federal Solar Investment Tax credit (ITC or Federal Energy Credits)11
  • Residential solar energy tax credit
  • Solar equipment sales tax exemption
  • Energy equipment property tax exemption

More on these Arizona solar incentives below.

Home Resale Value Increases

So, how much does solar increase home value?

While solar panels in Arizona are not cheap, they usually increase property value quite significantly.4 Many residents prefer paying more for homes with solar panels than homes without them.

In most cases, the homeowner will get a 4.1% value increase after going solar. As the average home value in Arizona is $415,372, solar arrays increase this value by $17,030.

Those who live in expensive areas such as Tucson will have an even more value increase. You can expect this value bump only if you buy your solar panels with cash or finance them.

Power purchase agreements and solar leases will not increase the value of the home, and the age of the solar panels is also a factor.

You Get Clean Renewable Energy

With solar energy, you get to do your bit for the environment. Even though there are appealing financial benefits of installing solar panels in your home, one of the biggest benefits of solar conversion is its impact on the environment.

Anyone who converts to renewable energy reduces their dependency on fossil fuels and their local utility companies and also decreases their carbon footprint. They are also part of the solution to combat global warming and reduce pollution.

Free Solar Panels Arizona, Don’t Fall for This (No Cost Solar Program Arizona)

If you’ve tried going solar in AZ, chances are that you’ve encountered an ad or two stating that they offer free solar. These ads may say that you get paid by the utility to go solar or in some cases the offers are passed off as utility rebates or government incentives.

Even though there are indeed federal and local tax credits available that can help you offset close to 30% of your solar purchase, you must first pay the installation capital to benefit from this tax break.

As for utilities that pay you when you go solar, this mostly refers to the buyback credit that utilities pay for excess energy from your solar system that is sent back to the grid. You must note only a few utility rate plans offer this buyback credit and your system needs to overproduce energy to get this benefit.

Additionally, this program does not affect the initial cost of investment. Rather, you get paid over time in the form of energy credit on your bill. The bottom line is that you still have to buy the system.

So, is there a way on how to get solar panels for free?

Unfortunately, no. The term ‘free solar’ usually means you are getting a financing package such as a solar lease, that requires no down payment (upon approved credit).

With this approach, the installer will place solar panels on your roof without the need for upfront cost. However, you should remember that you will still have to make monthly loan or lease payments.

How To Get Free Solar Panels in Arizona: Questions To Ask When Offered Free Solar

Even though going solar isn’t free, there’s still ample reason for Arizona residents to save money by converting the abundant sunlight the state experiences into affordable clean energy. This process does not have to be free or need a smoke-and-mirrors marketing strategy to make a compelling case for solar installation.

Any reputable solar installation company should be completely transparent and provide all the options to the homeowner upfront. One excellent way of going solar is financing.

However, you should always look past the slogan, ask the right questions and work through the numbers yourself.

Here are a few questions you need to ask before agreeing to solar financing.

What Inverters and Solar Panels Will Be Used?

Solar panels are not created equal. Solar panels of the same size may produce different energy levels depending on the quality and design of solar panel.

Getting a high quality panel means that you do not have to buy many panels to produce the same amount of power especially when you have little roof space.

You need to be skeptical of any ‘free solar’ offer that does not offer enough equipment details. If you get lower-grade panels, you may need to buy more panels than needed and they may also offset less of your energy bill overall.

You need to get a reputable installer who will provide options and explain the numbers as well as help you know more about the payback that comes with each option.

Solar panel system installed beside a house in Arizona using ground mounted racking system directly harnessing sunlight that produce clean energy.

(Image: U.S. Department of Energy16)

You must remember, if the offer begins with ‘free,’ there is a high chance that you will get lower-grade materials and panels. In the long run, you will get a lower-wattage system that has a lesser life span and produces lower wattage than a higher quality system.

What Will I Give Up if I Lease?

A lease is a great option for anyone who doesn’t have a tax liability. Then again, if you decide to go with this route, you will be giving up a few important things compared to a system purchased by traditional financing or cash.

The most important losses are the eventual ownership of the solar array and the federal solar tax credits.

The tax credits go to the leasing company as they are the actual owners of the system. You should not give up those valuable tax credits to another entity if you pay taxes.

Additionally, systems that are leased can also cause snags if you want to sell your home. The new buyer must first agree to take over, and second apply for the lease as if they are a new buyer.

The buyer must have great credit and be willing to make monthly payments.

Most people will find it off-putting to get a solar lease when buying a new house.12 In contrast, owned solar does not have the same issue.

In fact, it increases the value of the home because it transfers to a new owner very easily.

Who Helps When Something Goes Wrong?

As mentioned previously, the leasing company is the owner of the system. Therefore you need to ask yourself, what happens if they go out of business?

What will happen to your system? Even though this sounds like a long shot, you’d be surprised at how many businesses actually tank out after just a few years.

What Are the Benefits of Financing the Cost of Solar Panels in Arizona?

Most solar companies recommend financing the installation cost or better yet, getting full cash purchase instead of leasing.

This allows you to reap the tax benefits if you decide to go solar.5

Wide view of an ongoing construction of Abengoa's Solana Plant in Gila Bend, Arizona, that will produce a clean and sustainable energy to Arizona homes.

(Image: U.S. Department of Energy18)

Below are a few advantages of financing versus leasing.

  • You get to own the tax credits and the solar system: You will be able to win the tax benefits if you finance your own solar array as opposed to leasing.
    The most lucrative tax credits are the $1000 AZ tax credit and the 30% federal tax credit. You will also be the sole owner of the system and this adds value to the home giving you a competitive advantage over other houses on the market
  • You get a quicker return on investment: Since you get all the benefits of owning a solar system, you will also get a quicker return of investment.
    Homeowners can get a positive ROI from as early as 7-10 years depending on the cost of their electricity and their system sizes

Arizona Solar Incentives

Arizona solar incentives are offered to homeowners in the state at the state, federal and local Arizona utility levels.

These incentives can help reduce the cost of solar panels in Arizona and include rebates and tax credits such as:

#1. Federal Solar Tax Credit

The federal solar tax credit has by far the biggest impact on the cost of solar panels in Arizona if you decide to go solar. If you install a PV system before 2032, you get a federal tax credit of about 30% of the cost of your solar array.6

This 30% is cut from the entire cost of the array including permits, labor and equipment. For example, if your system cost $20,000 to install, your federal tax credit will be 30% of this amount.

Therefore, you will get a $6,000 tax credit.

Similar to state tax credit, you do not qualify for federal solar tax credit if you’re in a power purchase agreement or you lease your solar system. The 30% tax credit is available up to the end of 2032.

It will drop to 26% in 2033 and to 22% in 2034. It may end in 2035 if Congress does not renew it.

You should note that the federal solar tax credit is exactly that – a tax credit, it’s not a tax refund. This means that it does not provide a payout, instead, it decreases the amount of taxes you owe.

If your annual taxes end up being less than the federal tax credit, then it will be rolled over to the next year.

As one of the sunniest states in America, solar panels work really well in Arizona. However, the residents in this state use a lot more energy compared to the rest of America.

For context, while the average American uses 886 kilowatt-hours of electricity each month, an Arizona resident uses 1,058kWh power month. The result of this high usage is that Arizonans need to install a higher power system – 11.5 kW and above.

Such a system will cost about $30,015 and the federal tax credit will shave off $9,005.

How To Claim the Federal Tax Credit in Arizona (Solar Incentives)

Like any other American, you may find tax season daunting. However, rest assured that a reliable solar company can show you how to claim the federal tax credit in Arizona, as well as get other Arizona solar incentives.

You should also get a tax professional to help file your returns.

To claim your federal solar tax return in Arizona you should take the following steps:

  1. Download Form 5695 or the Energy Tax Credit Form from the IRS13
  2. Work out your credit on the first part of the tax form. Standard energy systems should be filed under ‘qualified solar electric property costs’
    On the first line, enter the overall costs of the project as written in your contract then make the calculations on lines 6a and 6b
  3. If the only renewable energy addition is solar, then skip to line 13
  4. On line 14, work out any tax liability limitations using the worksheet for Residential Energy Efficient Property Credit Limit.14 Add the calculations to line 15 and 16
  5. Make sure to enter the figure on line 15 on your form 1040 on line 5

#2. Arizona Solar Tax Credit

The Arizona solar tax credit is eligible to any homeowner in the state.

The credit involves a state tax deduction equal to 25% of the total cost of the system up to a $1,000 maximum.7

Screenshot of Arizona Department of Revenue website for tax credit forms with yellow arrow pointed at Credit for Solar Energy Devices.

(Image: Arizona Department of Revenue17)

You can file for this credit when you are dealing with your personal state taxes.

To qualify for the state tax credit in Arizona you must have any of the following equipment:

  • Solar water heaters
  • Solar spa heating systems
  • Solar swimming pools
  • Solar PV street lights
  • Solar PV phones
  • Solar PV systems
  • Solar daylighting systems
  • Passive solar building systems

If by chance you owe less tax than the credit, you are allowed to roll it over for up to five years. However, the credit amount cannot exceed $1,000.

Moreover, you need to own a solar system to qualify. If you lease your system or you are in a power purchase agreement, you are ineligible for this incentive.

To qualify for Arizona solar tax credit, you need to have a system size that is about 5 kW. The system needs to be on land that you either lease or won.

How beneficial are these Arizona solar incentives? You can look at it this way.

The average cost of AZ solar panels is $2.61 per watt. In this case, an average system will cost around $30,015 before applying the incentives.

You can claim the total tax credit of $10,005 for a solar array at this price. This credit includes the 30% federal tax credit and the $1,000 AZ tax credit.

As such, the total cost of installing solar in your home will come down to $20,010.

These credits make solar arrays more affordable because you can recover a large part of your initial investment on the next tax declaration you have.7

How To Claim Arizona’s Solar Tax Credit

You will claim this credit when you file your annual taxes. You will have to take the following actions:

  1. Visit the Arizona Department of Revenue online and download Form 310.15 Fill out lines 1-9 according to the credit for your current tax year
  2. If applicable, fill out line 10 to 15 for total available credit that has been carried over from previous years. (You can carry over the Arizona solar tax credit for 5 years.)
  3. Use line 16 to 18 to calculate the total available credit

These are just some helpful tips. It would be best if you contact a certified public accountant to ensure that you file your solar credit correctly.

#3. Arizona Power Payback Program

If you are a resident in Arizona and you own a solar array, then more likely than not, you qualify for your local utility net-billing program.

This is the same as a net-metering program that allows you to generate credit on your utility bill for the excess electricity that is generated by your solar system.

These credits last indefinitely and you get paid annually if it exceeds a certain balance. Each utility company has its own rates for the excess balance required for a payout.

#4. Energy Equipment Property Tax Exemption

Even though solar panels in a residential property increase its value, solar installation is exempt from property tax in AZ. The exemption extends to other solar and energy efficiency upgrades such as:

  • Solar water heaters
  • Solar space heaters
  • Solar thermal electric
  • Solar pool heaters
  • Passive solar technology

This list has not exhausted of all the upgrades. You should contact your local tax authority and ask questions about solar tax exemptions.

How does the energy equipment property tax exemption work? Well, any time you purchase something in AZ, you get charged 5.6% in sales tax.

However, these charges do not apply for solar equipment. Therefore, for an 11.5 kW solar panel installation, you get to save $1,680 in upfront costs.

#5. Home Energy Storage Rebates

The popularity of solar batteries is increasing every year. Even though the price of pairing solar with storage has reduced over the years, it’s still very expensive.

Solar panel system installed on the roof of an office in Arizona, absorbing sunlight and produce clean energy.

(Image: U.S. Department of Energy19)

Local utilities in AZ have begun to provide energy storage rebates that reduce the cost of battery installations for homeowners while at the same time help out the utility grid.

Cost of Solar Panels in Arizona: How Much Do Solar Panels Cost in Arizona?

There are several factors that affect the average cost of a solar system including size and quality.

So, how much do solar panels cost in Arizona?

The table below shows the average costs by system size in AZ:

Graphics of average cost of solar panels in Arizona with the size of solar panel system on the graph, the house sizes on the x-axis, and the prices on the y-axis.

Solar Panel System Size (Kilowatt) Home Size in Square feet Average Cost in Arizona
15 kW 2,500 $39,100
14 kW 2,300 $36,540
13 kW 2,100 $33,930
12 kW 1,900 $31,320
11 kW 1,700 $28,710
10 kW 1,500 $26,100

To summarize, there are many reasons why you should go solar if you live in Arizona.

You can get a wide range of Arizona solar incentives which can reduce the cost of solar panels in Arizona and save you money and lower your household carbon emissions.

Frequently Asked Questions About Arizona Solar Incentives

How Much Are Solar Panels in Arizona?

Solar panels cost approximately $2.61 per watt in AZ.

What Is the Solar Panels Arizona Cost?

An 11.5 kW solar system will cost about $30,000 to install.

How Much Does Solar Cost in AZ?

It costs about $2.61 per watt.

Do Solar Panels Increase Home Value in Arizona?

Yes, home value increases if solar panels are installed in AZ.

Are There Arizona Solar Incentives? What Are Some Solar Rebates From the Government?

In Arizona, some solar rebates include the federal solar tax credit and the Arizona solar tax credit.

What Are the Ways on How To Get Solar Panels for Free?

It’s hard to get solar panels for free, you can choose to finance or lease the solar panels.

Does Solar Increase Home Value?

Yes, installing solar panels will increase the value of a home.

How Does the Solar Tax Credit Work if I Don’t Owe Taxes?

You can carry over the credit to the next tax year if you don’t owe taxes for this year.

Read More About Arizona Solar Incentives


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