Green America: Growing the Green Economy for People and the Planet

Tax Incentives for Solar Energy at Home
October 19, 2005

Sun Through the CornWhen President Bush signed the 2005 Energy Bill in August, few noticed what may turn out to be the bill’s most important provision – the first federal tax credits for residential solar energy in more than two decades. 

Tucked within an otherwise uninspiring piece of legislation, the provision offers homeowners a tax credit equaling 30 percent of their cost for installing residential solar energy technology on their home, capped at $2,000. The credits apply to all residential solar systems installed by homeowners as of January 1, and expire two years later, at the end of 2007.  

While a congressional conference committee stripped the original bill of its most forward-thinking provisions (such as a requirement for investor-owned utilities to produce 10 percent of their power from renewables by 2020), and larded the bill with billions of dollars of tax credits to the oil and coal industries, the remaining solar credits give consumers the tools to start building a renewable energy future in America on their own. 

Since passage of the bill in August, Americans have witnessed continued instability in the Middle East, the disruption of domestic oil production by Hurricanes Katrina and Rita, and gas prices soaring toward $4 a gallon. The federal solar credit comes at just the right time for cash-strapped consumers, searching for ways to lower their overall energy bill, to plan for a future in which they generate their own energy and depend less on diminishing reserves of fossil fuels. 

Evidence from other countries shows that when consumers get incentives to adopt renewables, use of solar technology soars. For example, while rooftop solar photovoltaic panels generated a total of only 340 megawatts in the United States in 2004, countries with robust government-sponsored incentive programs like Germany and Japan produced 790.3 megawatts and 1,100 megawatts respectively – with much smaller populations. 

What’s more, the federal tax credit can be used in combination with state tax credits and rebates already in place. Depending on the state, those additional incentives can mean an additional savings up to $20,000 off a solar photovoltaic system’s cost, in the form of income tax credits, property tax exemptions, sales tax exemptions, and rebates. (A state-by-state breakdown of available incentives can be found online at the Database of State Incentives for Renewable Energy at 

Still, much more is needed, to create true energy security while preserving the environment. On October 7, Republicans in the House of Representatives passed a second Energy Bill, using the crisis of the Gulf Coast hurricanes to call for taxpayer-subsidized construction of new oil refineries with relaxed environmental standards on land that had previously been off-limits to such development. Though President Bush has endorsed the measure, a number of moderate House Republicans refused to vote for a bill that would encourage even greater dependence on an ever-diminishing resource, and it passed the majority-Republican House by only a single vote. 

But starting January 1, homeowners across the country can embrace the most robust combined state and federal incentives ever offered for conversion to solar energy, sending a message to their elected officials that they’re ready for real national investment in renewables, and a transition away from the fossil fuels that threaten our environment, our national security, and the stability of our economy. 

Through use of the federal solar energy credit, consumers can clearly communicate their refusal to accept an energy policy that continues to depend on oil, as they stand with the millions of citizens in Germany and Japan who are already showing the world that the renewable energy future is now. 


--Andrew Korfhage


Please contact Todd Larsen by email
or by phone at 202-872-5307.


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