Illinois Solar Renewable Energy Credits (SRECs)
Illinois SRECs provide an outstanding solar incentive that helps owners recoup a solar system’s investment. These energy credits, which are available in Illinois and other select states, have been created to help states meet Renewable Portfolio Standards (RPS). These RPS set goals for generating a percentage of that state’s overall electricity from renewable energy. In Illinois, for example, an SREC can potentially cover 20% to 40% of the total solar investment.
Typically, one SREC equals 1,000 kilowatt-hours (kWh) of solar energy generated. SRECs accrue as solar electricity is generated and are typically paid out quarterly or other interval defined by each state.
Federal Investment Tax Credit (ITC)
In 2005, the U.S. Congress passed the Energy Policy Act of 2005 which created the Federal Investment Tax Credit for residential (and commercial) solar energy systems. These solar tax credits are a dollar-for-dollar reduction in the income taxes that a person or company claiming the credit would otherwise pay the federal government.
Additional extensions have been granted allowing more time to capture this major tax incentive for solar. In December of 2020 a new COVID-19 stimulus bill was signed into law by Congress and the President. This bill included important tax credit extensions for solar energy, wind energy and energy technologies including geothermal, fuel cells, microturbines and others.
The COVID-19 Stimulus Bill extends the investment tax credit (ITC) under Section 25D by another two years.
Under these new provisions:
- Solar projects completed in 2021 and 2022 are eligible for this 26% federal income tax credit.
- In 2023, the tax credit is scheduled to drop to 22%.
The ITC will phase out to 0% in 2024 for residential solar arrays.
An ITC for standalone storage batteries were not addressed in this bill, but there is IRS guidance currently in place which examine the potential for an ITC for storage connected with qualified projects. The IRS has also promised additional guidance for an ITC regarding storage.
This solar tax credit is a fantastic incentive for taxpaying entities to take advantage of—while it’s still available!