Solar Panels in Arizona: Costs, Trends, Incentives
Some or all of the mortgage lenders featured on our site are advertising partners of NerdWallet, but this does not influence our evaluations, lender star ratings or the order in which lenders are listed on the page. Our opinions are our own. Here is a list of our partners.
The typical pre-incentives price for a home solar system in Arizona was $28,426 in the second half of 2023, according to data from EnergySage, a solar and home energy product comparison marketplace. That’s on the lower end among the 42 states that EnergySage surveyed, compared to an average of $34,122 and a high of $46,403 in Kentucky.
Despite policies that can make going solar in Arizona less cost-effective for consumers, the state has the fifth-largest installed solar capacity in the nation, according to the Solar Energy Industries Association. Solar costs in the state have also plummeted by 43% in the last decade.
Solar costs in Arizona at-a-glance
Arizona | U.S. | |
|---|---|---|
Typical cost of home solar system before federal solar tax credit | $28,426. | $34,122. |
Typical cost of home solar system after federal solar tax credit | $19,898. | $23,885. |
Median cost per watt | $2.30. | $2.96. |
Average system size | 12.4kW. | 11.6kW. |
Source: EnergySage, a solar and home energy product comparison marketplace founded in 2012. Data is from the second half of 2023. | ||
Costs and trends in Arizona
According to EnergySage, the average home solar power system size in Arizona at the end of 2023 was 12.4kW. A greater reliance on air conditioning results in higher average household electricity use in Arizona than in some parts of the country, requiring slightly larger solar systems than the national average of 11.6kW.
However, the low cost per watt of Arizona solar makes systems there cost-effective. The federal solar tax credit can reduce the upfront cost for solar by as much as 30%, bringing the typical cost down to $19,898. State incentives can further lower the cost.
The average payback period for a solar system in Arizona is 11 years, according to June 2024 data from EnergySage, with 20-year savings on an average system estimated at $19,628. Solar costs in Arizona, already the lowest in the nation per watt, have been trending down, dropping by 2% between the first and second half of 2023, according to EnergySage.
» MORE: Best solar companies
State incentives and policy in Arizona
As in many states, the biggest solar incentive for Arizona homeowners is the federal solar tax credit, or residential clean energy credit, which provides a credit of up to 30% of the cost of your solar power system.
State incentives
On the state level, Arizona encouraged solar installations with policies like the 2006 Renewable Energy Standard and Tariff, which required Arizona utilities to source 15% of their energy from renewable sources. Of that amount, 30% was required to come from distributed sources like rooftop solar.
Over time, many of these incentives have been phased out as rooftop solar adoption has increased in the state, and new fees have been imposed on solar customers. But Arizonans can still benefit from certain incentives and protections:
In addition to the federal solar tax credit, the Arizona Solar Energy Credit provides a credit of 25% of the cost of a solar system on your state income tax bill, up to a $1,000 maximum.
Solar systems in Arizona are exempt from both property taxes and sales taxes.
Arizona policy stipulates that homeowners associations cannot prohibit homeowners from installing solar, though they may adopt reasonable rules about where solar panels are placed.
You can find more local benefits on the Database of State Incentives for Renewables & Efficiency (DSIRE), a project maintained by the North Carolina State University.
Net metering
As part of a trend across the nation, Arizona’s net metering (NEM) program, which gave solar customers credit on their electric bill for any unused electricity their system sent back to the power grid, has been phased out. In 2016 the Arizona Corporation Commission (ACC), which regulates many of the utilities in the state, replaced Arizona’s NEM program with a net billing program known as the Resource Comparison Proxy (RCP).
The RCP compensates solar customers at a lower rate than NEM did for excess power they send to the grid, under a tiered step-down that can go down up to 10% per year, eventually arriving at the “avoided cost” rate, according to Autumn T. Johnson, executive director of the Arizona Solar Energy Industries Association (AriSEIA). The avoided cost rate is much lower than the retail rate of electricity, representing the cost a utility avoids by using solar customers’ excess solar instead of producing that electricity themselves or purchasing it elsewhere.
Each utility does its own avoided cost calculation, so your RCP export rate will depend on your utility. As of September 2023, the export rates for Arizona Public Service and Tucson Electric Power were 7.619 cents/kWh and 6.33 cents/kWh, respectively. But Salt River Project, a large utility that is not regulated by the ACC, was able to drop the export rate dramatically to 2.81 cents/kWh.
“Given the current RCP structure, it’s better to go solar sooner rather than later, because the longer you wait, the lower the export rate is,” says Johnson.
Energy storage in Arizona
Home solar batteries cost an average of $8,526 in Arizona after the federal tax credit, according to EnergySage. But they can be well worth the cost, especially in Arizona:
Batteries improve the economics of home solar under net billing because instead of sending excess energy back to the grid at a lower credit, you can store the energy to use later.
Most Arizona solar customers are required to be on a time-of-use (TOU) electricity rate, under which electricity rates are lower at times of low demand and higher at times of high demand. You may use more electricity in your home when you return home from work, demand is high, and the sun is going down so your panels are generating less electricity. A battery can lower your costs by storing the electricity your panels generate during the day for your use in the evening.
Some of the TOU rate plans in Arizona include demand charges, which are based on spikes in your energy demand. Your home could be using a relatively small amount of energy, but spikes during these times can increase your electricity bill dramatically. As with TOU rates, batteries can lower demand charges significantly by storing electricity that you can use during peak use times.
With more heat waves straining the power grid, batteries provide reliable energy backup. Solar alone won’t keep your home powered during an outage, because systems are designed to shut off if there’s an outage to ensure the safety of utility workers.
Like solar costs, battery costs are expected to keep falling, and technologies are constantly improving. Arizona is beginning to offer residential customers demand response programs, which help avoid strain on the power grid by incentivizing customers to shift their energy use to times when demand is lower. With a home solar battery, you can get the most out of these programs.
Read more about solar panel costs, incentives and policies in these states:
Can I get financing for a solar panel system?
In addition to tax incentives and rebates, there are options available. Many solar installers offer financing, but you may also be able to finance your solar investment through a home equity loan or home equity line of credit (HELOC). These options may have lower interest rates than financing with an installer, future opportunities for refinancing and possible tax benefits.
Home equity loans and HELOCs are ways to borrow against the value of your home, converting equity into cash. With a home equity loan, you receive a lump-sum payment and then pay it back at a fixed interest rate over an agreed period of time, typically from five to 30 years. HELOCs are more akin to a credit card, something you use as needed. You’ll usually have 10 years to draw from the line of credit, during which time you only have to pay interest, and after that you pay both the principal and interest. HELOC interest rates typically are variable, meaning your monthly payment could rise or fall over time. And with each of these options, you're using your home as collateral.
 Quicken Loans: NMLS#3030 | ||
|---|---|---|
Max LTV85% | Max LTV90% | Max LTV90% |
Min. Credit Score640 | Min. Credit Score640 | Min. Credit Score680 |
National / regionalNational | National / regionalNational | National / regionalNational |
Another option is a solar loan. Many banks, credit unions and online lenders offer these to fund solar panels and installation, with amounts typically from $1,000 to $100,000, and annual percentage rates ranging from 6% to 36%. They function like a personal loan: you receive a lump sum and repay it in equal monthly installments over a set period, typically two to seven years. And unlike with home equity financing, there is no collateral required for a solar loan. This means your home or solar panels aren’t at risk if you miss payments, but you may have to pay late fees.
So, yes, you likely can get financing. If you go this route, compare interest rates, terms and fees with any financing package that a solar provider may offer you to ensure you get the best deal.
