Solar Panels in Arizona: Costs, Trends, Incentives

Based on 2023 data, the typical pre-incentive price for a home solar system in Arizona was $28,426 in the second half of 2023. EnergySagesolar and home products comparison market. That’s on the lower end of the 42 states EnergySage surveyed, compared to an average of $34,122 and a high of $46,403 in Kentucky.

Despite policies that could make it less cost-effective for consumers to go solar in Arizona, the state has the fifth-largest installed solar capacity in the country, according to the Solar Energy Industries Association. Solar energy costs in the state have also fallen 43% over the past decade. ⁽⁰⁾

According to EnergySage, the average size of a home solar system in Arizona at the end of 2023 was 12.4 kW. The greater reliance on air conditioning results in higher average electricity usage for Arizona households than in some parts of the country, requiring slightly larger solar systems than the national average of 11.6 kW.

However, the low cost per watt of solar energy in Arizona makes systems there cost-effective. federal solar tax credit can reduce the upfront cost of solar by up to 30%, bringing the typical cost down to $19,898. Government incentives can further lower the cost.

According to data, the average payback period for a solar system in Arizona is 11 years EnergySage data as of June 2024with 20-year savings for an average system estimated at $19,628. Arizona’s solar costs, already the lowest in the country per watt, are on a downward trend, dropping 2% between the first and second half of 2023, according to EnergySage. ⁽⁰⁾

As in many states, the biggest incentive for Arizona homeowners to go solar is federal solar tax creditor the Clean Energy Loan for Homes, which provides a loan of up to 30% of the cost of a solar installation.

At the state level, Arizona has encouraged solar installations with policies like the 2006 Renewable Energy Standard and Tariff, which required Arizona utilities to obtain 15 percent of their energy from renewable sources. Of that amount, 30 percent had to come from distributed sources, such as rooftop solar panels.

Many of these incentives have been phased out over time as the state has seen an increase in rooftop solar installations and new fees have been imposed on solar customers. However, Arizonans still have some incentives and protections:

As part of a nationwide trend in Arizona net measurement (NEM) program that gave solar customers a credit on their electric bill for unused electricity that their system sent back to the power grid, has been phased out. In 2016, the Arizona Corporation Commission (ACC), which regulates many utilities in the state, replaced Arizona’s NEM program with a net billing program known as the Resource Comparison Proxy (RCP).

RCP compensates solar customers at a lower rate than NEM for the excess energy they send to the grid, according to a phased reduction that can drop by up to 10% per year, eventually reaching an “avoided cost” rate, according to Autumn T. Johnson, executive director of the Arizona Solar Energy Industries Association (AriSEIA). The avoided cost rate is significantly lower than the retail electricity rate, which is the cost the utility avoids by using solar customers’ excess solar energy instead of generating that electricity itself or buying it elsewhere.

Each utility does its own avoided cost calculations, so your RCP export rate will depend on your utility. As of September 2023, Arizona Public Service and Tucson Electric Power’s export rates were 8.465 cents/kWh and 7.81 cents/kWh, respectively. However, Salt River Project, a large utility that is not regulated by the ACC, was able to drastically reduce its export rate to 2.81 cents/kWh.

“Given the current structure of the RCP, it is better to switch to solar sooner rather than later because the longer you wait, the lower the export rate will be,” Johnson says.

Home solar batteries According to EnergySage, the average cost in Arizona after the federal tax credit is $8,526. ⁽⁰⁾

• Batteries improve the economics of a home photovoltaic installation under net billing because instead of sending excess energy back to the grid at a lower rate, you can store the energy for use later.

• Most Arizona solar customers pay for electricity on a time-of-use (TOU) rate, which means that electricity rates are lower during periods of low demand and higher during periods of high demand. You may use more electricity at home when you get home from work, demand is high, and the sun is setting, so your panels are generating less electricity. A battery can lower your costs by storing the electricity your panels generate during the day for use in the evening.

• Some TOU plans in Arizona include demand charges, which are based on spikes in energy demand. Your home may use a relatively small amount of energy, but the spikes during these times can drastically increase your electric bill. Similar to TOU rates, batteries can significantly reduce demand charges by storing electricity that you can use during peak times.

• As more heatwaves strain the power grid, batteries provide reliable backup power. Solar power alone won’t keep your home powered during a power outage, as systems are designed to shut down during a power outage to keep utility workers safe.

Like the cost of solar, battery costs are likely to continue to fall as technology continues to improve. Arizona is starting to offer residential customers demand-response programs that help avoid strain on the power grid by encouraging customers to shift their energy use to times when demand is lower. With a home solar battery, you can take full advantage of these programs.