In August, the Inflation Reduction Act (IRA) raised the federal solar investment tax credit (ITC) to 30% for the next ten years, offering a significant benefit for homeowners. This adjustment is favorable for those who installed solar panels in 2022, allowing them to claim the increased 30% tax credit rather than the 26% rate previously in place before the IRA was enacted. It's even more advantageous for those planning to go solar in 2023, as the ITC was initially set to decrease to 22% without the IRA. While this boost in tax credit is certainly worth celebrating, solar customers might experience delays due to the previous ITC reduction timeline. We'll discuss potential impacts and what to anticipate for those planning to install solar panels in the latter part of 2022.

Impact of ITC Reduction on Solar Energy Adoption

As noted earlier, the Residential Clean Energy Credit, also known as the Investment Tax Credit (ITC), has returned to a 30% rate for 2022 and will remain at that level until 2032. This increase was implemented by the Inflation Reduction Act. Prior to this act, the ITC was on track to decrease from 26% in 2022 to 22% in 2023.

The decrease in the solar tax credit prompted homeowners to accelerate their solar installations before the end of 2022 to secure the additional 4% credit. This resulted in packed calendars for solar installers and inspectors towards the end of 2022. For instance, in Washington state, some installers had their schedules fully booked by July 2022, with installations for 2023 being scheduled as far as six months in advance.

While timelines can differ depending on the region, solar installers across the board experienced heightened demand in late 2022 due to the residual impact of the earlier ITC stepdown schedule.

Trends and Predictions for 2023

Forecasting the future is always uncertain, but let's take a look at potential trends for 2023. The urgency to install solar before the Investment Tax Credit (ITC) decrease is no longer an issue. However, as seen during the pandemic, resolving supply chain challenges may still take time.

Solar installers may be experiencing higher demand and scheduling installations further in advance throughout 2023, which is a positive trend. With each solar installation, the grid becomes progressively cleaner.

In 2023, the pressure to install before the ITC decrease may be replaced by enthusiasm for the 30% tax credit and the financial benefits solar energy can offer as utility costs rise.

While solar.com does not possess a crystal ball, the passage of the Inflation Reduction Act was unexpected yet welcome. There is good reason to anticipate a busy period for the residential solar industry in the near future.

The good news is that the 30% federal solar tax credit remains in place, providing stability for homeowners. The downside is that homeowners may face slightly longer wait times between signing a contract and the actual installation of their solar systems.