New Jersey does not offer a state solar tax credit to homeowners. However, the homeowners can take advantage of the federal solar tax credit, known as Investment Tax Credit (ITC), and realize a significant “effective discount” on their solar panel system purchase.
That said, the garden state does offer a performance-based incentive to homeowners in the form of Transition Renewable Energy Certificates (TRECs). TRECs, similar to SRECs, guarantee fixed incentives to homeowners for 15 years.
Both incentives – ITC and TRECs – offer massive savings to solar buyers and help them recover their investment into the system in a few short years.
Our customers often wonder which of these incentives offers the highest savings to a homeowner. For practical purposes, the question – ITC or TREC? – is irrelevant! Most homeowners qualify for both incentives, and they can enjoy all the savings they can get from them.
However, for the purpose of this discussion, here’s a quick comparison:
How Much You Can Save With ITC
The federal solar tax credit is not a discount. As the name indicates, it’s a tax credit. Currently, the rate of tax credit is fixed at 26% until 2022. In 2023, it will drop to 22%, and in 2024, to 10%.
Suppose you buy a solar panel system worth $20,000, including installation this year in 2021. The solar tax credit, which is 26% of your installation’s value of $20,000, comes to $5,200.
The IRS allows you to shave all $5,200 off your annual tax payments.
Perhaps, you are now wondering what happens if your annual tax liability is less than this amount. The answer is simple: you can roll over the tax credit to the following year. In fact, you can roll it over for up to 5 years!
How Much You Can Save With TRECs
The state government has fixed the value of each “full” TREC at $152 for 15 years. However, your TREC’s value would be based on your solar project’s type:
- landfill, brownfield, areas of historic fill: 1.0
- Grid supply (Subsection (r)) rooftop: 1.0
- Net metered non-residential rooftop and carport: 1.0
- Community solar: 0.85
- Grid supply (Subsection (r)) ground mount: 0.6
- Net metered residential ground mount: 0.6
- Net metered residential rooftop and carport: 0.6
- Net metered non-residential ground mount: 0.6
You can understand this better with an example. Suppose you get a residential rooftop solar installation and sign up for net-metered savings. Your TREC value is 0.6.
That means 0.6 x value of a full TREC = 0.6 x $152
So, the value of your TREC is $91.2. And this value is fixed for 15 years.
An average household in New Jersey requires a 6kW solar power system, which supplies roughly 7,008kWh of clean power over the year. At this rate, you earn 7 TRECs over the year, which would be worth $638.4 a year.
Over the span of 15 years, that amount adds up fast to $9,576.
Between TREC and ITC, it’s the former that offers you higher savings. However, the latter is what gives you immediate savings. Both have their own merits, and both are great.