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Solar Tax Credit vs. TREC: Which Incentive Is Best in New Jersey?

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.

Conclusion

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.

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