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Solar Tax Credits & Other Incentives Heat Up Energy-Efficient Demand in South Carolina Construction

With an abundance of sunshine in South Carolina (August’s total solar eclipse notwithstanding), developers and builders are jumping on ways to take advantage of the sun’s rays to provide energy-efficient construction.

Solar panels provide cheap energy, but a major obstacle to mainstream use is the upfront installation cost. The most common residential solar installation – a 5-kilowatt system – costs about $20,000 to install in South Carolina, but generates only about $500 to $1,000 in annual energy savings.

Federal and state tax credits are the most significant tool to offset initial costs, along with rebates and other incentives from private utilities in South Carolina. A lucrative rebate for Duke Energy customers was exhausted at the end of January after falling victim to its own popularity. The utility offered a $5,000 annual rebate for the average household by paying $1 per watt of energy generated from solar panels. Another program for South Carolina Electric & Gas customers offered performance payments of up to 4 cents for every kilowatt hour of electricity generated from solar panels. It expired at the end of 2016. 

Still, South Carolina users enjoy some of the best tax credits in the country and may be able to take advantage of new legislation pending in the House. 

Tax Credits

Some metrics rank South Carolina’s tax credit for solar energy installations as the fifth best in the nation. Instead of a pretax deduction, the credit returns 25 percent of the eligible purchase and installation costs (including labor) of a solar installation to taxpayers, with a maximum of $3,500, or 50 percent of their state tax liability, whichever is less on their annual taxes. Credits that exceed the annual cap of $3,500, or go unused, can be carried forward for 10 years

In addition, the federal solar investment tax credit (ITC) allows taxpayers to reduce 30 percent of the cost of installing a solar energy system from their federal tax liability. ITC applies to both residential and commercial systems; can be rolled over to subsequent years; and is not subject to a cap on its value. Investment tax credits decrease in value over the coming years, so users wishing to take advantage of the 30 percent credit must begin construction of their solar installation on or before December 31, 2019.     

Importantly, like the South Carolina tax credit, there is no annual benefit to ITC unless the user has a tax liability in any applicable year, although liabilities covered by income withholdings can be returned as a refund in some cases.  Also, make sure the solar power system is built by a certified installer; otherwise, you are not eligible for the credit.       

Sales and Property Tax Exemptions

While South Carolina doesn't have sales tax exemptions for the purchase of solar panels, lawmakers are attempting to create two new property tax exemptions for South Carolina land owners. Under the Renewable Energy Economic Development Bill (S.44), land owners who build distributed energy resources such as solar farms on unimproved or agricultural properties will enjoy a 10-year, 80 percent property tax abatement for installations generating up to 20 kW. The bill is stalled in the House Ways and Means Committee, but many are expecting it to pass. Some estimates suggest the law will create a solar fever in the state, fetching $1.4 million in new, industrial-grade solar investments over the next three years and creating $215 million in property tax revenues for South Carolina counties.

Other Incentives

While South Carolina has received strong scores for its tax credits and is navigating tax exemptions, it doesn't measure up in terms of other incentives that support the use of solar power. Overall, South Carolina's renewable energy efforts are not as clear, coordinated or comprehensive as in other states.

Many states, including South Carolina, have established renewable portfolio standards (RPS) that mandate private utility companies produce a certain percentage of their energy from renewable sources or face hefty government fines. These measures often force utilities to offer rebates and other pro-solar incentives to their constituents. The RPS in South Carolina is relatively meager – 2 percent of all energy production by 2021 must come from renewable sources. By way of comparison, Maine’s RPS requires that 40 percent of all retail electric sales come from renewables by the end of this year. And like many other states, Maine has a “solar carve-out,” demanding that some of the 40 percent come from solar generation. A more aggressive RPS and solar carve out in South Carolina likely would force Duke Energy and South Carolina Electric & Gas to return their lucrative rebate and performance payment programs.           

Bright Future

Solar power is not without its challenges. Energy is difficult to store efficiently, although battery technology is developing. On the bright side, innovations such as solar roof shingles and new financial models, including solar panel leasing, are emerging to make solar power more affordable and accessible as consumers place a higher priority on energy efficiency and green living.

By some accounts, the national solar energy industry will triple in size in the next year. Looking around South Carolina, we see a growing number of businesses exploring the benefits of solar power. More solar panels have appeared on roofs in the past few years, and solar farms are spreading from the Lowcountry to the Upstate in anticipation of the Renewable Energy Economic Development Bill passing.

As the solar industry continues to develop, South Carolina companies exploring renewable energy for their business can benefit immensely from the strategic advice of experienced counsel.

Turner Padget attorneys routinely advise clients, such as contractors, builders and developers on financing, real estate and regulatory matters. The right legal team can help find the financial tools for solar project development and help navigate federal, state and local regulations, which are continuing to evolve in the renewable energy industry.

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