Solar Panels in Arizona: 2026 Costs, Incentives, and Net Billing
In Arizona, two things define whether solar pencils out: some of the best sunlight in the country (roughly 6 to 7 peak sun hours a day across Phoenix and Tucson) and a net billing landscape where exported power is now worth far less than what you pay for grid power. All three big utilities, APS, SRP, and TEP, have retired one-to-one net metering for new customers, so a system sized to your daytime usage (often paired with a battery) usually beats one built to dump power back to the grid. Arizona also keeps a 25% state tax credit (capped at $1,000) and sales and property tax exemptions, which matter more in 2026 now that the federal residential credit has ended.
Solar incentives in Arizona
State, utility, and local programs that can lower the cost of going solar here. Availability and amounts change, so verify each before counting on it.
| Program | Type | What to know |
|---|---|---|
| Arizona Residential Solar Energy Tax Credit | State | A state income tax credit worth 25% of your system cost, capped at $1,000 total per residence (a lifetime aggregate, so any earlier solar credits claimed at the same home count against it), with any unused amount carried forward up to five years; confirm current eligibility with the Arizona Department of Revenue and a licensed tax professional. |
| Solar Equipment Sales Tax Exemption | State | Qualifying solar equipment is exempt from Arizona's state transaction privilege tax (the roughly 5.6% state portion; some city or county tax may still apply), typically applied at the point of sale by your installer; verify current availability. |
| Energy Equipment Property Tax Exemption (ARS 42-11054) | State | The added home value from a solar energy system is excluded from your property tax assessment, so going solar does not raise your property taxes; verify current availability with your county assessor. |
| Federal Commercial Credit (Section 48E) via lease or PPA | Federal | If you go with a third-party-owned lease or power purchase agreement, the system owner may be able to claim the commercial clean energy credit (Section 48E, which under current law applies to qualifying solar placed in service through 2027) and pass some benefit through; this is not guaranteed and depends on project qualification, so confirm details before signing. |
| Utility battery and demand-response programs | Utility | APS, SRP, and TEP periodically offer battery storage incentives or demand-response enrollment that can pay for shifting or exporting stored energy; check your specific utility's current programs since terms change frequently. |
Net metering in Arizona
Net billing (no 1:1 retail for new customers). Arizona has moved every major utility off full retail net metering. New solar customers on APS, SRP, and TEP are credited for exported energy at a net billing or export rate that is well below the retail price you pay, and APS-style export rates step down by roughly 10% for new customers each year. SRP's export credit is the lowest of the three. Because exports are worth so much less than self-consumed power, batteries and right-sizing your array to daytime use have a large effect on payback, and homeowners who installed before these changes are generally grandfathered on better terms.
Going solar in Arizona: what shapes the numbers
The local factors that move payback and savings most.
Electricity rates and time-of-use are the real driver
Arizona's payback math is driven less by sun and more by how your utility charges you. APS summer on-peak rates can run around 34 cents per kWh while off-peak sits near 12 cents, and SRP layers in demand charges based on your single highest usage hour. Because solar offsets the power you would have bought at retail, the value of each kWh you self-consume during expensive peak windows is what shrinks the bill. That makes time-of-use plan selection and shifting usage into peak solar hours central to your estimated savings, which vary by utility and household.
Sun and production: strong, but not the whole story
With roughly 6 to 7 peak sun hours a day in the Phoenix and Tucson metros (less up in Flagstaff and the high country), Arizona panels produce more energy per installed watt than almost anywhere in the US. A typical residential array here generates a high annual yield, which helps offset the longer payback that net billing creates. Extreme summer heat does slightly reduce panel output and makes ventilation, racking, and inverter quality worth asking about, since sustained 110-plus degree days are normal.
Net billing makes batteries pivotal
Now that exported power earns only a few cents per kWh on APS, TEP, and especially SRP, sending surplus solar to the grid is no longer a good deal. Storing midday production in a battery and using it during expensive evening peak hours (or to avoid SRP demand spikes) often does more for your bill than a larger grid-tied array alone. Expect quotes to lean toward solar-plus-storage, and ask installers to model your estimated savings both with and without a battery on your specific rate plan.
Financing and cost after the 2025 federal change
Installed costs in Arizona generally run about $2.30 to $3.00 per watt before any incentives, and typical payback now lands in the range of 9 to 13 years. The biggest 2026 shift is that the 30% federal residential tax credit ended for systems placed in service after December 31, 2025, so a homeowner buying or financing a system this year should not count on it. The Arizona state credit and tax exemptions remain, and lease or PPA structures may still access a commercial credit at the owner level, so compare cash, loan, lease, and PPA offers carefully with a tax professional.
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Local considerations for Arizona homeowners
Conditions and rules that tend to come up when going solar in this state.
- Net billing, not net metering: APS, SRP, and TEP credit exports below retail, so size the system to your own usage rather than to export.
- SRP uses demand charges tied to your single highest-usage hour, which can make a battery and load shifting unusually valuable in that territory.
- APS-style export rates drop about 10% each year for new customers, so the month you interconnect can affect your locked-in credit.
- Extreme summer heat (110-plus degrees) modestly cuts panel output and stresses inverters, so ask about heat tolerance, ventilation, and warranty.
- Monsoon season brings dust, wind, and hail, so confirm panel hail ratings and how mounting handles haboob-strength gusts.
- Check whether your community has an HOA; Arizona's solar rights law (ARS 33-1816) limits HOAs from prohibiting panels, but reasonable placement rules can still apply.
- Confirm which utility serves your address (APS, SRP, TEP, or a co-op), since export credits and rate plans differ sharply between them.
- Grandfathering matters: if you bought a home with existing solar, verify whether the prior owner's plan transfers to you.
Before you sign a Arizona solar contract
Questions worth asking any installer before you commit:
- Which utility serves my home, and which specific rate or net billing plan will I be on after the system goes live?
- What export credit rate will I lock in, and does it step down for customers who interconnect later?
- Can you model my estimated savings both with and without a battery on my actual utility rate plan?
- How does your equipment hold up to Arizona summer heat and monsoon dust, wind, and hail, and what do the warranties cover?
- Are you quoting a cash, loan, lease, or PPA deal, and how does each option handle the Arizona state tax credit and the expired federal credit?
Related solar guides
Solar in Arizona: frequently asked questions
Does Arizona still have net metering in 2026?
Not full one-to-one retail net metering for new customers. APS, SRP, and TEP have all moved to net billing, where exported solar is credited at a rate well below what you pay for grid power. Homeowners who installed before these changes are often grandfathered on better terms.
Can I still get the 30% federal solar tax credit?
Not for a system you buy or finance that is placed in service after December 31, 2025. The federal residential clean energy credit (Section 25D) was terminated, so a 2026 purchase should not assume it. A third-party-owned lease or PPA may still access a commercial credit at the owner level, but that is not guaranteed. This is general information, not tax advice; confirm with a licensed tax professional.
What incentives does Arizona itself still offer?
Arizona keeps a 25% state income tax credit capped at $1,000, a state sales tax exemption on qualifying solar equipment, and a property tax exemption so your system does not raise your assessed home value. Amounts and rules can change, so verify current availability with the program administrator and a tax professional.
How long is the payback on solar in Arizona now?
Estimates typically range from about 9 to 13 years in 2026, longer than before because the federal credit has ended and export credits are below retail. Your actual payback varies by utility, rate plan, system size, financing, and whether you add a battery.
Do I need a battery to make solar worthwhile in Arizona?
Not strictly, but because exported power now earns only a few cents per kWh, storing midday production and using it during expensive evening peaks (or to blunt SRP demand charges) often improves your estimated savings. Ask your installer to compare quotes with and without storage on your specific rate plan.
Why does the deal differ so much between APS, SRP, and TEP?
Each utility sets its own rate structure and export credit. APS leans on time-of-use rates, SRP adds demand charges based on your peak hour and has the lowest export credit, and TEP credits exports at its own net billing rate. Confirm which utility serves your address before comparing offers.
Solar in other states
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