Arizona Solar Battery Incentives & Tax Credits 2026

Arizona Battery Storage Incentives at a Glance

Arizona is one of the best states in the country for solar and battery storage incentives. The combination of strong federal tax credits, a state solar tax credit, and favorable utility rate structures can reduce your total battery storage investment by 30–50% compared to the gross installed cost.

2026 Arizona Battery Incentives Summary

Incentive	Amount	Type	Expires
Federal Investment Tax Credit (ITC)	30% of system cost	Federal tax credit	2032 (26% in 2033)
Arizona Residential Solar Tax Credit	25%, up to $1,000/yr	State tax credit	No expiration set
Arizona Sales Tax Exemption	5.6% sales tax waived	State exemption	No expiration set
Arizona Property Tax Exemption	100% of added value	State exemption	No expiration set
APS Battery Incentive Program	Varies (check current offers)	Utility rebate	Program-specific
SRP Battery Pilot Program	Varies (check current offers)	Utility program	Program-specific

*Tax credits reduce your tax liability dollar-for-dollar. Always consult a tax professional to confirm eligibility for your situation.

Federal Investment Tax Credit (ITC): 30% Back

The federal Investment Tax Credit (ITC) is the most valuable incentive available for Arizona homeowners installing solar battery storage. Under the Inflation Reduction Act, the ITC provides a 30% federal income tax credit on the full installed cost of your battery storage system — and it now applies to standalone battery storage, not just battery+solar combinations.

How the ITC Works

→ Dollar-for-dollar reduction: The ITC reduces your federal income tax liability by 30% of your system cost. If you owe $8,000 in federal taxes and have a $5,000 ITC, your tax bill becomes $3,000.

→ Carry-forward provision: If your ITC exceeds your tax liability in year one, you can carry the unused credit forward to future tax years.

→ Applies to full installed cost: The credit covers equipment, labor, permitting, and other installation costs — not just the battery hardware.

→ Standalone battery eligible (2023+): As of 2023, batteries with 3 kWh or greater capacity qualify for the full 30% ITC even without paired solar panels.

→ Must own the system: The ITC applies only to systems you purchase outright. Leased systems or PPAs (where the installer owns the equipment) do not qualify for the homeowner credit.

30%

ITC rate through 2032

26%

Steps down to this in 2033

22%

Further steps down in 2034

ITC Savings Examples for Arizona Homeowners

System	Gross Cost	30% ITC	Net Cost
1× Tesla Powerwall 3	$13,500	- $4,050	$9,450
2× Tesla Powerwall 3	$24,000	- $7,200	$16,800
Enphase IQ 15 kWh	$18,000	- $5,400	$12,600
8 kW solar + Powerwall	$40,000	- $12,000	$28,000

*Examples are illustrative. Actual savings depend on your tax liability and specific system costs.

Important: The ITC is a tax credit, not a rebate. You must have sufficient federal tax liability to use it in full. If you expect low income in the installation year, consult a CPA — you can spread the credit across multiple years using the carry-forward provision.

Arizona State Solar Incentives

Arizona offers three significant state-level incentives for solar and battery storage, stacking on top of the federal ITC to reduce your total system cost further:

1. Arizona Residential Solar Energy Tax Credit

Up to $1,000/year

Arizona offers a state income tax credit equal to 25% of the cost of qualifying solar equipment, up to $1,000 per year and a $2,000 lifetime maximum. This credit applies to solar panels, solar water heaters, and — in qualifying configurations — solar battery storage.

✓Credit rate: 25% of qualifying equipment cost

✓Annual cap: $1,000 per year

✓Lifetime cap: $2,000 total (across all systems for the property)

✓Carry-forward: Can carry unused credit forward 5 years

Battery-only caveat: The Arizona state credit was originally designed for solar panels. For standalone battery storage (without solar), eligibility may be limited. When paired with solar, the full system typically qualifies. Verify with the Arizona Department of Revenue (ADOR) or a tax professional before claiming.

2. Arizona Solar Equipment Sales Tax Exemption

5.6% savings

Arizona exempts solar energy devices — including solar panels and battery storage systems — from the state's 5.6% transaction privilege tax (TPT). This is applied automatically at the point of sale when purchasing through a licensed Arizona solar contractor.

On a $14,000 battery system:~$784 saved

On a $40,000 solar+storage system:~$2,240 saved

*Local jurisdiction taxes may still apply. Your installer handles the exemption — you don't need to file a separate form.

3. Arizona Solar Property Tax Exemption

100% of added value

In Arizona, solar energy devices are 100% exempt from property tax assessment. This means installing a solar panel system or battery storage will not increase your property tax bill — even though these systems typically increase your home's market value by $10,000–$25,000 or more.

For a Phoenix-area home with a property tax rate around 0.5–0.7% of assessed value, this exemption saves roughly $50–$175 per year on a system that adds $15,000–$25,000 in value — compounding over 25+ years of system life.

APS Battery Storage Incentives

Arizona Public Service (APS) serves most of the Phoenix metro area, Prescott, Flagstaff, and other parts of central and northern Arizona. APS has run several battery storage incentive programs and continues to update its offerings.

APS Battery Incentive Program (BIP)

APS has historically offered battery incentive programs that pay upfront rebates to customers who install qualifying battery systems and agree to allow APS to dispatch the battery during grid stress events (typically summer afternoons). The value proposition: you get a direct rebate payment and retain the ITC on the full system cost.

Check current availability: APS battery programs have limited enrollment caps and open periodically. Contact APS directly or ask your installer about the current program status before making purchasing decisions.

→Program type: Upfront rebate in exchange for battery dispatch rights during peak grid events

→Typical structure: Per-kWh or per-kW capacity payment at time of enrollment

→Dispatch events: Usually limited to summer afternoons (June–September); you retain full control outside program hours

→ITC compatibility: ITC still applies to the full gross system cost before the rebate; consult your tax advisor

APS Time-of-Use Rate Savings

Beyond direct rebates, APS's time-of-use (TOU) rate structure makes battery storage financially attractive without any program participation. APS TOU rates charge 2–3× more for electricity during peak hours (typically 3–8 PM weekdays in summer).

APS Rate Period	Approx. Rate	Battery Strategy
Peak (3–8 PM summer weekdays)	$0.28–$0.35/kWh	Discharge battery to avoid
Off-peak (all other hours)	$0.09–$0.12/kWh	Charge battery from grid/solar

*APS rates change periodically. Verify current rates at aps.com before calculating savings.

SRP Battery Storage Programs

Salt River Project (SRP) serves the eastern Phoenix metro, including Mesa, Chandler, Gilbert, and Tempe. SRP's unique demand charge structure makes battery storage particularly valuable for SRP customers.

SRP Battery Pilot Program

SRP has run pilot programs that offer incentives to residential customers who install battery storage and participate in demand response or grid services. Like APS programs, availability and terms change regularly — verify current offers with SRP or your installer.

→Pilot programs: SRP has tested various battery incentive structures; contact SRP for current availability

→Demand response: Some programs dispatch your battery automatically during peak grid demand events

→Community Solar Battery programs: SRP has explored shared battery storage models — check srp.net for updates

SRP Demand Charge: Why Batteries Matter More Here

SRP's residential rate plans include a demand charge based on your peak 30-minute power usage each month. This charge can range from $15–$30 per kW of peak demand, making battery storage one of the most effective tools for SRP customers to reduce their bills.

Without Battery

Peak demand: 8–12 kW (A/C + appliances)

Demand charge: $160–$360/month in summer

With Battery

Peak demand reduced by 3–6 kW

Savings: $60–$180/month in demand charges

*SRP demand charges vary by rate plan and season. Verify your current rate structure at srpnet.com.

PACE Financing in Arizona

Property Assessed Clean Energy (PACE) financing is a unique funding mechanism for solar and battery storage that allows you to finance your system through a property tax assessment — without a traditional loan approval process.

How PACE Works

1 A PACE lender (like Ygrene or Benji) funds your solar+storage installation upfront and pays the contractor directly.

2 Repayment is added to your annual property tax bill — typically over 10–25 years.

3 If you sell your home, the PACE obligation can often transfer to the new owner along with the asset — though this varies and must be disclosed.

4 No FICO score requirement for approval; approval is based on your equity and payment history on property taxes.

PACE Advantages

✓No traditional credit check
✓100% financing available
✓Long repayment terms (up to 25 years)
✓Can be combined with federal ITC
✓Property tax payment may be deductible

PACE Considerations

!Interest rates are often higher than solar loans
!PACE obligation is senior to your mortgage
!Must disclose at home sale — can complicate transactions
!Some mortgage lenders restrict PACE financing
!Arizona PACE availability varies by county

PACE vs. Solar Loans: For homeowners who qualify for traditional financing, solar-specific loans (like GreenSky or Mosaic) typically offer better terms than PACE. PACE is most valuable for homeowners who don't qualify for traditional loans or want to avoid any impact on their credit profile. Compare both options before committing.

Stacking Incentives: Maximizing Your Total Savings

The real power of Arizona's incentive landscape comes from combining multiple programs. Here's a realistic example of how an Arizona homeowner can stack incentives on a combined solar+storage installation:

Example: 8 kW Solar + Tesla Powerwall 3 in Phoenix (APS)

Gross installed cost $42,000

Federal ITC (30%) - $12,600

Arizona state solar tax credit - $1,000

Arizona sales tax exemption (5.6%) - $2,352

APS battery program rebate (if enrolled) - $1,500 (est.)

Net out-of-pocket cost $24,548

Total savings: $17,452 (41.5% off gross cost)

*This is an illustrative example. Tax credits depend on your tax liability. APS program availability and amounts vary. Consult a tax professional for personalized guidance.

Tips for Maximizing Your Incentives

→Install and activate in the same tax year: The ITC applies to the tax year the system is "placed in service" — meaning it must be fully installed, inspected, and operational.
→Own, don't lease: Tax credits only apply to purchased systems. Avoid leases or PPAs if maximizing the ITC is a priority.
→Bundle solar and storage: Installing both together in one project maximizes the ITC base cost and often reduces installation overhead.
→Check for utility program enrollment deadlines: APS and SRP programs often have limited slots. Ask your installer to check current availability before you finalize your purchase.
→Use IRS Form 5695: File Form 5695 with your federal return to claim the ITC. Your tax professional or tax software will handle this, but keep all receipts and invoices from your installer.

How to Claim Your Solar Battery Incentives

Get your installation documentation

After your system is installed, your contractor should provide a final invoice, equipment model numbers, and the system's official activation/inspection approval. Keep these records for at least 3 years after filing your taxes.

Claim the federal ITC (IRS Form 5695)

File IRS Form 5695 (Residential Energy Credits) with your federal tax return for the year the system was placed in service. Section A covers solar energy property. Enter your total system cost — the 30% credit is calculated automatically. Most tax software handles this form.

Claim the Arizona state credit (AZ Form 310)

File Arizona Form 310 (Credit for Solar Energy Devices) with your Arizona state income tax return. This form captures the 25% state credit up to $1,000. Any credit exceeding your Arizona tax liability can be carried forward for up to 5 years.

Enroll in utility programs (before or at install)

APS and SRP programs typically require enrollment before or at the time of installation — you usually can't retroactively enroll. Ask your installer to check current program availability when getting quotes, and factor rebate amounts into your financial comparison.

Sales tax exemption is automatic

The Arizona sales tax exemption is handled by your licensed contractor at the point of sale. You do not need to file a separate form — just ensure your installer is ROC-licensed and properly categorizes the equipment as a qualifying solar energy device.

Frequently Asked Questions

Can I claim the 30% ITC on a battery storage system without solar panels? +

Yes. As of 2023 (effective from January 1, 2023), standalone battery storage systems with 3 kWh or greater capacity qualify for the full 30% ITC. You no longer need solar panels for battery storage to qualify. However, the battery must be charged predominantly from renewable sources — if it charges only from the grid, consult a tax professional about partial credit eligibility.

Does Arizona have any direct rebate programs for battery storage? +

Arizona's state government does not currently offer a direct battery-specific rebate program. The primary state incentives are the income tax credit, sales tax exemption, and property tax exemption. Utility-level rebates from APS and SRP are available periodically — these are the main source of direct upfront rebate money. Check with your utility and installer for the latest program availability.

What if my tax liability is lower than the ITC amount? +

The ITC is a non-refundable credit — it can reduce your tax bill to zero, but you won't receive the excess as a cash refund. However, unused credits carry forward to future tax years indefinitely (for as long as the ITC is available). For example, if your ITC is $10,000 but you only owe $7,000 in federal taxes this year, you'll have a $3,000 credit to apply to next year's taxes.

Will my APS or SRP rebate reduce my ITC amount? +

Utility rebates may reduce the net cost basis for the ITC calculation, depending on how they're structured. Generally, upfront rebates from utilities must be subtracted from your system cost before calculating the ITC. This means a $2,000 APS rebate on a $15,000 system reduces your ITC basis to $13,000 (so your 30% credit is $3,900 instead of $4,500). Your tax professional can confirm the proper treatment for your specific rebate.

Does installing solar or battery storage increase my property taxes in Arizona? +

No. Arizona law exempts solar energy devices from property tax assessment. Even though solar and battery systems typically increase your home's appraised value, that added value is excluded from your property tax calculation. This exemption is automatic — you don't need to apply for it separately.

Is PACE financing a good option for Arizona homeowners? +

PACE financing is valuable for homeowners who can't qualify for traditional solar loans or want to avoid a credit inquiry. However, PACE interest rates are typically higher than solar-specific loan products, and the property tax lien can complicate home sales. If you can qualify for a solar loan (GreenSky, Mosaic, etc.), that's usually the better financial choice. PACE is best as a last resort, not a first option.

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Arizona Solar Battery Incentives & Tax Credits: 2026 Complete Guide