How to Save Money on Solar Panels in North Dakota
North Dakota has the least solar energy production of any U.S. state, with most of its renewable focus on wind and biomass sources. However, for North Dakotans interested in installing solar panels, there are still opportunities for long-term savings.
In this 2500+ word guide, we’ll break down everything you need to know about maximizing savings on solar panels in the Peace Garden State, including:
- Solar Incentives in North Dakota
- Federal Tax Credit
- Net Metering Policies
- Property Tax Exemptions
- Lack of State Support
- Solar Leasing Availability
- Cost and Savings Estimates
- Payback Period Calculations
- Best Practices for Savings
- Frequently Asked Questions
Let’s get started.
The Solar Landscape in North Dakota
First, it’s important to understand the overall solar landscape in North Dakota. This context will shed light on the savings opportunities and challenges for installing solar panels in the state.
As of 2022, North Dakota ranked dead last for solar energy production out of all 50 states. The state generated only 17,000 MWh of solar electricity annually, compared to over 90 million MWh in leading state California.
So why has North Dakota lagged so far behind in solar adoption? There are a few key reasons:
Lack of Political Support
North Dakota has focused most of its renewable energy efforts on rapidly expanding wind and biomass sources like corn and soybeans. The state previously had a Renewable Portfolio Standard (RPS) goal for utilities to generate 10% of electricity from renewables, but this target was voluntary and expired back in 2015 without being renewed.
The expiration demonstrates the lack of political priority for investing in solar at a statewide level currently. Without strong policy incentives from state government, there simply hasn’t been much momentum around residents or businesses adopting solar panels.
Low Electricity Costs
North Dakota has a very affordable electricity grid, averaging only 10.31 cents per kWh across the state. This is well below the national average utility rate of 14.01 cents per kWh.
With already low-cost power, there is less economic motivation for North Dakotans to bear the upfront expense of installing solar panels to offset electricity purchases.
Harsher Weather Conditions
Due to its more extreme northern climate, North Dakota sees fewer sunny days per year on average compared to southern U.S. states, where abundant solar resources thrive.
Frigid winters and greater temperature variability mean solar panels often operate at lower efficiencies in North Dakota. This can diminish long-term energy production and savings.
Now that we’ve set the overall stage for why solar has lagged in North Dakota, next we’ll analyze specifically what financial incentives are available currently for state residents interested in going solar.
Federal Solar Tax Credit
The key nationwide incentive available is the federal Investment Tax Credit (ITC) for solar installations. This policy offers homeowners a tax credit equal to 30% of costs for any new solar panel system installed on a residence before the end of 2034. After that, the value of the credit will step down incrementally before phasing out completely in 2040.
As an example, let’s assume a North Dakota home installed a 6 kilowatt solar array at roughly $2.42 per Watt – adding up to $14,520 total.
Taking the 30% tax credit value, this home could reduce their tax bill by $4,356 the next year after installing solar panels.
Assuming most North Dakota homeowners fall into the 22% federal income tax bracket, this equates to nearly $100 in tax savings per month in the first year after going solar.
While North Dakota does not offer any supplemental state tax credits or rebates, capturing the federal credit remains crucial to maximize near-term savings potential on solar installations.
Net Metering Policies
One area North Dakota does offer some benefit is its net metering policy. Net metering allows solar panel owners to accumulate credit from their utility company when they send excess power back to the electric grid from their system.
However, North Dakota’s policy is relatively limited compared to leading solar states. It only applies mandatory rules on 3 major investor-owned utility companies:
- Montana-Dakota Utilities Co.
- Northern States Power Company
- Otter Tail Power Company
On top of that, the rate these utilities must pay solar customers for net excess generation (NEG) is set at the low “avoided cost” wholesale rate – around 2.6 cents per kWh. Compare that to getting full retail credit rates from utility companies in states like California and Hawaii that value NEG compensation closer to 30 cents per kWh.
So while North Dakota’s net metering policy does offer some incremental value for larger solar panel systems designed to frequently export excess power, the compensation rate is still rather minimal.
Property Tax Exemptions
One area North Dakota does try incentivizing renewable adoption is through a state property tax exemption on the added value of any solar installation for residential properties.
This exemption lasts for 15 years after going solar. It ensures homeowners will not face increased property tax bills related to potentially higher assessed home values from adding solar panels. Without the exemption, local property taxes could rise several hundred to a couple thousand dollars per year.
No Sales Tax on Solar Equipment
North Dakota has no statewide sales tax to begin with. However, several cities and counties do charge local sales tax rates.
When it comes to solar though, North Dakota does not apply any sales tax at the local level either on equipment like solar panels, inverters, racking and more. That saves roughly 5-7% off solar installation costs.
Limited Scope of Financial Incentives
In summary, while North Dakota misses out on common state-level incentives like renewable energy credits (RECs) and solar rebate programs that help reduce the upfront costs of solar panel installations, residents can still capture:
- The 30% Federal Solar Tax Credit
- Electric Bill Savings from Net Metering Policies
- Property Tax Exemptions
- Local Sales Tax Exemptions
Yet to maximize savings in North Dakota long-term, using solar to offset high electricity bills isn’t the prime focus. With lower than average utility rates already, the motivation lies more heavily in capitalizing on upfront tax credits and exemptions during the solar purchasing process itself.
Solar Leasing Availability
For homeowners without the ability to purchase a solar panel system upfront, solar leasing programs offer an alternative to gain access to solar energy in exchange for a monthly payment to a solar company that retains ownership of the equipment.
Unfortunately, due to the lack of policy support for solar in North Dakota currently, there are no viable leasing options available to residents in the area. Down the road if demand increases, that could certainly change. But for now, purchasing solar panels is the only pathway forward.
Cost and Savings Estimates for Solar Installations
To determine if solar panels make financial sense in North Dakota, let’s take a closer look at upfront system costs along with projected energy savings over 25 years:
According to 2021 figures from the NREL, solar panels in North Dakota cost around $2.42 per Watt on average all-in.
For a typical 6 kW array size, that equates to $14,520 before accounting for any incentives or savings:
($2.42 per Watt x 6,000 Watts = $14,520)
Now let’s factor in financial benefits:
30% Federal Tax Credit: $4,356
15 Years Avoided Property Tax Increase: $2,500
6% Local Sales Tax Exemption: $871
Net Cost After Incentives: $6,793
Next, measuring 25-year savings requires tallying up the following benefits:
- 25 Years of Electricity Bill Savings
- Net Metering Compensation
- Maintained Property Tax Exemption
To produce an apples-to-apples comparison across different home energy profiles, let’s analyze savings for the example 6 kW array based on a statewide average of 10,220 kWh used by North Dakota homes annually.
Electricity Bill Savings
Assuming a grid purchase rate of 10.31 cents per kWh in North Dakota, an average home consuming 10,220 kWh per year accrues an annual utility bill of about $1,055 currently.
Over 25 Years At a 2% Yearly Utility Rate Increase of:
Grid Electricity Costs = $38,700
A 6 kW solar array in North Dakota should produce about 6,840 kWh per year.
By self-consuming this solar generation to offset grid purchases, annual utility bills drop to roughly $612 per year initially.
That’s over $440 in annual savings today from your solar panels, growing gradually over 25 years alongside utility rate increases.
Total Electricity Bill Savings = $27,000
Net Metering Credits
Assuming 85% self consumption of the solar array production, the remainder 15% (1025 kWh) can be exported to the grid for net metering payment credits at North Dakota’s rate of 2.6 cents per kWh.
1025 kWh x 2.6 cents x 25 years = $660
This comes out to a relatively inconsequential $26 per year – demonstrating the miniscule compensation currently through North Dakota’s net metering policy.
Avoided Property Tax Increase
Recall North Dakota offers a 100% property tax exemption on solar systems for 15 years. For simplicity, we’ll model avoided tax based on the full value of our $14,520 solar array installation escaping reassessment over the 25 years analyzed.
At a 1% average effective property tax rate in North Dakota, taxes increase $145 annually without the solar exemption.
Over the full 25 years post solar installation, avoiding tax increases saves $3,625.
Total 25 Year Household Savings = $30,700
Accounting for both incentives that reduce your net upfront cost to $6,793 and long term electricity export and tax benefits summing to over $30,000 – over 25 years a 6 kW solar array investment should yield net savings exceeding $24,000 in North Dakota.
Solar Payback Period
One other helpful analytical factor is solar system payback – the time it takes to recoup your initial purchase costs through savings.
Using our example above, you would reach payback on your $6,793 out of pocket solar panel system cost in North Dakota in approximately:
$6,793 / $440 Year 1 Savings = 15.4 Years
So a complete payback on investment can be achieved within the 25-year warranty life of solar panels and exemptions on tax increases.
Best Practices for Maximizing Solar Savings in North Dakota
To close out this guide, let’s review some tips to maximize returns adopting solar in North Dakota within the constraints of current policies and incentive programs:
Take Advantage of Federal Tax Credit Before 2034 Phaseout
Capture a 30% credit covering nearly 1/3 of system costs while available. File this the same year as your install.
Spend Time Optimizing System Design and Sizing
Proper solar array sizing and roof considerations have big impacts on long term production and savings. Consult local solar experts.
Research Actual Property Tax Implications in Your County
While state offers 15-year exemption, understand the actual tax value increase without solar locally.
Model Electricity Bill Offsets Closely
Since power bills are lower than average here, run 25 year projections against your household’s usage to estimate true offset potential.
Consider Solar Economics Beyond Pure Utility Savings
Factor in equity benefits like hedge against future energy costs and home resale value increases to determine value.
Final Thoughts
Despite boasting the lowest solar energy adoption nationwide in 2022, North Dakota residents still stand to benefit from installations – thanks namely to outstanding projected utility savings supplemented by the 30% federal tax credit available through 2034.
Hopefully this guide illuminated the current solar policies and incentives landscape here. We also aimed to equip readers with various projection tools to model the value proposition unique to your household’s consumption profile.
Although the economics may prove more marginal than sunnier southern locales, the solar feasibility gap continues closing each year as panel efficiency rises further. Stay apprised of any updated legislation expanding North Dakota solar access as well.
Have additional questions? Reach out in comments below! We welcome any feedback or topic recommendations to cover related to solar in North Dakota.
