Across most of America today, installing residential solar panels is a smart, money-saving home upgrade. But at first glance, the financial case for making the solar switch in Kentucky is questionable given the state‘s general lack of renewable energy incentives. Just 0.09% of Kentucky‘s electricity currently comes from solar power sources.
However, the right combination of Federal tax credits and continuing (if reduced) net metering bill savings can still make home solar a reasonably attractive investment in the Bluegrass State. Let‘s run through the numbers to see if you should go solar in KY.
Quick Facts on Kentucky‘s Solar Landscape
Before analyzing the financial implications of buying solar panels in Kentucky, it‘s helpful to understand the broader political and regulatory landscape. Overall, Kentucky lags far behind its neighboring states and the national average when it comes to welcoming solar.
- As of 2021, Kentucky ranked 33rd in the nation for installed solar capacity. Just ~250 MW of solar panels are online statewide as of writing.
- Renewable sources like solar, wind, and hydro only account for 3.9% of Kentucky‘s total electricity generation. That figure is over 20% nationally.
- Kentucky is one of just 12 U.S. states with no Renewable Portfolio Standard. This policy requires utilities to buy a certain percentage of power from renewable sources.
- Legislators have not passed any recent bills expanding clean energy incentives in the state.
With those policy headwinds in mind, let‘s examine the financial incentives that do exist for solar panels in KY.
Federal Solar Tax Credits
The key savings for any Kentucky resident buying solar panels stem from the Federal Investment Tax Credit (ITC). This program, created in 2006 with bipartisan support, provides significant tax deductions based on renewable energy system costs.
For any solar installation completed in 2023, the ITC offers a 30% tax credit. That figure holds at 30% all the way until the end of 2032, when credits start stepping down annually through the end of 2034.
These credits directly reduce your eventual income tax burden, and have no upper limit. To qualify, solar systems must be purchased outright instead of leased or rented. The homeowner claims the ITC when filing their taxes the following year after installation.
For a typical 6 kW, 20-panel solar array costing $14,000 before incentives, this would reduce tax liability by $4,200. Dropping the true out-of-pocket costs to $9,800.
Federal Solar ITC Schedule
| Year | Credit Amount |
|---|---|
| 2023 | 30% |
| 2024 | 30% |
| 2025 | 30% |
| 2026 | 30% |
| 2027 | 30% |
| 2028 | 30% |
| 2029 | 30% |
| 2030 | 30% |
| 2031 | 30% |
| 2032 | 30% |
| 2033 | 26% |
| 2034 | 22% |
| 2035+ | 10% |
Already, we can see the Federal ITC goes a long way towards slashing system costs for Kentucky solar shoppers by nearly one third.
Changes to Kentucky‘s Net Metering Policy
Beyond Federal tax incentives, "net metering" policies represent the main way most U.S. solar panel owners save money on electric bills. Net metering requires your local utility company to provide bill credits when your solar panels generate more electricity than your home uses.
Previously, Kentucky had a very solar-friendly net metering policy requiring 1:1 bill credits at the full retail electricity rate. So if you produced an extra 1,000 kWh of solar energy, your utility would have to credit your bill as if you had paid $110 for 1,000 kWh based on a retail rate of $0.11 per kWh.
However, in 2019 Kentucky state legislators passed changes scaling back the net metering credits new systems now receive:
- New solar customers earn credits at the lower wholesale electricity rate instead of retail
- This essentially cuts credit values by 50% or more to around $0.045 per kWh
- Existing solar owners were grandfathered in at the older, higher reimbursement rate
While unfortunate, even the reduced compensation for net excess generation will accrue substantial savings over a typical system lifetime. Combined with the 30% Federal tax credit, let‘s quantify the overall financial picture…
Cost-Benefit Analysis of Buying Solar Panels in Kentucky
To determine whether home solar power makes sense in Kentucky, we need to model out the cost and financial benefits involved.
For this example, we‘ll examine the economics of installing a 6 kilowatt solar panel system. This would involve 20 x 300 watt panels covering about 500 square feet of viable roof space. Such an array could meet roughly half of a typical home‘s annual electricity consumption.
Our Example 6 kW Kentucky Solar Panel System
- 20 x 300W Solar Panels = 6,000 Watt System
- 500 Sq. Ft. of roof space
- 8,150 kWh annual production estimate
- 25+ year lifespan
Okay, what actual dollars are involved here? Without any incentives factored in, a turnkey installed cost near the current Kentucky average would come to $14,000 for our 6kW system. However, thanks to robust competition and improving solar technologies, prices continue trending downwards annually:
Now for the financial benefits side of the equation. Here in Kentucky:
- The average residential electricity rate is $0.11 per kWh
- Under 2019 net metering rules, excess solar generation earns $0.05 per kWh
Based on typical production models, our example 6 kW system should produce about 8,150 kWh annually. Some of that will directly power the home, offsetting electricity that would have been paid for at $0.11 per kWh.
The excess solar sent back to the grid earns credits at the lower $0.05 per kWh wholesale rate. We‘ll assume 60% of total generation offsets onsite usage, while 40% is fed back as surplus.
Crunching through the numbers:
- 6,000 kWh * $0.11 retail rate = $660 bill savings
- 2,150 kWh * $0.05 wholesale rate = $108 excess credit earnings
Total Year 1 Bill Savings = $768
Layering on the 30% Federal Solar Tax Credit based on the original $14,000 system cost, our true out-of-pocket investment is only $9,800 after accounting for $4,200 in Federal tax liability reductions.
Financial Payback Timeline
Given those parameters, here is how the payback timeline on our 6 kW solar installation shakes out in Kentucky:
- Upfront Out-of-Pocket Cost After Federal ITC: $9,800
- Year 1 Savings from Offset Electricity + Net Metering Credits: $768
- Breakeven Point: 12.8 years
Based on a typical lifespan of 25-30 years for properly maintained solar equipment, a homeowner in Kentucky investing in solar power today could accumulate over $15,000 in total lifetime financial savings under current incentive structures!
While favorable, a ~13 year payback period is slower than what solar shoppers in many other U.S. states can expect thanks chiefly to Kentucky‘s reduced net metering compensation. However, solar panels come with additional benefits like grid independence, increased home resale value, and insulation against rising utility costs.
Let‘s explore a few more key considerations around embracing solar in Kentucky.
Kentucky Solar Equipment Costs & Technologies
Because Kentucky lies well below the U.S. average for solar adoption, equipment pricing comes at a premium here versus more mature markets like California or Florida. However, at a median rate of $2.34 per Watt installed, costs are quite competitive nationally.
Improvements in panel efficiency and energy yield also continue driving prices down year-over-year. Expect costs for a similarly sized system to Kentucky‘s solar market grows in coming years.
In terms of the latest technologies, today‘s solar panels primarily rely on monocrystalline silicon cells for energy conversion. Smaller impulse sizes and rounded ribbon wiring help minimize electrical resistance for optimal efficiency.
Microinverter systems are now standard, with individual inverters integrated behind each panel instead of a single large inverter. By converting DC to AC power at the panel level, this approach provides more granular performance data while limiting system downtime if an inverter fails.
Higher output panels exceeding 400+ Watts per unit are also growing increasingly common and affordable. And expect continued innovations in solar roof shingles and tiles as an aesthetic way to install photovoltaics.
Future Kentucky Solar Policy Outlook
Unfortunately, Kentucky does not seem poised for major near-term expansions to financial incentives or supportive policies around renewable energy. With no state-level tax credits, rebates, or property tax exemptions available, the Federal ITC carries the load.
And while concept legislation gets introduced periodically aiming to undo some of the state-level roadblocks, few political observers expect meaningful change in the near future. Kentucky remains highly economically dependent on coal and natural gas industries.
However, growing numbers of corporations and businesses headquartered in Kentucky have embraced commitments around renewable energy and carbon emissions reductions. As solar and wind reach true parity with fossil fuel sources in coming years, economics alone may force more of the state onto greener grids.
We are still in the early days of mass solar adoption – expect efficiency improvements, cost declines, and new financing models to all combine towards accelerating growth curves nationwide. Kentucky may lag behind today, but its solar outlook should brighten considerably over the next decade regardless of state policy supports.
Key Takeaways – Buying Solar Panels in Kentucky
Solar power in Kentucky doesn‘t benefit from the most generous state-level policies, but the combination of Federal Tax Credits and net metering bill savings still makes home photovoltaic systems a reasonably attractive investment:
- Buying a solar array outright allows claiming the 30% Federal Solar ITC based on the gross system cost
- Ongoing net metering credits help offset monthly electric bills over the 25+ year equipment lifespan
- Under current incentive structures, solar payback periods fall between 12-15 years in Kentucky
- Improving solar technologies and installation efficiencies provide additional cost savings over time
While not the shortest financial breakeven proposition, embracing residential solar energy in Kentucky insulates households against rising grid electricity prices while making an environmental difference. Take advantage of free quotes and competitive installer pricing to potentially join the 600+ Kentucky homes going solar each year!