Minnesota Solar Incentives & Tax Credits for Residents, Businesses 

When you think about solar energy, Minnesota probably isn’t the first place that comes to mind. But don’t be fooled! Despite its chilly climate, Minnesota actually gets an above-average 2,711 hours of sunlight per year. Plus, the North Star State has something even better than abundant sunshine: generous solar incentives.

Homeowners, businesses, nonprofits, and even local governments can all receive financial perks for installing solar panels. And for Minnesotans who can’t use solar panels directly, there’s community solar. It offers financial and environmental benefits like rooftop solar, but with no roof required.

How much does it cost to install solar panels in Minnesota? 

The cost of a solar energy system depends on its wattage—the amount of power it produces. Nationwide, the typical price for a solar installation is $2.75 to $3.35 per watt. Minnesota’s average price falls in the middle of that range, at around $2.84 per watt. Residential systems in the state can be anywhere from 4,000 watts, or 4 kilowatts (kW), to 10 kW. For a 7-kW solar power system, the typical price would be $19,880. However, a federal tax credit (discussed below) can reduce that price to a little under $14,000.

Although solar panels are a big expense, they save you money month after month on your electric bill. According to the state Public Utilities Commission, the average Minnesota household spends between $90 and $150 per month on electricity. So, if you have a typical electric bill of $120 per month, your solar panels will pay for themselves in less than ten years. After that, they’ll continue to provide free electricity for about 15 years more. Over their lifetime, they’ll save you more than $22,000 in energy costs.

What are solar incentives and solar tax credits? 

Federal, state, and local government all have good reasons to want citizens to install solar panels. This clean energy source helps fight climate change, strengthens the power grid, and reduces air pollution from fossil fuels. Utilities also benefit from having more customers using solar panels. They reduce the burden on the grid so utilities don’t need to build as many new power plants.

That’s why government and utilities do what they can to encourage people to go solar. They offer various incentives that lower the price of solar panels or pay owners directly for using them. One type of incentive is a solar tax credit, which lowers the income tax burden of solar-using homeowners and businesses.

Are there solar tax credits in Minnesota? 

The state government of Minnesota doesn’t offer any tax credits for homeowners or businesses. However, Minnesotans can take advantage of a federal income tax credit known as the Investment Tax Credit, or ITC.

Federal solar tax credit 

The ITC knocks 30% of the cost of a new solar setup off your federal income tax bill. That’s the total cost for all parts of the system—panels, inverter, mounting racks, wiring, and batteries—plus installation. This 30% credit applies to solar power systems installed through the end of 2032. The credit drops to 26% of the total cost in 2033 and to 22% in 2034. After that, it expires if Congress doesn’t renew it.

Suppose you install a 7-kW solar power system at your Minnesota home in 2025. You pay the average price of $2.84 per watt, for a total of $19,880. The ITC will cover 30% of this cost—$5,964—reducing the total price to $13,916. If your tax bill for 2025 is less than $5,964, you can roll the remaining credit over to 2026.

Residential and business solar incentives in Minnesota 

Although Minnesota doesn’t have a state solar tax credit, it does offer many other solar incentives for residents and businesses. Solar power systems are exempt from both property taxes and state sales taxes. They qualify for special financing deals for businesses and local government. They can reduce your utility bill through net metering. And, depending on where you live, they may be subject to other incentives from your utility or local government.

Net metering and net billing in Minnesota 

Sometimes, a solar power system produces more electricity than you can immediately use. If your system is grid-connected, this excess energy flows into the power grid. In Minnesota, all utilities are required to pay solar users for this energy. And, as long as your system is under 40 kW, your utility must pay you at the full retail rate.

Minnesota utilities use two different systems for tracking energy from grid-connected systems. With net metering, your home or business has a bi-directional electric meter. When you send power to the grid, the meter runs backward, taking kilowatt-hours (kWh) off your electric bill. With net billing, by contrast, you have two separate meters. One tracks the energy you draw from the grid and the other tracks the energy you put in. Each month, the utility subtracts the second number from the first and charges you for only that amount. If you produced more energy than you used, your bill drops to zero, but not below. The process to enroll in net metering or net billing depends on your utility. Visit its website to learn the details.

Minnesota’s net metering law also makes you the owner of any Renewable Energy Credits (RECs) your system produces. RECs are a way of keeping track of how much clean energy goes into the power grid. Each megawatt (MW) of solar energy you produce is worth one REC. Some utilities will buy these RECs from you to help them meet their renewable energy quotas. Your utility may also offer you the option to purchase a special meter that tracks your REC production.

Minnesota property tax exemption 

According to data from Zillow, adding solar panels to a home raises its value around 4.1%. In Minnesota, where the average home value is $330,406, that adds up to an increase of about $13,500. However, you don’t have to worry about this added value jacking up your property tax bill. In the North Star State, both home solar and residential wind systems are exempt from property taxation.

Property taxes in Minnesota vary by region. The statewide average is about 1.05%, or $3,150 for a $300,000 home. Over the 25-year lifespan of a solar power system, the property tax exemption will save you around $78,750.

Sales tax exemption 

Most products and services in Minnesota are subject to a 6.875% state sales tax—the sixth highest in the U.S. However, solar power installations are an exception. If you spend $19,880 on a new solar power system, this exemption will save you $1,342 in tax.

MinnPACE Program 

Minnesota’s Property Assessed Clean Energy program, or MinnPACE, offers affordable loans for clean energy equipment. MinnPACE offers businesses and local governments fixed-rate loans for up to 20 years. Borrowers pay back the loan through a special, twice-yearly assessment on their property tax bill. The payments generally cost less per year than the savings on energy bills, so the borrowers come out ahead.

Local incentives

Various municipalities and utilities in Minnesota offer additional incentives for people in their areas to go solar. These programs include:

• SolarSense. Minnesota Power offers its customers rebates for installing a new grid-tied solar power system. The amount of the rebate depends on how much energy the system is expected to produce in a year. Users receive $0.29 per kWh of annual production, up to a maximum of $5,000 or 60% of the system’s cost. However, not everyone who applies for the program gets this benefit. Funds are distributed on the basis of a lottery held every March.
• Solar*Rewards. Residential customers of Xcel Energy can sell their RECs to the utility for a yearly check. Sign over your RECs to Xcel for 10 years, and you’ll earn 2 cents for every kWh your system produces. On top of this, low-income homeowners can earn an extra up-front payment of $2 per watt of installed capacity. This benefit is only open to 75 applicants per year, with rewards granted on a first come, first served basis.
• Green Cost Share. This program gives Minneapolis residents funding for clean energy and efficiency upgrades to their property, including rooftop solar. The base payment is $0.20 per kWh of estimated annual production, up to a maximum of $50,000. Higher rates are available for low-income customers and people living in income-qualified housing. This program is open mainly to businesses, nonprofits, and multifamily dwellings such as apartment buildings. Single-family homeowners can also apply for the program in groups of at least five. However, at least 10% of the applicants in each group must be low-income or part of an environmental justice community.

This is only a partial list of all the local incentives available for going solar in Minnesota. Check with your local government and your utility to see if they offer any other incentives.

Community solar in Minnesota: solar benefits without rooftop panels

Most solar incentives are for residents and businesses who install solar panels. However, not all Minnesotans have this option. Rooftop solar isn’t an option if:

• You rent your home.
• You own a home that doesn’t have a roof, such as a condominium.
• Your roof isn’t big enough or sunny enough for a solar array.
• You can’t afford the up-front cost of a solar installation, even with the federal tax credit.

If any of these apply to you, there’s another way to enjoy the benefits of solar power for your home or business. By subscribing to a community solar project, you can purchase a share of the energy from a nearby solar farm. This doesn’t mean the power from the solar farm goes directly to your home. It goes into the grid, and you get your electricity from the grid. But by signing up for a community solar share, you get to claim a portion of that solar energy as your own.

Community solar is growing fast in Minnesota. As of 2021, the North Star State had 839 MW of community solar installed, more than any other state. Community solar accounted for 63% of all solar power use in Minnesota.

The price you pay for community solar depends on the specific program and on your income. Minnesota state law requires that low- and moderate-income subscribers to community solar pay at least 10% below the retail rate. Users with higher incomes may pay more, but over 90% of all community solar users save money.

The only downside of community solar is that it’s not available everywhere. You can only sign up if there’s a shared solar farm in your area. The easiest way to find one is to sign up for Perch community solar. Just enter your ZIP code on the website, and Perch takes care of the rest.

Is it worth going solar in Minnesota?

The North Star State is a great place to tap into the power of the sun. Between tax credits, other incentives, and savings on electricity, a solar power system will pay for itself in under a decade. After that, it will keep saving you money year after year—tens of thousands over its lifetime. And it also offers a benefit money can’t buy: the knowledge that you’re doing your part to fight climate change.

For those who can’t install solar panels, community solar offers similar perks. It’s a particularly good value for low- to moderate-income users, who are guaranteed to save on their electric bills. But even for higher-income users, it offers a little bit of savings combined with the satisfaction of helping the planet.