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Kentucky Solar Rebates and Incentives

How Much Can You Save on Solar in Kentucky?

Key Details

  • Kentucky receives an average of 2514 hours of sunlight annually.
  • The Federal Solar Tax Credit allows for solar users to deduct 30% of the cost of their installation from federal income taxes.
  • The PACE Program is a state loan program that covers the cost of solar installation in exchange for an increase in property taxes.
  • Net Metering enables users to earn by generating excess electricity

Kentucky Energy Profile

Kentucky receives an average of 2514 hours of sunlight annually, slightly higher than the national average.

As of 2022, solar installations in the state had a total capacity of 83 megawatts. A huge percentage of this capacity comes from large-scale solar farms, some of which include the:

  • Crittenden Solar Facility has a total capacity of 3.8 MW.
  • L'Oreal Solar Facility has a total capacity of 1.5 MW.
  • E.W Brown from Louisville Gas & Electric has a total capacity of 14.1 MW.

Small-scale solar installations in the commercial and residential sectors are also another reason for the booming industry. Kentucky residents are now adopting solar energy for a host of reasons, including sustainability and affordability.

Solar users in Kentucky can also access different solar energy incentives.

Kentucky Tax Credits for Solar Panels at a Glance.

Kentucky Solar Incentives State or Federal Program Overview
Federal solar tax credit Federal The program offers a 30 percent discount as tax credits for installing solar panels between 2023 and 2032.
PACE Program State A solar financing option that helps small and large solar businesses to reduce the cost of solar installation. The loan term may last between 15 and 30 years.
Incentives for Energy Independence State This program is a one-time offer that covers 50 percent of the user's capital investment in the solar project.
Net Metering State The Net Metering program enables users to earn by generating excess solar energy.

How Cheap or Affordable is Solar Energy in Kentucky?

As of 2021, the retail cost of grid electricity was 9.12 cents per kilowatt-hour. This is far more expensive than the average cost of solar panels per watt. Solar panels cost $2.38 per watt or 0.00238 kilowatt-hours.

The 6 kWh solar system is often the preferred option for powering an average-sized household in Kentucky. Although it costs $13,353 to install this unit, solar users can apply for Kentucky's tax credits for solar panels.

State Number of solar Installations MW Installed Average cost for grid power (2021) Average cost per watts
Wyoming 83 MegaWatts 9.12 cents/kWh 2.38 per watt

For solar panels installed in 2022, the solar tax covers 30 percent of installation costs. This means you will get $4,005 in tax credit for installing a 6 kWh solar system. Keep in mind that the tax credit fluctuates and it depends on when you install the unit. The federal solar tax credit was 22 percent for solar units installed in 2021.

State Cost of installing a 6kw system Federal tax credit value 2021 (22%)
Wyoming $13,353 $2,282.

According to the U.S. Department of Energy, Kentucky consumed an average of 89.1 terawatts per hour in 2021. This figure is slightly more than two percent of the country's total energy consumption per year. In the same year, the state generated 89.9 terawatts per hour from both renewable and non-renewable energy sources

Kentucky generates most of its electricity from coal-powered power plants and natural gas. As of 2021, coal-powered plants supplied 71 percent of the state’s total electricity output, while natural gas supplied 21 percent. A meager percentage of its power comes from renewable energy sources.

Federal Solar Tax Credit in Kentucky

Under the federal solar tax credit, Kentucky solar users can deduct 30 percent of the cost of solar installation. Both commercial and residential solar users can apply to receive this renewable energy rebate. Solar users must file the request along with their annual tax returns.

Keep in mind that you won't always get a 30 percent tax credit under this scheme. The federal solar tax credit has different phases, and each phase offers a specific set of percentages.

  • 2022–2032: New solar users can deduct 30 percent of the cost of installation from their federal income tax.
  • 2023: New solar users will only get to deduct 26 percent of the installation cost from their annual tax.
  • 2034: The federal solar tax credit falls to 22 percent.
  • There are no tax credits for solar systems installed after 2035.

So, what expenses will the solar investment tax credit cover?

The federal solar tax credit only covers these expenses:

  • Solar batteries with a storage capacity of up to 3 kWh.
  • Sales tax on eligible solar equipment
  • Solar panels, inverters, and use taxes on the equipment
  • Additional costs include expenses on set-up transformers, circuit breakers, and surge arrestors.
  • Labor costs, including the cost of onsite preparation, permit fees, inspection costs, and the cost of assembling the panel.

The renewable energy incentive also covers expenses on wiring and mounting equipment.


Solar users who meet these requirements are eligible for the federal solar tax credit in Kentucky:

  • The solar system is installed within the timeframe of the tax credit program. In other words, it must be installed between 2006 and 2035.
  • The PV system must be installed in your U.S. primary or secondary residences. It also covers PV systems installed in U.S. territories.
  • The solar user must own the system.
  • The system is new and being used for the first time.

How do I claim the Federal Solar Tax Credit in Kentucky?

You can follow these steps to claim the Kentucky solar panel tax credit:

Step 1. Verify that you're eligible to receive the incentive. You are eligible for a solar tax credit if you own the property where the system was installed. In addition, you must be the first user of the system.

Note: Your solar tax credit must be lower than your federal tax liability. If it is higher, you must roll over the excess credit to the next tax year.

Step 2. Gather the forms you need to claim a federal solar credit. Here are the tax forms you need for this step: IRS Form 5695, Form 1040, and Schedule 3. You can also download the instruction guide for forms 5695 and 1040.

Step 3. Fill out Line 1 of Form 5695. Calculate the cost of all the eligible solar equipment. This may include solar water heating and geothermal pumps. Add the gross total after Kentucky renewable energy rebate to line 1.

Step 4. Include additional costs in line 2 to 5. Furthermore, fill out the total cost in line 6a.

Step 5. Determine your annual tax liability on Form 1040. Complete sections 1 to 4 on the form. Next, move to page 4 to determine the limit on the credit you can claim.

Step 6. Deduct the tax credit from your tax liability. If the credit is greater than the tax liability, write down the remaining figure in line 16 of Form 5695.

Step 7. Add the renewable energy tax credit to line 5 of the Schedule 3 form.

Step 8. File these tax forms online or via mail to:

Pay a 740 or 740-NP

Kentucky Department of Revenue
Frankfort, KY 40619-0008

Refund or No Payment 740 or 740-NP
Kentucky Department of Revenue
Frankfort, KY 40618-0006

Kentucky Department of Revenue
Frankfort, KY 40620-0012

Net Energy Metering in Kentucky

Net metering is a solar energy incentive in which solar users receive credits for generating solar power in Kentucky. The state's legislators passed the bill that allowed utility companies to offer net metering to renewable energy users. More so, it amended the bill through S.B. 100.

With this bill, PV systems with more than 30 kWh of power can apply for net metering.

Net metering is only available to customers of electric utilities that are owned by investors or rural electric cooperatives.

Here's a simple case study on how net metering works in Kentucky.

Henry's PV system generates 10,000 kWh per month. If he ends up using 5,000 kWh, the utility company will buy the excess solar energy and pay in credits. The credit gets used up when solar output is not enough to meet the energy demand.

How to Enrol for Net Energy metering in Kentucky

Enrolling for net metering in Kentucky is fairly straightforward. Most solar users can apply to the Lg&E and KU utility company via these steps:

Step 1: Download and read through the KPSC interconnection guidelines for net metering. In addition to this, read the interconnection requirements for customers. These documents serve as the starting point for the net metering process.

Step 2: Fill out and send the application form. Also, attach the additional files outlined in the Interconnection Requirement document. You may send the completed application via email at net.metering@lge-ku.com or to:

220 West Main Street
Louisville, KY 40202
One Quality Street
Lexington, KY 40507

Note: you'll get a faster response for an application sent via email. Also, ensure to include the power capacity and energy type in the application. Use this format, "Solar panel, 6kW, DC).

Step 3: the utility company will review the application. You'll get a notification via mail or email if your application gets approved.

Step 4: Get the city or local official to inspect the PV system before installation. In some cases, LG&E and KU may perform inspections.

Step 5: Notify LG&E after installing the solar system. The utility company will send a net metering meter to your address.

Kentucky Property Tax Exemption

Kentucky does not have a property exemption for renewable energy users. This means solar users will have to pay additional taxes on installed solar equipment. The state taxes renewable energy equipment at $0.45 for every $100 in valuation.

Nevertheless, installing a solar system is an investment which pays for itself many times over. In addition, installing a solar system increases the real estate value of your property.

According to a study by Berkeley lab, home buyers pay an additional $15,000 for homes with solar panels. The study also concluded that home value increases by $20 for every $1 reduction in utility bills. This means if you saved $1,000 in utility bills per year, your home value will increase by $20,000.

Kentucky renewable energy rebates also ease the cost of paying property tax on installed solar systems. You can take advantage of the renewable energy incentives and rebates in Kentucky.

What are the major renewable resources in Kentucky?

Hydroelectric power plants and biomass are the major renewable resources in the state. 11 hydroelectric dams supply seven percent of the state's total electricity output.

On the other hand, biomass plants supply 0.5 percent of the state's energy output. Interestingly, Kentucky has the capacity for utility-scale wind projects but has yet to develop them.

Solar energy output is mainly from small-scale residential and commercial facilities. Nevertheless, there are utility-scale solar farms in the state.

Kentucky Household Profile

According to the EIA 2021 report, Kentucky consumes an average of 354.2 million BTU per capita. Here's a further breakdown of the energy consumption in each sector.

Kentucky's Sector Energy consumption in BTUs per capita
Transportation 103.3 million BTUs
Residential 73.6 million BTUs
Commercial 52 million BTUs
Industrial 125.4 million BTUs

There are 2,008,239 housing units in the residential housing sector. About 67.8 of these units are owner-occupied. From 2017 to 2021, the median value of an owner-occupied unit will be $155,100. Owner-occupied units are eligible for Kentucky's tax credits for solar energy.

The state also issued 14,841 building permits in 2021. This means more housing units and commercial units will be constructed within the next few years. In addition, this will increase the demand for renewable energy sources as an alternative to fossil fuels.