There is no Alabama solar tax in the government sense. What people mean when they use that phrase is a monthly fee Alabama Power charges customers whose rooftop solar connects to its grid: $5.41 per kilowatt of installed capacity, which runs roughly $21 to $32 a month on a typical residential system. On top of that, Alabama offers no state solar tax credit, no sales tax exemption on solar equipment, and the 30% federal residential solar credit expired on December 31, 2025.
The Monthly Fee Alabama Power Charges Solar Customers
Alabama Power’s Rate Rider RGB applies to any grid-connected customer who generates part of their own electricity with non-emergency equipment running alongside the utility. The utility calls it a “capacity reservation charge” and frames it as the cost of keeping backup power ready for the hours your panels aren’t producing. Solar advocates call it a solar tax because it eats into the savings that make rooftop solar worth installing.1Alabama Power. Rate Rider RGB – Supplementary, Back-Up, or Maintenance Power
The charge is tied to your system’s nameplate capacity, not what you actually use or produce. At $5.41 per kilowatt on residential (secondary) service, a 5 kW rooftop array adds about $27 a month to your bill. An 8 kW system runs closer to $43 a month.1Alabama Power. Rate Rider RGB – Supplementary, Back-Up, or Maintenance Power You can ask Alabama Power to calculate your actual backup capacity needs if you think the nameplate figure overstates what you’d realistically draw from the grid, but the utility makes the final call.
Rate RTA is the only alternative on paper. Opt into it and you skip the per-kilowatt monthly fee, but you pay 71 cents per kilowatt-hour during weekday peak hours (3:00 p.m. to 5:00 p.m.) from June through September.1Alabama Power. Rate Rider RGB – Supplementary, Back-Up, or Maintenance Power For context, Alabama’s average retail electricity rate sits around 13 to 14 cents per kilowatt-hour. At 71 cents, most homeowners pay far more under Rate RTA than under the flat capacity charge.
Batteries Don’t Get You Out of It
Adding battery storage doesn’t exempt you from the capacity reservation charge. Rate Rider RGB applies to any customer with on-site, non-emergency generation operating in parallel with Alabama Power’s grid. Battery or no battery, as long as you’re grid-connected, the fee applies. The only way to avoid it is to disconnect entirely, which means giving up utility backup power and running solely on your panels and batteries.
What You’ll Get Paid for Excess Solar
Alabama has no state net metering law. Utilities are not required to credit you at the retail rate for electricity your panels send back to the grid, and Alabama Power doesn’t. This gap matters as much as the capacity charge when you run the numbers on a system.
Alabama Power’s voluntary buyback program, Rate PAE, covers systems under 100 kW. From October through May, the utility pays about 4.69 cents per kilowatt-hour during weekday hours of 10:00 a.m. to 9:00 p.m. and 3.35 cents per kilowatt-hour at other times.2Alabama Power. Rate PAE – Purchase of Alternative Energy You buy power at roughly 13 cents and sell it back at 3 to 5 cents. The math pushes you toward sizing a system to match your own usage rather than overproducing for export.
Northern Alabama (TVA Territory) Works Differently
If you live in Huntsville, Decatur, Florence, or many smaller northern Alabama communities, your power comes from a local distributor buying wholesale from the Tennessee Valley Authority. The rules there are set by each distributor, and some are better than Alabama Power’s.
Huntsville Utilities runs a Solar Connect program that credits exported electricity at the TVA wholesale rate, approximately 6.4 cents per kilowatt-hour as of 2026.3Huntsville Utilities. Solar Connect Still below retail, but better than Alabama Power’s buyback. Huntsville Utilities also doesn’t require additional liability insurance for residential systems under 10 kW.4Huntsville Utilities. Solar FAQs If you’re in TVA territory, call your local distributor directly, because terms vary from one to the next.
Sales Tax on Solar Equipment
Alabama does not exempt solar equipment from sales tax. The 4% state sales tax applies to the full cost of panels, inverters, mounting hardware, and installation labor.5Alabama Department of Revenue. Applicability of Alabama Sales and Use Tax on a Solar Renewable Energy Generation Facility County and municipal sales taxes stack on top. In some parts of the state, the combined rate exceeds 10%. On a $25,000 installation, that can mean $2,500 or more in sales tax before you plug anything in. With the federal credit gone, there’s no incentive left to offset it.
Property Tax on the Added Home Value
Solar panels increase your home’s assessed value, which would normally raise your property tax bill. Alabama law allows local governments to grant abatements on property taxes for qualifying renewable energy facilities. When granted, the abatement covers 100% of the noneducational portion of state ad valorem taxes on the added value from the solar installation.6Alabama Legislature. Alabama Code 40-9B-4 – Authorization of Abatement
Two things to know. First, this is a local option. Your county or municipal governing body has to grant it; it is not an automatic statewide exemption, and not every local government in Alabama actively grants these abatements for residential solar. Check with your local property assessor before counting on one. Second, the abatement covers only the noneducational portion of the tax. The share that funds schools is not abated.7Alabama Legislature. Alabama Code 40-9B-5 – Granting of Abatement
Federal Solar Credit in 2026
The biggest change for Alabama solar in 2026 is that the federal Residential Clean Energy Credit is gone. Section 25D of the tax code gave you a 30% credit on the total cost of a residential solar system, including equipment and labor. It expired on December 31, 2025, with no phase-out and no extension.8Internal Revenue Service. Residential Clean Energy Credit A system placed in service after that date cannot claim the 30% credit, no matter when you signed your contract or made a deposit. Alabama has no state credit to fill the gap.
Carryforward From 2025 or Earlier
If you installed solar in 2025 or before and couldn’t use the full credit because your tax liability was too low, the unused portion carries forward to your 2026 return. The credit was always nonrefundable, so it could only reduce what you owed. IRS Form 5695 remains the form for claiming any carryforward.9Internal Revenue Service. Instructions for Form 5695 (2025) This only applies to credit earned on systems placed in service before the deadline.
The 48E Credit Isn’t for Homeowners
A replacement credit, the Clean Electricity Investment Credit under Section 48E, exists in the tax code but is a business credit tied to depreciable property.10Office of the Law Revision Counsel. 26 USC 48E – Clean Electricity Investment Credit A solar system on your personal residence is not depreciable, so you can’t claim 48E for one you own yourself. The remaining federal pathway is third-party ownership: if you lease panels or sign a power purchase agreement, the company that owns the equipment may qualify for 48E and may pass some of that savings through in lower lease payments.11Internal Revenue Service. Clean Electricity Investment Credit Whether that works out depends on the lease terms.
Solar Loan Interest Is Not Deductible
If you finance with a solar-specific loan, the interest is not deductible and cannot be rolled into any credit calculation. The IRS explicitly excludes interest and loan origination fees from the cost basis used to compute clean energy credits.8Internal Revenue Service. Residential Clean Energy Credit A home equity loan or line of credit used to pay for the system may generate deductible mortgage interest under the general home equity debt rules, but that deduction is separate from any solar incentive and depends on how the proceeds are used.