New clean energy incentives are an opportunity South Dakotans can’t afford to miss

South Dakota households could save thousands of dollars on energy costs and tax payments, thanks to new programs from last year’s federal climate law. The first of those incentives — tax credits on residential clean energy, energy efficiency upgrades and electric vehicles — launched last month.

With programs from the climate law that passed last August, the average household could qualify for over $10,000 in rebates and tax credits and save $1,800 per year on energy bills. With many families in our state still struggling with high housing and fuel costs and electricity rate hikes, these new programs present an opportunity South Dakotans simply can’t afford to miss.

Weatherization improvements

Three major consumer tax credits became available on Jan. 1. The Energy Efficient Home Improvement Credit (25C) will pay consumers back 30%, or up to $1,200 per year, on the cost of home weatherization improvements like insulation, air sealing or efficient windows and doors. It also covers up to $2,000 per year for electric heat pumps and water heaters. Heat pumps — which are really combined air conditioning and heating systems — are one of the most effective technologies for cutting energy costs, saving homeowners anywhere from $100 to $1,200 per year on utility bills.

All residents (both homeowners and renters) living in noncommercial housing qualify for the 25C tax credit for projects completed after January 1st. These tax credits can be applied year after year, so a household can install projects multiple years in a row and receive the full tax credit each time.

Renewable energy projects

The Residential Clean Energy Credit (25D) covers 30% of the cost of home renewable energy projects. This includes rooftop solar panels, geothermal heat pumps, solar water heaters, fuel cells, small wind turbines and home battery systems that store energy from the sun to power electric appliances at night. At-home renewable energy like solar panels paired with batteries can save tens of thousands of dollars in utility bills, and can help families keep the power on after disasters like winter storms or last summer’s derecho.

The 30% credit applies to the full cost of the project, including labor, equipment, permitting and inspection fees, and necessary upgrades to roofs, wiring or electrical panels. It’s also retroactive to Jan. 1, 2022, so any project completed in the last year can qualify, and the credit carries over for one year if the amount exceeds your tax liability.

Electric vehicles

Finally, there’s the Clean Vehicle Credit (30D) of up to $7,500 for new electric vehicles (EVs) and $4,000 for used electric vehicles. This credit comes with some income limits and caps on the total cost of the car. New made-in-America rules for EV batteries will activate in March of this year, which may limit the types of new vehicles eligible for the credit, so consumers looking for a more flexible range of car makes and models may want to act sooner rather than later. However, in 2024, a new mechanism will essentially turn the tax break into a point-of-sale discount, so families that can’t afford to wait for tax season can experience those savings up front. Families should review the rules to decide when may be the right time for them to purchase an EV.

Help for low- and middle-income families

Some South Dakota families may not have enough tax liability to take advantage of these three incentives, or may not be able to afford the up-front cost of projects. The new law allocates over $68.5 million to South Dakota for home energy efficiency and electrification rebates aimed specifically at low- and middle-income families. These rebates will bring down the up-front cost of whole-house renovations and efficient appliances ranging from stoves to clothes dryers, helping bring these cost-saving technologies to the families that need them most.

These rebates will be administered by state agencies and likely won’t roll out until late this year. It’s therefore imperative that the South Dakota Energy Management Office begins preparing now to ensure South Dakota families can start experiencing energy savings as soon as possible.

With new programs rolling out over the course of 2023, South Dakotans should start planning soon to take full advantage of available funds. They can start by scheduling a home energy audit to identify their home’s biggest energy efficiency needs — and can even offset $150 off the audit cost through the 25C tax credit. Households can also use tools like this to determine their eligibility and identify which programs may be best for them to maximize their energy savings.