Arizona's solar case in 2026 is strong — 6.5 peak sun hours per day puts the state among the sunniest in the nation, install costs at ~$2.60/watt are below the national median, and a 25% state income tax credit (capped at $1,000) still applies. The catch: APS moved away from full retail net metering in 2017, paying only ~$0.08/kWh for exported power versus the $0.134/kWh retail rate. That changes how you should size your system.
Disclaimer: All cost and savings estimates use Lawrence Berkeley National Laboratory Tracking the Sun 2024 cost data and EIA Electric Power Monthly 2025 rate data. Section 25D residential solar credits expired December 31, 2025. Get at least three installer quotes before deciding.
Key Takeaways
- A typical 9 kW Arizona system costs ~$23,400 at $2.60/watt (LBNL 2024) — no federal 25D credit in 2026
- Arizona's 25% state tax credit (max $1,000) and sales tax exemption reduce net cost by ~$2,900 on a typical system
- APS pays only ~$0.08/kWh for solar exports — size your system to 80–90% of annual consumption, not more
- Estimated payback: 7–9 years for most APS customers — among the fastest in the U.S. for a state without a large credit
Arizona Solar Costs in 2026
At $2.60/watt, Arizona is one of the more affordable states for solar installation. A 9 kW system — appropriate for a typical Phoenix-area home with central AC — costs approximately $23,400 before incentives. With 6.5 peak sun hours per day, that system produces roughly 21,400 kWh annually — exceptional output by national standards.
After applying Arizona's 25% state income tax credit ($1,000 cap) and the sales tax exemption (saving approximately $1,959 on equipment at the 8.37% combined rate), net cost drops to approximately $20,441.
| System Size | Cost at $2.60/W | Annual Production (6.5 hrs) | Annual Savings at $0.134/kWh (self-consumed) |
|---|---|---|---|
| 7 kW | $18,200 | ~16,600 kWh | ~$1,776 |
| 9 kW | $23,400 | ~21,400 kWh | ~$2,288 |
| 11 kW | $28,600 | ~26,100 kWh | ~$2,791 |
APS Net Metering: The Key Constraint
Arizona Public Service (APS) serves most of the Phoenix metro and much of the state. In 2017, APS shifted from full retail net metering to an avoided-cost export rate — currently approximately $0.07–$0.09/kWh for solar exported to the grid, compared to the retail rate of $0.134/kWh.
This gap has a significant practical implication: every kWh you export earns $0.08 instead of saving $0.134. That's a $0.054 difference per kWh — meaning an oversized system that exports 4,000 kWh/year generates $216/year less than if you consumed that power directly.
The right strategy for APS customers: size your system to roughly 80–90% of your annual consumption. Don't oversize chasing production numbers. Right-sized systems in Phoenix at 75–80% self-consumption typically see 7–9 year payback after the state credit and sales tax exemption.
SRP Customers: Watch the Demand Charge
Salt River Project (SRP) serves parts of the Phoenix East Valley and some other areas. SRP's situation is materially different from APS — and in some ways more complex.
When you install solar, SRP requires you to switch to their E-27 solar rate, which includes a demand charge based on your highest 30-minute electricity draw during on-peak hours each month (3–8 PM weekdays). Even if you're producing significant solar power, a few high-demand moments — running the AC, oven, dryer, and EV charger simultaneously — can add $20–$60/month in demand charges.
SRP customers should seriously consider battery storage as part of their solar installation. A battery that shifts peak demand out of the 3–8 PM window can substantially reduce or eliminate demand charges, often making the battery financially worthwhile within the SRP rate structure.
Arizona State Incentives
| Incentive | Type | Value (9 kW system) |
|---|---|---|
| AZ state income tax credit (25%, max $1,000) | Tax credit (file AZ Form 310) | $1,000 |
| Sales tax exemption | Equipment cost reduction | ~$1,959 |
| Property tax exemption (100%) | Annual tax savings (ongoing) | ~$200–$280/year |
Arizona's 25% state income tax credit applies against your Arizona income tax bill — not as a deduction, but as a dollar-for-dollar reduction. It's capped at $1,000 per residence. If your tax liability is less than $1,000 in the year you install, the unused amount carries forward to future tax years.
According to Lawrence Berkeley National Laboratory's Tracking the Sun 2024 report, Arizona's below-median install costs combined with exceptional solar resource make it one of the fastest-payback states in the country for a system right-sized to consumption.
What to Do Next
Confirm whether you’re in APS or SRP territory.
Your utility determines your export rate and solar rate structure. APS and SRP have different rules — SRP’s demand charge changes the economics of oversizing versus right-sizing significantly. Check your bill for your utility name.
Size your system to 80–90% of annual consumption.
With APS’s $0.08/kWh export rate, oversizing your system is financially counterproductive. Use your last 12 months of electricity bills to calculate your actual annual kWh, then target a system that covers 80–90% of that — not more.
Run your personalized ROI estimate.
The 7–9 year payback range is based on typical scenarios, but your actual rate tier, usage, roof orientation, and shading affect the number. A calculator using your specific inputs gives you a defensible baseline before talking to installers.
Get at least three competing quotes.
Arizona has a large and competitive solar installer market. Multi-quote buyers typically save 15–20% on system cost. Use EnergySage or SolarReviews to get quotes without repeated cold calls.
See your Arizona payback in one minute
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SRP customer considering a battery? Our Battery Storage Calculator models how a Powerwall reduces demand charges on SRP’s E-27 solar rate.
Bottom Line
Arizona solar in 2026 offers some of the fastest payback periods in the country — 7–9 years for most APS customers — driven by exceptional sun, below-average install costs, and the state tax credit plus sales tax exemption. The key discipline is right-sizing your system to consumption rather than oversizing for exports at the poor avoided-cost rate.
SRP customers need to understand the demand charge structure before installing. Battery storage changes the math meaningfully in SRP territory.
Related Guides
- Solar Panel Cost by State in 2026 — See how Arizona compares nationally for costs and incentives.
- Is Solar Worth It in 2026? — National payback analysis to put Arizona’s numbers in context.
- Net Metering Guide 2026 — How Arizona’s export rate compares to other states.
- Home Solar Panels: The Complete 2026 Guide — Everything you need to know before getting your first solar quote.
