2026-2027 U.S. Solar & HVAC Incentives State-by-State Analysis in a Post-Federal Credit Era

Hey, Mike Haines here. We wrote this report because 2026 is not going to be business as usual for solar or for high efficiency HVAC. The federal credits that carried the residential market for a decade are being cut off at the end of 2025, and the new rules born out of OBBBA in mid 2025 do not treat homeowners and commercial players the same. 

That creates a split market, faster than most contractors, distributors, or even utilities are ready for. What follows is a state by state look at where the real money will be in 2026 and 2027, which programs actually have funding, which ones are timing out, and where you will have to move customers to leases, PPAs, and utility rebates to keep projects closing. Read it with a calendar next to you and sell into the deadlines, not the memories of the 30 percent credit.

Here’s the Information

The landscape for solar and HVAC incentives in the United States is poised for a fundamental transition beginning in 2026. This report provides an exhaustive analysis of the financial incentives available on a state-by-state basis for the 2026-2027 period, a timeframe defined by a pivotal federal policy shift. 

The passage of the "One Big Beautiful Bill" (OBBBA) in mid-2025 has created a bifurcated market by accelerating the termination of key residential tax credits while simultaneously extending, under new and stricter rules, the credits available to commercial entities and third-party owners of residential systems.

Effective January 1, 2026, the primary federal tax credits that have driven the residential solar and high-efficiency HVAC markets—the Residential Clean Energy Credit (Section 25D) and the Energy Efficient Home Improvement Credit (Section 25C)—will expire completely. This abrupt termination removes a significant financial incentive for homeowners seeking to purchase and own these systems, fundamentally altering project economics and payback calculations.

The commercial Investment Tax Credit (ITC, Section 48E) has been extended, providing a continued lifeline for businesses, non-profits, and the residential solar lease and Power Purchase Agreement (PPA) market. However, access to this credit is now governed by stringent new deadlines, including a critical "begin construction" safe harbor date of July 4, 2026, and new compliance burdens related to domestic content and sourcing from Foreign Entities of Concern (FEOC).

This federal reset escalates the importance of state-level and utility-driven initiatives. States with robust, long-term, and well-funded programs—such as New York's NY-Sun and Clean Heat programs, California's TECH Clean and Self-Generation Incentive Programs, and Massachusetts' Mass Save and SMART programs—are positioned to maintain market momentum. For other states, the landscape in 2026-2027 will be a more complex patchwork of local utility rebates, enduring tax exemptions, and the forthcoming rollout of the federally funded, state-administered Home Energy Rebate Programs (HOMES and HEAR). This report details this new reality, providing the critical intelligence necessary for homeowners, businesses, and industry professionals to navigate the opportunities and challenges of the evolving clean energy incentive environment.

The Federal Incentive Reset of 2026: A Bifurcated Market Emerges

The federal policy framework that has underwritten the growth of the U.S. residential clean energy market for over a decade will undergo a seismic shift at the close of 2025. The OBBBA legislation effectively creates two parallel tracks for incentives in 2026 and 2027: one for residential owner-occupied projects, which is largely terminated, and another for commercial and third-party-owned projects, which continues under a new set of complex rules. Understanding this divergence is foundational to any strategic planning for solar or HVAC investments in the target period.

The Residential "Fiscal Cliff": Termination of Sections 25D and 25C

The most significant change for the residential sector is the accelerated and complete termination of two cornerstone tax credits. This policy decision creates a "fiscal cliff" for homeowners, as incentives that were previously legislated to phase down gradually through the early 2030s will now vanish abruptly.1

The legislation's language is unambiguous: the credits under Sections 25D and 25C "shall not apply to property placed in service after December 31, 2025".4 Critically, eligibility is determined by the date the system is fully installed and operational, not the date of purchase or contract signing.5 This creates a hard deadline that will render these credits unavailable throughout 2026 and 2027.

Section 25D: Residential Clean Energy Credit

The 30% tax credit available under Section 25D has been the single most powerful driver of the residential solar market. Its expiration will have profound financial implications for homeowners. The credit applied to the total cost of solar photovoltaic (PV) systems, solar water heaters, geothermal heat pumps, and, crucially, homeowner-owned battery storage systems.8 With average savings estimated between $8,000 and $9,000 per installation, its removal will significantly increase the upfront cost of going solar, lengthen payback periods, and reduce the overall financial accessibility of these technologies for middle-income households.3 The termination of this credit for homeowner-owned batteries is particularly notable, as it removes a key incentive for building home energy resilience just as battery adoption has been accelerating.5

Section 25C: Energy Efficient Home Improvement Credit

Similarly, the Section 25C credit, which supported energy efficiency upgrades, will also expire on December 31, 2025.8 This credit provided a 30% incentive, capped at $2,000 annually for the installation of high-efficiency heat pumps and heat pump water heaters, and up to $1,200 annually for other measures like insulation, high-efficiency windows, and electrical panel upgrades.8 The loss of this credit directly increases the cost for homeowners looking to electrify their heating and cooling systems or improve their home's thermal envelope in 2026 and 2027.

The concurrent elimination of both 25D and 25C incentives creates a significant policy vacuum for the residential direct-ownership model. This forces a strategic re-evaluation for homeowners and installers, pushing the market toward alternative financing structures. The differential treatment between the expiring residential ownership credits and the continuing commercial credits will drive a fundamental split in the residential solar market. The direct ownership model, long the industry standard, will become less financially compelling relative to third-party ownership models like leases and PPAs, where the system owner (a commercial entity) can still leverage federal incentives. This shift will likely favor larger, well-capitalized solar companies capable of managing complex tax equity financing, potentially leading to market consolidation.1

The Commercial & Third-Party Lifeline: Navigating the Section 48E ITC

While the residential ownership market faces a cliff, the OBBBA extends the 30% Clean Electricity Investment Tax Credit (ITC) under Section 48E. This credit is the primary incentive for commercial, industrial, and utility-scale solar projects. Importantly, it also applies to third-party-owned residential systems, including solar leases and PPAs, making it a critical lifeline for the residential market in 2026 and 2027.9 However, this extension comes with a new, complex set of deadlines that demand immediate strategic planning.

There are two distinct pathways for a project to qualify for the 30% credit:

1. The "Safe Harbor" Pathway: A project can secure its eligibility for the 30% ITC if it begins construction by July 4, 2026. Once this "safe harbor" is achieved, the project has a four-calendar-year window to be completed and placed in service (e.g., a project beginning construction in June 2026 must be operational by the end of 2030).5 The IRS defines "begin construction" through two tests: the Physical Work Test, which requires "physical work of a significant nature," or the 5% Safe Harbor Test, which requires incurring at least 5% of the total project costs.1 For larger projects (1.5 MW and above), only the more stringent Physical Work Test is applicable.13
   
   

2. The "Placed-in-Service" Pathway: If a project fails to meet the July 4, 2026, "begin construction" deadline, it can still qualify for the 30% ITC, but only if it is fully installed and placed in service by December 31, 2027.13 This creates a much more compressed and aggressive timeline, leaving little room for permitting, supply chain, or construction delays.

The existence of the valuable but firm "safe harbor" deadline will inevitably create a market-wide rush in late 2025 and the first half of 2026. All rational commercial developers and PPA providers will aim to meet this deadline to secure the ITC and the flexible four-year completion window. This synchronized effort is projected to overwhelm the finite resources of the solar development ecosystem. 

The consequences will be significant bottlenecks in local permitting offices, longer queues for utility interconnection studies, and strained supply chains for key components like modules, inverters, and batteries.17 This surge in demand will likely lead to project delays and cost inflation, creating a challenging environment for developers. Therefore, any entity planning a commercial or PPA project for this period must begin the planning, engineering, and procurement process in 2025 to have a realistic chance of meeting the 2026 safe harbor deadline.

New Compliance Burdens: FEOC and Domestic Content Requirements

A further layer of complexity for projects claiming the Section 48E ITC in 2026 and beyond is the introduction of new sourcing restrictions related to Foreign Entities of Concern (FEOC).4 These rules are designed to bolster domestic supply chains and reduce reliance on components from specific countries, including China and Russia.9

Starting in 2026, to be eligible for the ITC, projects must demonstrate that a minimum percentage of their system components, measured by cost, are not sourced from FEOC-affiliated companies. This threshold is set to begin at 40% for solar projects in 2026 and will increase by 5% each year thereafter, reaching 60% by 2030.5 For energy storage projects, the initial threshold is 55% in 2026, rising to 75% by 2030.5 Unlike some provisions that apply only to "bonus" credit adders, these FEOC restrictions apply to the eligibility for the base 30% credit itself, making compliance non-negotiable.5

These new rules introduce a significant new dimension of project risk and potential cost. Developers will be required to conduct rigorous due diligence on their entire supply chain to ensure compliance, a process that can be complex and time-consuming. This may force a shift away from the lowest-cost available components toward more expensive but verifiably non-FEOC alternatives, which could partially erode the financial benefit of the tax credit. 

Furthermore, it creates a new risk category: a supplier could be designated as FEOC-linked after contracts are signed, potentially jeopardizing a project's tax credit eligibility late in the development cycle. This environment will favor developers with sophisticated supply chain management capabilities and could lead to project delays as the industry adapts.13

HVAC Federal Landscape: CEE Tiers and 2026 Rule Changes

For the HVAC sector, while the primary Section 25C tax credit for homeowners is expiring, the technical standards established at the federal level will continue to influence state and utility programs in 2026 and 2027. To qualify for federal incentives through 2025, equipment such as heat pumps, heat pump water heaters, and central air conditioners must meet or exceed the highest efficiency tier (not including any advanced tier) established by the Consortium for Energy Efficiency (CEE) that is in effect at the beginning of the installation year.18

This CEE standard is likely to remain the benchmark for what constitutes "high efficiency" in state and utility rebate programs in the coming years. It provides a consistent, technically vetted standard for program administrators to adopt.

One specific regulatory change will take effect for oil-fired equipment after December 31, 2026. To qualify for certain programs, oil furnaces or hot water boilers placed in service in 2027 must achieve a higher annual fuel utilization efficiency (AFUE) of at least 90 and be rated by the manufacturer for use with fuel blends containing at least 50% eligible biofuels. This is an increase from the 20% biofuel blend requirement for equipment installed before 2027.18 This signals a broader policy direction toward higher efficiency and lower-carbon fuels, even for combustion appliances.

Comprehensive State-by-State Incentive Analysis

With the federal landscape fundamentally altered, the availability and generosity of state and utility-level incentives become the primary determinants of project viability in 2026 and 2027. The following analysis provides a detailed breakdown of the programs expected to be active during this period, focusing on states with the most significant policy frameworks and available data.

California: Navigating a Mature but Evolving Market

California's incentive landscape in 2026-2027 will be characterized by the transition of its flagship programs and a continued focus on grid resilience and equity.

Statewide Tax Policy & Long-Term Incentives

California has long offered a property tax exclusion for the value added by a solar energy system. However, this exclusion is currently scheduled to expire after 2026. This means that unless the legislature extends the policy, projects installed in 2027 could face increased property tax assessments, a critical long-term cost consideration for homeowners.19

Flagship HVAC Program: TECH Clean California

TECH Clean California is a cornerstone of the state's building decarbonization strategy, with a stated goal of facilitating the installation of 6 million heat pumps by 2030.20 The program provides incentives to contractors for the installation of heat pump HVAC systems and heat pump water heaters, which are then passed on to customers.21

For 2026 and 2027, this program is expected to be a primary source of HVAC incentives. While specific funding blocks for 2025 have seen high demand and are in some cases fully reserved, the program's long-term mandate and multiple funding sources suggest its continuation.20 More concretely, the related California Energy Smart Homes program provides a clear schedule of incentives for "Whole Building Electrification Alterations" that extends through 2027. For single-family homes, this includes a base incentive of $4,250, with additional bonuses available for installing advanced technologies like low-GWP refrigerants or integrated space and water heating systems.23 This signals a strategic shift away from simple equipment rebates toward rewarding more comprehensive, whole-home electrification projects.

Flagship Solar/Storage Program: Self-Generation Incentive Program (SGIP)

The SGIP has been California's primary incentive for behind-the-meter energy storage, offering substantial upfront rebates that can significantly reduce the cost of battery installations.24 The program provides higher incentive levels for customers who are low-income, rely on medical equipment, or live in designated high fire-threat districts.26

The program is currently in a state of transition. The original ratepayer-funded portion of SGIP is legislated to close to new applications on December 30, 2025, with unallocated funds being returned to ratepayers thereafter.27 However, the program is being extended and reshaped by new funding streams. Legislation (AB 209) has injected new capital from the state's Greenhouse Gas Reduction Fund (GGRF), with these funds specifically earmarked for residential solar-plus-storage equity projects and available for liquidation through June 30, 2028.27 The program's own handbook acknowledges that its sunset date could be extended beyond January 1, 2026, pending further legislative action.29 Therefore, in 2026 and 2027, SGIP is expected to persist, but likely in a more targeted form, with general market rebates potentially phased out while the high-value equity and resiliency rebates continue to be funded.

IRA Home Energy Rebate Programs (HEEHRA)

California is actively implementing the federally funded Home Electrification and Appliance Rebate (HEAR) program, which it has branded as HEEHRA. These funds are being administered through the existing TECH Clean California infrastructure, creating a streamlined application process for contractors and consumers.22 The program offers rebates of up to $8,000 for a heat pump HVAC unit for low-income households (below 80% of Area Median Income) and up to $4,000 for moderate-income households (80-150% of AMI).31 While the initial rollout has deadlines tied to the end of 2025 to align with the expiring federal tax credits, the administrative framework established will serve as the primary vehicle for distributing these federal rebate funds throughout 2026 and 2027.30

Key Utility-Level Incentive Programs

California's major investor-owned utilities—Pacific Gas & Electric (PG&E), Southern California Edison (SCE), and San Diego Gas & Electric (SDG&E)—serve primarily as the program administrators for statewide initiatives like SGIP and TECH Clean California.24 While they offer a multitude of smaller, localized energy efficiency rebate programs, their central role in the 2026-2027 incentive landscape will be to implement these larger, state-mandated programs within their service territories.33

New York: A Model of Long-Term State-Led Investment

New York stands out for its comprehensive, long-term, and well-funded state-level programs that are explicitly designed to operate through the end of the decade, providing a stable and predictable incentive environment for 2026 and 2027.

Statewide Tax Policy & Long-Term Incentives

New York offers a significant state-level personal tax credit for solar energy systems. Homeowners can claim a credit equal to 25% of their total system costs, with the total credit capped at $5,000.34 In a post-federal tax credit world, this state-level incentive will become a crucial financial component for residential solar projects in 2026 and 2027, directly offsetting a portion of the upfront cost.

Flagship Solar Program: NY-Sun Program

The NY-Sun Program is the state's signature initiative to drive solar deployment. It operates on a "MW Block" incentive structure, where a set capacity (a "block") is allocated to each region of the state (Con Edison, Upstate, Long Island) at a specific incentive rate, paid in dollars per watt ($/W). As each block is filled, a new block opens at a slightly lower incentive rate, allowing the program to adapt to falling costs over time.36

The program's outlook for 2026-2027 is exceptionally strong. The NY-Sun initiative is supported by a budget of over $3.2 billion and is legislatively authorized to run through 2030.37 This long-term funding provides a high degree of certainty for the market. While some residential blocks in high-demand areas like Con Edison and Long Island have become fully subscribed, incentives for non-residential projects and a wide array of "adders" for features like low-income community solar remain available.37 The state has already surpassed its 2025 goal of 6 GW of distributed solar and is now targeting 10 GW by 2030, with surplus funds being reinvested into the program to ensure its continued success.38 Program documents confirm its operation in the target years, with specific incentive changes noted for applications submitted after March 31, 2026, for certain affordable housing projects.41

Flagship HVAC Program: NYS Clean Heat Program

The NYS Clean Heat Program is a statewide, utility-administered initiative providing substantial rebates for the installation of high-efficiency heat pumps, including air-source, ground-source (geothermal), and heat pump water heaters.42

The program's continuity through 2026 and 2027 is assured, as it has been reauthorized and funded with a budget of $5.36 billion for the 2026-2030 program period.45 However, the program will undergo a significant structural change starting January 1, 2026. It will narrow its focus to exclusively serve 1-4 family residential buildings, and the utilities in the Upstate region will transition to a flat-rate incentive structure, similar to the model already used by Con Edison.45

Most importantly, beginning March 1, 2026, the program will implement a new tiered incentive structure. This new design will offer "significantly higher incentives" to homeowners whose properties meet a minimum level of weatherization (e.g., insulation and air sealing).46 This policy represents a pioneering effort to link HVAC incentives directly to whole-home energy efficiency, ensuring that high-performance heat pumps are installed in envelopes where they can operate most effectively. This weatherization requirement will become a mandatory prerequisite for receiving any heat pump incentive starting in 2028.46

Other Policy Drivers

The state's incentive programs are further reinforced by the All-Electric Buildings Act. This law will prohibit the use of fossil fuels for heating and appliances in most new construction projects of seven stories or less starting in 2026.48 This creates a guaranteed market for heat pumps and other electric technologies, directly supporting the goals of the NYS Clean Heat program and accelerating the state's transition away from natural gas.

Massachusetts: A Multi-Year Plan for Deep Decarbonization

Massachusetts employs a structured, multi-year planning process for its energy programs, providing clear visibility into the incentive landscape for 2026 and 2027.

Statewide Tax Policy & Long-Term Incentives

The state offers a personal income tax credit for renewable energy systems, which is equal to 15% of the net expenditure for the system, with a maximum credit of $1,000.49 This state-level credit will continue to be available to homeowners in 2026 and 2027.

Flagship Solar Program: Solar Massachusetts Renewable Target (SMART)

The SMART program is a performance-based incentive that functions as a long-term tariff for solar owners. Instead of a one-time rebate, it pays system owners a fixed rate for every kilowatt-hour (kWh) of electricity their system produces for a period of 10 or 20 years, depending on system size.50 The total compensation rate is composed of a base rate, which declines in steps as solar capacity is added to the grid, plus various "adders" that increase the payment for desirable project characteristics, such as being paired with battery storage, sited on a canopy or brownfield, or serving low-income communities.51

The program's operation in 2026 and 2027 is well-established. Program regulations for SMART 2.0 explicitly state that these incentives are available through December 31, 2026, serving as a bridge to the program's next iteration, SMART 3.0.53 The base compensation rates and adder values for the 2025 program year under SMART 3.0 have already been determined, and the program's design includes annual reviews and adjustments, confirming its role as the primary solar incentive mechanism for the state in the target years.54

Flagship HVAC Program: Mass Save

Mass Save is a comprehensive, ratepayer-funded energy efficiency initiative administered collaboratively by the state's major utilities. It is one of the most robust and well-funded programs of its kind in the nation, offering substantial rebates for weatherization, high-efficiency appliances, and particularly for the adoption of heat pumps.57

The program's funding and offerings for 2026 and 2027 are guaranteed by the approval of the 2025–2027 Energy Efficiency and Decarbonization Plan. This three-year plan allocates over $3.4 billion for direct customer incentives, with a specific goal of supporting heat pump installations in an additional 119,000 households.58 The program's operational continuity is further confirmed by administrative deadlines; for example, rebate applications for equipment installed in 2025 must be submitted by February 28, 2026, and new incentive amounts for commercial heat pumps are scheduled to take effect on January 1, 2026.59 The rebates offered are among the most generous in the country, with incentives for a whole-home ground-source heat pump reaching $15,000 (or up to $25,000 for income-qualified households) and up to $16,000 for certain air-to-water heat pump systems.59

Key Utility-Level Incentive Programs

In addition to administering Mass Save, Massachusetts utilities offer the ConnectedSolutions program. This is a demand response program that provides annual payments to customers who install battery storage and allow the utility to draw power from the battery during a limited number of peak demand events, typically on hot summer afternoons.49 The payments are significant, with rates around $233-$275 per kilowatt of performance per year.63 This program makes the economics of battery storage highly attractive and is expected to continue through 2026 and 2027, working in concert with the SMART program's energy storage adder.

Texas: A Market Dominated by Tax Policy and Local Utilities

Unlike states with centralized, state-administered incentive programs, the Texas market in 2026-2027 will be defined by a combination of a powerful statewide property tax exemption and a diverse array of programs offered by individual municipal utilities and electric cooperatives.

Statewide Tax Policy: Renewable Energy Systems Property Tax Exemption

The most significant and broadly available solar incentive in Texas is the state's property tax exemption for renewable energy systems. Under Section 11.27 of the Texas Tax Code, 100% of the appraised value that a solar or wind energy device adds to a property is exempt from property taxation.64 This prevents a homeowner's property tax bill from increasing as a result of installing a solar PV system. This policy has been in place for many years and has no specified expiration date in the relevant statutes, making it a highly reliable incentive for the 2026-2027 period.64

Statewide HVAC Incentives

Texas offers very limited statewide incentives for HVAC. The primary mechanism is the annual ENERGY STAR Sales Tax Holiday, which takes place over Memorial Day weekend.69 During this three-day period, sales tax is waived on certain ENERGY STAR-labeled products. However, the list of qualifying products explicitly excludes heat pumps, severely limiting the holiday's impact on incentivizing high-efficiency heating and cooling systems.69

IRA Home Energy Rebate Programs (HOMES & HEAR)

The Texas State Energy Conservation Office (SECO) has been allocated $690 million in federal funding to implement the HOMES and HEAR rebate programs.70 As of mid-2025, SECO is in the procurement process to select a third-party administrator to design and run the programs. A formal launch date and specific program details have not yet been announced. Once operational, these programs are expected to be a major source of funding for energy efficiency and electrification upgrades, particularly for low- and moderate-income households, throughout 2026 and 2027.70

Key Utility-Level Incentive Programs

Given the lack of a statewide rebate program, incentives in Texas are highly dependent on the customer's local utility provider.

• Austin Energy: The municipal utility for the city of Austin offers a comprehensive suite of incentives.
  
  

• Solar: Austin Energy provides a $2,500 upfront rebate for qualifying residential solar installations.71 In addition, it utilizes a Value of Solar (VoS) tariff, which is distinct from net metering. Under the VoS tariff, the customer is credited for 100% of the energy their solar system produces at a predetermined rate (currently 9.91 cents per kWh), regardless of whether the energy is used on-site or exported to the grid.71 The utility has received budget authorization for its solar programs for the 2025-2026 fiscal year and is developing a new residential "standard offer" program for 2026, indicating strong program continuity.73
  
  

• HVAC: The utility's ongoing Home Energy Savings program offers rebates for high-efficiency central air conditioners and heat pumps, with amounts ranging from $400 to $750 depending on the system's efficiency.75
  
  

• Other Utilities: Other electric utilities across the state, such as CPS Energy (San Antonio), Oncor (Dallas-Fort Worth), and Garland Power & Light (GP&L), offer their own rebate programs.76 These programs are subject to annual budget approvals and can change from year to year. For example, GP&L's current solar rebate program is scheduled to end on September 30, 2026, or when funds are depleted.77 Customers in 2026 and 2027 will need to check directly with their local provider for available offers.

Florida: A Patchwork of Utility Offerings and Tax Exemptions

Florida's incentive landscape for 2026-2027 will be anchored by strong statewide tax exemptions, complemented by a variety of programs offered by its large investor-owned and municipal utilities.

Statewide Tax Policy & Long-Term Incentives

Florida provides two powerful, long-term tax incentives for solar energy. First, there is a 100% sales and use tax exemption on the purchase of solar energy systems and their components.14 The legislative repeal date for this exemption was removed in 2005, making it effectively permanent and a reliable benefit for 2026-2027.79 Second, the state offers a property tax exemption for the assessed value of renewable energy source devices. This exemption prevents property taxes from increasing due to the installation of a solar system. The current exemption for certain devices is legislated to expire on December 31, 2037, ensuring its availability throughout the target period.81

Key Utility-Level Incentive Programs

• Duke Energy Florida:

• Clean Energy Connection: This is a community solar program that allows residential and business customers to subscribe to a portion of the output from large-scale solar farms. In return for a fixed monthly subscription fee (e.g., ~$8.35 per kW), customers receive a per-kWh bill credit for the energy their share produces.82 The credit rate is designed to increase by 1.5% annually after the first 36 months, providing a long-term hedge against rising electricity prices and indicating the program's intended longevity well into 2026 and 2027.82

• PowerPair: Duke Energy also offers the PowerPair program, which provides an upfront incentive for customers who install a paired rooftop solar and battery storage system.84 Enrollment is on a first-come, first-served basis, and its funding status for 2026-2027 is subject to program capacity and renewal.
  
  

• JEA (Jacksonville Electric Authority): JEA offers rebates for high-efficiency HVAC systems. This includes a $200 rebate for qualifying ENERGY STAR certified central air conditioners or heat pumps.85 The current program cycle accepts applications for installations through late 2026, suggesting its likely availability for at least part of the target period.
  
  

• Other Utilities: A number of other municipal utilities and cooperatives, such as the City of Tallahassee Utilities and Florida Public Utilities (FPUC), offer smaller rebate programs for measures like solar water heating and high-efficiency HVAC systems.86 The DSIRE database indicates that many of these programs are reviewed annually, so their availability in 2026 and 2027 will depend on individual utility budget cycles and priorities.51

Illinois: State-Managed Programs Driving the Market

Illinois has a robust, state-managed incentive structure for solar energy that provides clear guidance and funding commitments for the 2026-2027 period.

Flagship Solar Programs: Illinois Shines & Illinois Solar for All

The primary driver of the Illinois solar market is the Illinois Shines program, also known as the Adjustable Block Program. It provides upfront payments to solar system owners in exchange for the Renewable Energy Credits (RECs) their systems will generate over 15 years.89 A parallel program, Illinois Solar for All, provides enhanced incentives and no-upfront-cost options for income-eligible households.90

The outlook for these programs in 2026 and 2027 is very clear and positive. The Illinois Power Agency (IPA), which administers the programs, has released its Draft 2026 Long-Term Renewable Resources Procurement Plan. This document explicitly outlines the program's goals, capacity, and proposed REC pricing for the 2026-2027 and 2027-2028 program years.91 The plan calls for procuring 1,200 MW of new capacity in the 2026-27 program year and 1,000 MW in the 2027-28 program year, ensuring a large and well-funded market. Furthermore, the underlying state legislation requires the IPA to continue procuring RECs to meet renewable energy goals through at least 2030, guaranteeing the program's long-term operation.92

IRA Home Energy Rebate Programs (HOMES & HEAR)

The Illinois EPA has been awarded $263 million in federal funds to administer the HOMES and HEAR rebate programs.93 The state plans to launch a pilot program once it receives final approval from the U.S. Department of Energy. A key detail is that Illinois has decided not to offer retroactive rebates; only projects approved after the official program launch will be eligible. The initial focus will be on directing 100% of the funds to low-income households.93 This program will be the main source of HVAC and weatherization rebates in Illinois for 2026-2027, particularly for income-qualified residents.

Key Utility-Level Incentive Programs

Illinois' major utilities, ComEd and Ameren, offer a Smart Inverter Rebate for customers installing new solar and/or energy storage systems.89 However, the eligibility for this rebate for customer-owned residential projects is currently tied to a construction completion deadline of December 31, 2025.89 This makes the availability of the rebate for new residential projects in 2026 and 2027 uncertain, although it may continue for commercial projects.

Arizona: Utility Programs and State Tax Credits

Arizona's incentive structure relies on a combination of state tax credits and a diverse set of programs offered by its major utilities.

Statewide Tax Policy & Long-Term Incentives

Arizona offers several durable state-level tax incentives. This includes a personal income tax credit for installing a solar or wind energy device, which is worth 25% of the cost, up to a maximum of $1,000.94 Additionally, the state provides a full sales tax exemption for the purchase of renewable energy equipment and a property tax exemption on the value added by these systems, both of which reduce the overall cost of ownership.17 These tax policies are expected to remain in place through 2026 and 2027.

IRA Home Energy Rebate Programs (Efficiency Arizona)

The Arizona Governor's Office of Resiliency is launching "Efficiency Arizona" to administer the state's allocation of federal HOMES and HEAR rebate funds.96 The program will offer point-of-sale rebates for qualifying electrification and efficiency upgrades, with defined amounts such as up to $8,000 for a heat pump and $1,750 for a heat pump water heater for eligible low- and moderate-income households. The program's launch is contingent on final federal approval and funding availability but is positioned to be the primary source of HVAC rebates in the state for 2026 and 2027.96

Key Utility-Level Incentive Programs

• Salt River Project (SRP): SRP offers the Cool Cash™ Rebate for customers who install high-efficiency air conditioners, heat pumps, or mini-split systems. Rebates are paid on a per-ton basis and can be up to $225 per ton for the highest efficiency variable-capacity units.97 The current program guidelines require equipment to be installed by April 30, 2026, confirming its operation into that year.
  
  

• Arizona Public Service (APS): The APS Solar Communities program, which provided a fixed monthly bill credit to low- and moderate-income customers who hosted solar panels, is fully subscribed and no longer accepting new applications.98 For new solar customers, the primary financial mechanism is net billing, where excess solar generation is credited at a specific export rate.99
  
  

• Tucson Electric Power (TEP): TEP offers community solar programs, TEP GoSolar Home and GoSolar Shares, which allow customers to benefit from solar without installing panels on their property.100 The GoSolar Home program is currently at capacity, but the GoSolar Shares program remains an option.100 For customers with rooftop solar, TEP compensates for exported energy through its Resource Comparison Proxy (RCP) export rate.100

Colorado: A Mix of State Credits and Utility Rebates

Colorado's incentive framework for 2026-2027 will be a blend of a direct state tax credit for heat pumps, robust utility programs, and various local municipal rebates.

Statewide Tax Policy & Long-Term Incentives

Colorado has a state Heat Pump Tax Credit that functions as an upfront discount for the consumer. The installing contractor claims the tax credit and is required to pass on a portion of its value as a point-of-sale discount on the customer's invoice.103 The program is confirmed to continue in 2026, but the value of the tax credit will decrease. For example, the credit for an air-source heat pump will drop from $1,500 to $1,000 on January 1, 2026, with the minimum required customer discount decreasing proportionally.103 The state also has sales and property tax exemptions for renewable energy equipment.104

Key Utility-Level Incentive Programs

• Xcel Energy: As the state's largest utility, Xcel's programs are central to the incentive landscape.

• Solar*Rewards: This program provides incentives for customers who install on-site solar. It includes performance-based payments for RECs and an upfront rebate of $1 per watt for income-qualified customers or those in disproportionately impacted communities.105 The program is funded on an annual basis. While the 2025 program has a waitlist due to high demand, it is expected to reopen with a new budget in early 2026.106
  
  

• Clean Heat Plan: Xcel Energy is operating under a 2024-2027 Clean Heat Plan, which serves as the framework and funding source for its HVAC and energy efficiency rebates during this period.107
  
  

• Renewable Battery Connect: This program offers an upfront incentive for installing a qualifying battery storage system, valued at $350 per kW (up to $5,000), plus a small annual payment for program participation.104

Local and Regional Rebates

Several municipalities and regional organizations in Colorado offer their own clean energy rebates. For instance, the City of Denver provides rebates for solar, batteries, and heat pumps, including up to $4,000 for a solar installation.108 Fort Collins Utilities and Colorado Springs Utilities also offer per-watt rebates for new solar systems.108 These local programs, while subject to annual budgets, are expected to continue providing an additional layer of incentives.

North Carolina: Emerging IRA Programs and Utility Incentives

North Carolina's incentive landscape in 2026-2027 will be heavily influenced by the rollout of its new statewide rebate program funded by the IRA and key offerings from its largest utility, Duke Energy.

IRA Home Energy Rebate Programs (Energy Saver NC)

The North Carolina Department of Environmental Quality (DEQ) has launched Energy Saver NC, the state's program to administer its $208 million allocation of federal HOMES and HEAR rebate funds.109 The program provides point-of-sale rebates to income-eligible households for a range of energy efficiency and electrification upgrades. Rebate amounts are significant, including up to $8,000 for a heat pump for space heating/cooling and $1,750 for a heat pump water heater.109 The program is designed to run until 2031 or until funds are depleted, ensuring it will be a primary source of HVAC and weatherization incentives throughout 2026 and 2027.109

Key Utility-Level Incentive Programs

• Duke Energy PowerPair: Duke Energy's PowerPair program offers a substantial upfront incentive for residential customers who install a paired rooftop solar and battery storage system. While sources vary, the incentive has been reported to be as high as $9,000.84 The program operates on a first-come, first-served basis, and its capacity has been filling up. Its availability in 2026 and 2027 will depend on whether the program is renewed or expanded once the initial funding tranches are fully subscribed.110
  
  

• Duke Energy Solar Rebate Program: Duke also offers a per-watt rebate for solar-only installations, with a cap of $6,000 for residential systems.111 Like PowerPair, this program is subject to annual funding and capacity limits.

Summary for All Other States

For states not detailed above, the incentive landscape in 2026-2027 will be more varied and often less robust. However, several key trends and resources will be universally relevant.

The DSIRE database remains the most comprehensive public resource for tracking state and local incentives.112 While many programs listed have "Last Updated" dates in 2025, this indicates they are currently active but does not guarantee their renewal for 2026 or 2027, as most are subject to annual legislative or utility budget cycles.51

The most durable incentives, likely to persist in most states, are long-standing tax policies. Many states offer property tax exemptions for the value added by renewable energy systems, and a smaller number offer sales tax exemptions on the purchase of equipment. These policies, once enacted, tend to remain in place for long periods and will form the baseline of incentives in many areas.

The most significant development for all states will be the rollout of their respective Home Energy Rebate Programs funded by the Inflation Reduction Act. Every state has been allocated funds to administer HOMES (for whole-home efficiency) and HEAR (for electrification and appliances) rebates. While the launch timelines and specific program designs will vary, these programs will become the primary source of financial support for high-efficiency HVAC, water heating, and weatherization for low- and moderate-income households nationwide throughout 2026 and 2027.

Strategic Outlook and Recommendations for 2026-2027

The fundamental shift in the federal incentive landscape necessitates a recalibration of strategies for all market participants. The post-2025 environment demands a more nuanced, localized approach to project finance and business development, moving away from a one-size-fits-all reliance on federal tax credits.

Strategic Pathways for Market Participants

For Homeowners

• HVAC Strategy: In 2026 and 2027, the primary financial support for HVAC upgrades will transition from federal tax credits to state-administered IRA rebate programs (HOMES and HEAR) and ongoing utility rebates. Homeowners, particularly those with low-to-moderate incomes, should actively monitor the launch of their state's IRA program, as it will offer the most substantial incentives, potentially covering a large portion of the cost for heat pumps and heat pump water heaters. In states with advanced programs like New York, homeowners should prioritize comprehensive weatherization (insulation and air sealing) to unlock the highest tier of heat pump rebates.
  
  

• Solar Strategy: With the Section 25D tax credit for direct ownership eliminated, homeowners must re-evaluate the economics of solar. The financial viability of purchasing a system will now depend heavily on the availability of state-level tax credits (as in New York and Arizona), upfront utility rebates (like those from Austin Energy), or performance-based incentives (such as Massachusetts' SMART program). In states lacking these robust local incentives, homeowners should strongly consider third-party-owned systems. Solar leases and PPAs will become more competitive, as the third-party provider can still claim the 30% commercial ITC under Section 48E and pass a portion of those savings to the customer in the form of a lower monthly payment.

For Businesses and Commercial Entities

• The July 4, 2026, Imperative: For any business, non-profit, or developer planning a solar project, the single most critical strategic objective is to meet the "begin construction" safe harbor deadline of July 4, 2026. Successfully meeting this deadline secures eligibility for the 30% ITC and provides a flexible four-year window for project completion. This requires proactive planning to begin in 2025, encompassing engineering, procurement of key components, and the initiation of physical on-site work to satisfy the IRS requirements. Waiting until 2026 to start this process risks missing the deadline and being forced into the much more aggressive placed-in-service timeline of December 31, 2027.
  
  

• Supply Chain Diligence and Risk Mitigation: Beginning immediately, all commercial project developers must integrate FEOC compliance into their procurement strategies. This involves thoroughly vetting all potential equipment suppliers to ensure their products will not jeopardize the project's tax credit eligibility in 2026 and beyond. Building relationships with suppliers who can provide clear documentation of their supply chain and sourcing will become a key competitive advantage.

For Contractors and Installers

• Pivot Business Models: The expiration of the residential tax credit requires a fundamental shift in business models for residential-focused contractors. The sales process can no longer be anchored to the 30% federal credit. Instead, contractors must develop deep expertise in their specific state's IRA rebate program, local utility incentives, and any available state tax credits. Furthermore, to remain competitive, contractors who have historically focused on direct cash sales and loans will need to partner with financing companies to offer lease and PPA options, as these will be the only way for residential customers to indirectly benefit from a federal ITC.
  
  

• Focus on Commercial, Storage, and Holistic Solutions: The stability of the commercial ITC makes the commercial and industrial sector the most reliable market for growth in 2026-2027. Installers should build capacity to serve this market, which requires expertise in navigating the safe harbor rules, FEOC compliance, and more complex project management. Additionally, battery storage attachment will be increasingly critical.
  
  For commercial clients, it helps manage demand charges; for residential customers, it provides resilience and access to valuable demand response programs like ConnectedSolutions in Massachusetts, which can significantly improve project economics. Finally, in states like New York and California, the incentive structures are increasingly rewarding whole-home solutions; contractors who can offer integrated packages of HVAC, weatherization, and electrical upgrades will be best positioned for success.

The Ascendancy of State and Utility Leadership

The federal policy changes taking effect in 2026 represent more than just a shift in tax code; they mark a significant devolution of energy incentive policy from the federal government to the states and utilities. The clean energy transition, particularly in the residential sector, will no longer be guided by a single, uniform federal policy. Instead, it will be driven by a diverse and fragmented collection of 50 different state-level strategies.

This creates a new map of market viability. States that have been proactive in establishing their own long-term, well-funded renewable energy and building electrification programs—notably New York, California, Massachusetts, and Illinois—are best positioned to absorb the loss of the federal residential credits and maintain strong market momentum. Their established administrative infrastructure and dedicated funding streams will provide a stable environment for consumers and contractors.

In contrast, states that have historically relied heavily on the federal backstop and lack strong state-level policies will face a more uncertain future. Their markets in 2026 and 2027 will be almost entirely dependent on how quickly and effectively they can deploy their share of the federal HOMES and HEAR rebate funds, and on the willingness of their local utilities to offer supplemental programs. This will likely lead to a more uneven and unpredictable landscape, where the attractiveness of investing in solar or a heat pump will vary dramatically not just from state to state, but from one utility service territory to the next. In essence, the success of the residential clean energy transition in the United States in 2026 and 2027 will be a story told 50 different ways, not with one federal voice.

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