Solar Incentives in South Dakota
South Dakota homeowners installing solar in 2026 have access to two active state-level programs. The Renewable Resource System Property Tax Exemption, administered by the South Dakota Department of Revenue and local county Directors of Equalization, shields a portion of the added assessed value of a qualifying residential solar system from local property tax. For systems under 5 kilowatts, the exemption equals the greater of 70 percent or $50,000 of the system's assessed value and applies for up to 10 years. On the compensation side, South Dakota does not mandate net metering; the Legislature has declined to require it. Instead, the Public Utilities Commission's framework requires regulated utilities to interconnect with and purchase excess generation from small renewable facilities at the utility's avoided-cost rate, which is filed with the PUC and varies by utility. Homeowners should contact their serving utility directly for the applicable rate.
The federal residential Clean Energy Credit under Internal Revenue Code §25D — commonly called the 30% solar tax credit — expired for systems placed in service after December 31, 2025, under the One Big Beautiful Budget Act (Pub. L. 119-21). New residential solar installations completed in 2026 do not qualify for that federal credit. The absence of this incentive meaningfully lengthens payback periods compared to recent years, making the remaining state programs and local utility avoided-cost rates more significant factors in any financial analysis.
South Dakota's residential electricity rate averaged approximately 14.29 cents per kilowatt-hour as of March 2026, up about 1.54 cents year-on-year. At that rate, the value of self-consumed solar generation contributes to savings, while excess generation is compensated only at avoided-cost rates rather than retail rates, which affects overall economics.
These figures are verified as of June 2026 against official sources; programs and rates change each legislative session and PUC rate case, and the South Dakota Public Utilities Commission and Department of Revenue are the authoritative sources for current requirements.
Federal credit update. The federal residential Clean Energy Credit (the 30% “solar tax credit” under §25D) expired for systems placed in service after December 31, 2025. New 2026 residential installs do not qualify; a 2025 install can still be claimed on a 2025 return (IRS Form 5695). What this means for 2026 →
Current solar incentives in South Dakota
Renewable Resource System Property Tax Exemption
South Dakota exempts much of the added assessed value of a renewable energy system, including residential solar, from local property tax. For a renewable energy system less than 5 kilowatts, the exemption equals the greater of 70 percent or $50,000 of the assessed value of the system, applied for up to 10 years. Because a typical home solar installation adds well under $50,000 in assessed value, residential systems are effectively fully exempt from the property tax that would otherwise apply to the system's value. Owners apply through their local county Director of Equalization, and the exemption is set in state law (SDCL 10-4-44).
| Amount | For systems under 5 kW: exemption of the greater of 70% or $50,000 of the system's assessed value, for up to 10 years (typical residential systems are effectively fully exempt). Larger systems receive partial/time-limited exemption under the same statute. |
|---|---|
| Who qualifies | Owners of real property with a qualifying renewable energy (e.g., solar) system in South Dakota; application made to the local county Director of Equalization. |
| Administered by | South Dakota Department of Revenue; local county Directors of Equalization |
Source: SDCL 10-4-44 (renewable resource system property tax exemption); SD DOR Renewable Resource System fact sheet Official source →
Small Renewable Power Facility Purchase (Avoided-Cost Compensation)
South Dakota does not mandate net metering; the Legislature has repeatedly declined to require it, and the state does not compensate customer solar generation at a retail net-metered rate. Instead, under the Public Utilities Commission's framework, electric utilities regulated by the PUC must interconnect with and purchase power from small renewable (including solar) facilities when the generator requests it and agrees to terms. The minimum price the utility must pay for that output is the utility's 'avoided cost,' the incremental cost the utility would otherwise incur to generate or buy the same energy, which is lower than a retail net-metering credit. Homeowners considering solar must contact their utility about interconnection and the applicable purchase rate.
| Amount | Excess generation is purchased at the utility's avoided-cost rate (filed with the PUC), not at retail net-metered rates; specific rates vary by utility. No statewide net-metering credit. |
|---|---|
| Who qualifies | Owners of small renewable (solar) generating facilities served by a PUC-regulated electric utility who wish to sell output; terms negotiated with the utility. Municipal and cooperative utilities are generally outside PUC jurisdiction. |
| Administered by | South Dakota Public Utilities Commission; serving electric utility |
Source: SD PUC Solar Energy FAQ; PUC Rates for Purchase of Electricity from Small Renewable Power Facilities (avoided-cost / PURPA framework) Official source →
Compare solar incentives across all states → · Check what applies to you →
Programs verified as of June 2026 against official state and federal sources (each cited above); refreshed quarterly as legislatures and utility rate cases change the rules. How we verify this data. This page is informational only — not tax or legal advice.