How Much Money Do Solar Panels Save Homeowners?
Solar power has never been more popular, or more available, to American homeowners. More Americans are installing solar power systems at their homes, either to supplement their grid-based electricity service or to go completely off the grid. If you are considering joining them, it’s likely that one of your first questions will be, “How much money do solar panels save?”.
Data suggests that the number one driver of American consumers toward home solar power is that they believe it will save them money in the long run. This article will break down the many factors that contribute to the cost of installing a solar power system. We’ll also consider factors that determine how quickly the system can pay for itself and if you should get solar panels for your home.
Do Solar Panels Save You Money?
Barring some technical problem or a mistake by your solar supplier, the question of whether solar panels can save you money is not “if” but “when.” Still, it can take several years before it happens. The initial investment in solar is significant. As of 2022, the average cost of having an entire solar system installed on a 2000 square foot home is anywhere from $15,000 – $25,000.
We’ll discuss the reasons why this figure can fluctuate so wildly, for the same size house, in a bit. But for now let’s look at the broader issues that determine the high upfront cost of solar panels and how, over time, its solar panels will reduce reliance on grid-supplied power and lower electric bills. Eventually, the month-to-month savings add up, until you have saved as much money as you originally invested. From there, aside from some maintenance costs and for as long as your system is productive (most last at least 25 years, and some significantly longer), all of the power your solar system provides can be considered free.
Factors Effecting The Cost Of A Solar System
Household energy usage: Ultimately, the larger your solar power system, the more power it can generate and the more money it will save. You’ll want to know how much power your household consumes on an average monthly basis and build a system large enough to meet most, if not all, of that demand. It’s important not to over-build the system, however. Bigger is more expensive and takes longer to pay off.
It's easy to calculate your average monthly power usage. Your electricity supplier bills you based on the number of kilowatt hours (kWh) you consume each month. By adding up those totals for the last 12 months, you know the total kWh you used in the year. Divide that number by 12 and you get the average monthly use. According to the U.S. Energy Information Administration (EIA), the average annual consumption of electricity in 2020 was 10,715 kWh, so:
10,715 kWh / 12 months = 893 kWh per month
How much direct sun exposure your house receives: One of the biggest factors effecting the cost of your solar system is how many solar panels you will need. Some panels are more efficient (and more expensive) than others, but whichever one you pick will have to be able to gather enough solar power to meet your needs. And it is highly variable depending on where you live.
Solar panels work by capturing energy from the sun and converting it into electricity. The longer they are exposed to direct sun on a given day, the more electricity they create. Therefore, a house in sunny Arizona, for example, will need fewer solar panels to create the same amount of electricity than a house in cloudy northern Vermont. Thankfully, your solar provider will have excellent data to figure how much sunlight your house receives when determining how many panels you need to purchase.
Type of solar panel: Not all solar panels are created equal. Some generate more electric power and cost more. Others create less and cost less. Your solar advisor can walk you through the differences, but for a good 350-watt solar panel you can expect to pay around $500 per panel, and that does not include the cost of having it installed.
Roof size: Ideally, your roof is large enough to hold all of the solar panels you need to run your system. If the roof is not large enough, or if it is not suitable for any panels at all, you can still have a solar array built on ground-mounted stands on a sunny part of your property. This can be more expensive than roof-mounted panels, however.
Utility rates where you live: The cost of electricity varies widely among U.S. states. For example, according to the U.S. Energy Information Administration (EIA), Louisiana residents re charged about $7.51 per kilowatt hour of electricity use, while Connecticut residents pay $19.13 for the same unit of energy. You can have a system that meets the power needs of a house in both states, but the one in Connecticut will pay for itself much faster than the one in Louisiana.
System battery: As battery technology improves and prices come down, more people are opting to add a battery or even a bank of batteries to their solar system. With a battery, the system can store extra power produced during prime sun exposure for use later, such as at night.
Batteries provide different uses in grid-free and grid-tied systems. For a completely off-grid solar system, a battery is a necessity to ensure a constant source of electricity whether the sun is shining or not.
For grid-tied systems, a battery is not required, though it can be useful. A house with a grid-tied solar system remains connected to the local utility. At different times it can create solar power directly for home use, send excess power back to the utility for credit or draw completely on the grid. But a grid-tied system with a battery can backup stored power in a battery — this is especially helpful when there’s a power outage.
Solar batteries are expensive — anywhere from $7,000 – $15,000 on average. By adding that cost to your initial investment in a solar system, you also add considerably to the time it will take for your electricity savings to cover your investment.
How Much Money Do Solar Panels Save?
There are two ways to consider how much money you can save by installing solar panels. One is to look at how much you can save on your monthly electric bill. The other is how much you can save over the life of the system, taking into account that you are starting at a deficit due to the initial cost of the system.
We also must acknowledge that for every home solar installation in the U.S., there is a big variability for each of these factors: cost of the system, your energy usage, sun exposure, cost of electricity in your state, and available federal and state tax credits.
How To Calculate Your Solar Panel Savings
While acknowledging the wide variabilities of several key factors effecting home solar, we can still get a reasonable idea of how much money you can save by basing our calculation on a typical system for an average U.S. home.
1. Determine System and Installation Costs
The best way to get an idea of the total cost of the system you are building is to talk with several local solar contractors. They will be able to reference homes in your area that have comparable home size and power use. If your bills are higher, you can potentially save more, but you will also have to build a bigger, more expensive solar system to meet your power needs.
A solar contractor will also be able to walk you through the components of the system you prefer (for example, do you want a backup battery or high-efficiency panels). By talking to several companies you can compare what the charge for installing the system. After doing this research you might also have a good idea of which contractor you would like to hire.
2. Consider Your Energy Usage
When building your solar system there is perhaps no more crucial piece of information than how much power your household typically consumes. You can easily access this information by contacting your power company and asking power usage in kilowatt-hours for the past 12 months. If possible, do the same for past 3 to 5 years and average those figures.
3. Identify Local Electricity Rates
The cost of electricity varies widely depending on the state where you live. The cost per kilowatt-hour of electricity delivered by your power company is a key figure in calculating your ultimate savings. You can find figures for each state from the EIA.
4. Factor In Tax Credits And Incentives
If you qualify, you can substantially reduce the investment in a solar energy system by applying for a federal residential solar energy tax credit for a percentage of the cost of the system. In August, 2022 Congress passed an extension of the existing plan, raising the credit to 30% for systems installed between 2022 and 2023. The homeowner must owe federal taxes in order to qualify. Depending on where you live, you might also be eligible for a rebate from your state government or a state tax credit in addition to the federal credit. A qualified solar installer would know if any of these programs apply to you.
Example: Calculating Your Solar Panel Savings
To calculate savings on a monthly electric bill, we will assume a 6 kilowatt system that meets 100% of the electricity needs of an average U.S. home at an estimated average price Americans pay for electricity.
System size: 6 kW
Electricity use: 886 kWh/month
Electricity rate: 15.42 cents/kWh
886 x 15.42 cents = $136.60
Monthly savings: $136.60
Annual savings: $1,639.20
The cost of a 6 kW solar system also varies widely by state. In addition to the federal tax credit that is uniform across all states, there are also different types of state and local tax credits that can bring down system cost. And the cost of installation can be higher or lower than average depending on where you live.
So for the sake of extending the calculation we set above, in trying to anticipate lifetime savings from solar panels, let’s assume the cost of a 6 kW system in the average U.S. state at about $12,000 after tax credits.
We should also consider the lifespan of solar panels, and the fact that solar panels can degrade in efficiency over time. Although most experts estimate that solar panels remain optimal for around 25 years, there are working panels today that have surpassed 40 years of productivity. We also have to acknowledge that those panels were made with 40-year-old technology. We won’t really know how long today’s panels will last for a few decades at least.
Cost of a 6 kW system: $12,000
Annual electricity savings: $1,639
System life: 25 years
Lifetime electricity savings: 25 x $1,639 = $40,975
Cost of a 6 kW system: $12,000
Net savings: 40,975 - $12,000 = $28,975
The Bottom Line: Solar Panels Can Save You Money
The answer to whether solar panels can save you money is emphatically yes — if you have some patience. The initial investment for the panels, plus other expensive equipment such as inverters and batteries, can be substantial. You’ll also have to pay a qualified installer to ensure safe and proper operation.
But the monthly energy savings begin immediately, and those savings can be applied to loan payments on your investment. The average solar system can pay for itself in as early as about 6 — 10 years. With the average life of a solar panel system estimated at about 25 years, you can expect almost two decades of “free” electricity after it’s paid for — and possibly more. And that does not even account for a significant boost in your home’s property value.
When you’re ready, connect with us to get solar panels with our friends at Rocket SolarSM.