How To Save Money With Solar Panels

Solar power has become one of the fastest-growing electricity sources in the U.S. According to the Solar Energy Industries Association, the country has installed over 162 gigawatts (GW) of photovoltaic capacity, enough to power more than 30 million homes. Most homeowners who go solar can expect to save over $1,000 per year on power bills, but this figure can increase in states with expensive electricity.

The payback period for solar panels varies depending on your local sunshine conditions, state incentives and electric tariffs. However, high-quality solar panels can last for 25 to 30 years, while having a typical payback period of seven to eight years. In states with high electric tariffs and multiple incentive programs, the payback period of a solar system can drop to four to six years. Solar panels also lead to an increase in home value, which is exempt from property taxes in many states.

Average Electric Bill Savings with Solar

Based on typical sunshine rates and electric tariffs, our team estimates that U.S. homeowners can save around $1,531 per year with a 6 kilowatt (kW) solar system. However, it is possible to save $2,000 per year and achieve payback periods of less than five years in states with expensive electricity rates.

To get an accurate calculation of the electricity savings you can expect with solar panels, we recommend contacting a qualified solar company. However, you can get an idea of your electricity savings using the Global Solar Atlas, a tool developed by the World Bank Group. To estimate your solar savings using the Global Solar Atlas, you can follow the steps below:

1. 1. Find your location: You can input your coordinates directly on the Global Solar Atlas website, or you can scroll and zoom to the desired location.

1. 1. Display solar radiation data: Once you click on your exact location, the Atlas will show many types of data. Look for the “specific photovoltaic power output” field, which is abbreviated as PVOUT. The PVOUT value is how much energy you can expect to generate with each kilowatt of solar panel capacity.

1. 1. Calculate energy generation: You can multiply the PVOUT value by your solar system size to estimate energy generation. For example, a PVOUT value of 1,400 kilowatt-hours per kilowatt-peak (kWh/kWp) means you can generate 1,400 kWh of energy for every kilowatt of installed solar capacity. So a 6 kW solar system would yield around 8,400 kWh of energy per year.

1. 1. Estimate your savings: To estimate your dollar savings, multiply the electricity output by your kilowatt-hour price. You can check the average electric tariff for your state using the Energy Information Administration, or you can simply use the kilowatt-hour price on your monthly bills. For example, if your panels generate 8,400 kWh and you normally pay 16 cents per kWh, you can save up to $1,344 per year.

This formula can give you a ballpark estimate of solar savings. Your actual savings will vary depending on factors like roof orientation and shading from nearby trees and buildings. Only a qualified solar professional can provide an accurate calculation, but many solar companies provide a free initial consultation so you can learn more.

Solar Payback Period Expectations

Homeowners who install solar panels can expect a payback period of seven to eight years on average, based on our calculations. While this may seem like a long time, consider the top solar brands include a 25- to 30-year warranty to cover manufacturing issues. If your panels have an eight-year payback period with a 25-year warranty, you still would receive 17 years of guaranteed electricity production after recovering your initial investment.

Solar panels can achieve a payback period of four to six years in states with expensive electricity rates and multiple solar incentives. On the other hand, the payback period extends to 10 to 14 years in states with cheap electricity and no solar incentives. Your payback period will also vary depending on your system size and chosen equipment.

Key Factors Impacting Solar Savings

The electricity output of solar panels is directly related to local sunshine conditions, but actual dollar savings also depend on other factors. You can still achieve energy bill savings if you live in a cloudy state but face expensive local electricity rates, for example. Solar savings also increase if you have access to incentives such as a net metering program or Solar Renewable Energy Certificates (SRECs).

Local Electricity Prices

Electric tariffs are the main factor that determines solar savings — if electricity is expensive in your area, you will see high savings by generating your own power. As a quick example, assume two homeowners from different states use solar panels to generate 8,000 kWh of energy per year.

• • If the first homeowner pays an electric tariff of 10 cents per kWh, they can achieve a savings of $800 per year.

• • If the second homeowner has a tariff of 25 cents per kWh, their savings increase to $2,000 per year.

This is a simplified example, but it shows how solar savings can vary along with electricity prices, even if two systems have a similar energy output.

Local Net Metering Policy

Net metering is an electricity billing method that benefits solar panel owners in many states. Under net metering, solar owners can sell the excess energy their panels produce to local electric companies in exchange for power bill credits. Here is an overview of how you can use net metering to save money:

• • Solar panels generate most of their electricity output around noon.

• • If you cannot use this energy directly because you’re away from home or can rely on natural light instead, you can sell it under a net metering program.

• • You can then subtract net metering credits from your nighttime consumption. In other words, you can save on power bills at night with solar energy produced during the day.

In states without net metering, solar panel owners do not receive compensation for excess electricity production. You can instead install a solar battery bank to store surplus production, which can cost upwards of $12,000.

Solar Renewable Energy Certificates (SRECs)

In some states, solar owners earn an SREC for every 1,000 kWh of energy generated by their panels. You can then sell SRECs to local energy companies and other organizations subject to clean energy regulations, earning a profit based on your state’s market rates. You earn SRECs for all the electricity generated by your panels, even portions you send to the grid under net metering programs.

• • For example, if your solar panels generate 8,000 kWh of energy per year, you would get eight SRECs.

• • If you can sell these credits on your local market for $50 each, you would make an extra $400 in addition to the power bill savings normally achieved.

Since the value of SRECs varies by state, your exact savings will depend on where you live.

Size of Your Home Solar System

Electricity savings also increase along with the size of your solar panel system. However, an optimally-sized solar system normally offers a better return on investment than an oversized system.

While a larger system can produce more electricity to sell under net metering programs, there is a limit to how much you can earn per year. Most electric companies will let you “bank” unused credits from net metering to use towards future power bills. However, most companies do not pay you in cash once your production surpasses your consumption. Large solar installations are also subject to more complex permitting and insurance requirements, increasing installation costs.

A professional solar installer will work with you to determine the right-sized system for your home and energy needs.

How To Maximize Savings with Efficiency Upgrades

Solar panels generate electricity for your home but don’t reduce the total amount of energy being used. If your home uses 12,000 kWh of energy per year and your panels generate 9,000 kWh, you will only pay for 3,000 kWh in power bills but still use 12,000 kWh total. If you combine your solar panel system with energy efficiency measures, you can achieve even greater savings.

An installer offering professional energy audits can identify energy upgrades for your home and the potential savings. Here are examples of common energy efficiency upgrades:

• • Upgrading to LED lighting

• • Upgrading your air conditioning and space heating equipment

• • Adding a smart thermostat to control your HVAC equipment

• • Upgrading your domestic hot water system

• • Sealing air leaks around your doors, windows and roof

• • Inspecting your insulation and filling any gaps

• • Using home appliances with the ENERGY STAR logo.

According to the ENERGY STAR website, homeowners who invest in energy-saving measures can cut their utility bills by around 20%. You can achieve even higher savings if your home has old HVAC equipment or plenty of air leaks.

The average American home uses 10,566 kWh of electricity per year, according to the Energy Information Administration’s (EIA) Residential Energy Consumption Survey. If you lower your consumption by 20%, this represents 2,113 kWh of energy per year. At the average electricity rate of 16.21 cents per kWh, you could save around $343. If you also own a solar panel system that saves $1,531 per year, your total savings add up to $1,874.

Keep in mind these are general figures based on average electric tariffs and home energy consumption. Your actual savings can vary depending on factors like local weather conditions and energy prices.

Minimize Upfront Costs with Financing

The average price of a 6 kW solar system is around $17,100. In this case, the net system cost drops to $11,970 after you claim the 30% federal tax credit. However, going solar is a major investment even after the tax incentive. If you cannot afford a cash purchase, there are three main types of solar financing options that can make photovoltaic systems more accessible to homeowners: a solar loan, solar lease or power purchase agreement (PPA).

Solar Loan

A solar loan is exactly what its name suggests — a personal loan designed to help you purchase solar panels. This means you can install a solar system for $0 upfront and pay the loan over time with power bill savings. Some solar companies offer in-house loan options, while others offer financing through third-party institutions.

Pros

• • Some solar loans offer annual interest rates as low as 4% to 9%

• • You own the panels directly and can claim incentives

• • Feature smaller monthly payments compared to leases and PPAs.

Cons

• • Requires a good credit score to get the best solar loan terms

• • Includes interest payments over time, which can cut into your solar energy savings

Solar Lease

A solar lease is similar to renting an apartment or leasing a car. Instead of owning solar panels directly, you pay a monthly fee to use a system owned by a solar provider. The company is responsible for system cleaning and maintenance during the entire lease term, which can go up to 25 years. However, since you do not own the system you cannot claim tax incentives.

Pros

• • Have less demanding requirements than solar loans

• • Solar lease provider assumes all initial costs, including equipment and installation

• • Company is responsible for solar system cleaning, maintenance and repairs

Cons

• • Generally charges higher monthly payments than with a solar loan

• • Only the installer can claim and keep certain incentives since it owns the panels.

Solar PPA

A solar power purchase agreement (PPA) is similar to a lease in that an installer owns the solar panels and you pay a fee to use the energy generated. The main difference is a PPA charges you a kilowatt-hour price for energy generated, rather than a set amount to lease the equipment. To make the deal more attractive to homeowners, installers set the solar PPA tariff lower than local electric tariffs.

Solar leases charge you an established fee every month, regardless of electricity production. Solar PPAs tend to have higher payments during summer, when photovoltaic panels are more productive, and lower payments during less productive seasons such as winter.

Pros

• • Have simpler eligibility requirements than solar loans

• • The provider is responsible for all upfront system costs and ongoing maintenance

• • You pay for the electricity output of the solar panels instead of a fixed monthly fee

Cons

• • Amount paid over time is higher than what you would pay with a solar loan

• • Only the PPA provider owns the system and can claim certain solar incentives

Does Solar Increase Home Value?

Multiple studies suggest that solar panels can increase your property value. According to the National Renewable Energy Laboratory (NREL), solar panels add $20 in property value for every $1 reduction in annual power bills. For example, if you save $1,500 per year on energy bills with solar panels, your home value increases by an estimated $30,000.

Keep in mind that solar panels only increase home value if you own the system directly. In other words, solar leases and PPAs will not increase your property value.

Many states have introduced a property tax exemption for solar energy systems, which means you are not taxed for the increase in home value after installing panels. You keep paying the same property taxes you were charged before going solar, even if your home is worth more. The list of states with a solar property tax exemption includes Connecticut, Massachusetts, Maryland and Texas.

For example, if you own a $300,000 home with a 1% property tax rate, you are charged $3,000 per year. If solar panels increase your home value to $330,000 but your state has an exemption, you keep paying $3,000 in taxes — and not $3,300.