How Solar Panels Can Save You Money
It’s no secret how great solar power is for the environment. But the serious cost-savings that come from switching to solar don’t seem to be as well-known. Most solar system owners find that it drastically reduces or even eliminates their electric bills within several years. It all depends on daily sunlight, electricity rates, personal usage habits, and size of the solar system!
Total up what you’re spending on electricity
The first step to calculating your solar cost savings is to figure out how much you’re paying now for electricity. Did you know the average U.S. household spends over $1,500 every year? Add up your utility bills from the last 12 months to see where you stand.
Next, factor in the future cost of electricity. Utility company rates constantly fluctuate, so expect your electric bills to go up annually. Over the past 10 years, national electricity costs have increased by about 1.3% every year. Inflation is a huge reason to add solar power because creating your own energy reduces your dependency on variable utility rates.
Determine solar kilowatt production goal
Once you have an idea of your current and future electric costs, think about how much energy you would need to generate to reduce your bills. How many kilowatt hours (kWh) of energy do you currently use each month? If you’re trying to cover the bulk of your electric bill, your solar panel system will need to generate a similar amount of energy.
It's helpful to research the amount of sun your state receives – this can change how many kilowatt hours of electricity each panel produces. It’s usually measured in “peak sun hours” per day, so multiply this by 30 to get a monthly estimate. If you receive 150 peak sun hours per month, 1 kW of solar will generate 150 kWh of electricity each month.
You can use these numbers to help determine what size solar setup will offset your electric usage. Divide your monthly electric kWh by the monthly peak sun hours to get your kilowatt system size.
For example, the average U.S. household uses 9,000 kWh of energy every year (750 kWh every month). If the household receives 125 peak sun hours per month, a 6-kilowatt solar system would be needed to harness a comparable amount of energy.
If you then divide the kilowatt system size by the wattage per panel, this will show how many panels are required. The typical solar panel makes 320 watts (0.320 kW) of electricity in full sun, so dividing 6 kW by 0.320 kW tells you 19 panels are needed.
Estimate the solar panel and installation costs
Adding solar panels comes with two costs: the price of the solar products and installation fees. Purchasing a 6-kW system with 19 panels, for example, can range between $11,000-15,000 and installing the system can cost another $10,000+. There are DIY ways to install solar panels and reduce this price, but it all depends on the size of your system and property layout.
Factor in a potential electric bill
The last cost to add is the estimated price of electricity if your panels don’t offset all your electricity use. Even if your solar system does generate enough power for your needs, you will still receive a bill from the utility company if your property is connected to the grid.
The good news is you won’t always owe something on your bill. Most states have enacted a “net metering” policy, where renewable energy you create but don’t use is sent to the grid in exchange for credits on your electric bill. This enables you to use energy from the grid at night but not pay anything extra, assuming you send back the same amount you “borrowed” from the grid.
Your monthly electric bill will include any net metering credits and you won’t be charged for this power. The only cost will be any remaining electricity you pulled from the grid.
Reduce your solar investment with tax incentives
Don’t forget to add in the money you’ll save from the federal solar tax credit! The Solar Investment Tax Credit (ITC) is a dollar-for-dollar reduction of your income tax owed by installing solar panels. Many states have also started offering tax incentives or grants to encourage homeowners to add renewable energy sources. Contact your local government to learn more about these options.
Compare the total solar investment and payback period
After you’ve calculated everything above to estimate your solar system investment, compare this price with your annual electric costs to determine your payback period. The average solar homeowner can assume their solar payback period will range between 8-12 years. Spending $25,000 might be a scary upfront investment, but if this makes up the bulk of your future utility costs, you could end up saving tens of thousands of dollars over the long run!