What Do Solar Panels Cost and Are They Worth It?
Consider solar panels for your home if you have a high utility bill, live in a prime location and qualify for tax breaks or other savings.
Lauren Schwahn is a writer at NerdWallet who covers debt, budgeting and money-saving strategies. She contributes to the Millennial Money column for The Associated Press. Her work has also been featured by USA Today, MarketWatch and more. Lauren has a bachelor’s degree in history from the University of California, Santa Cruz. She is based in San Francisco.
Tommy Tindall Lead Writer | Consumer debt, saving money, gig economy
Tommy Tindall is a personal finance writer who joined NerdWallet in 2021, covering consumer debt, practical ways to save money and the gig economy. Before NerdWallet, he worked on the marketing and communications team at Fannie Mae. Today, Tommy strives to make the topic of money approachable for all. His work has appeared in The Washington Post, The Associated Press and on MarketWatch. Tommy is based in Bel Air, Maryland.
Courtney Neidel is an assigning editor for the core personal finance team at NerdWallet. She joined NerdWallet in 2014 and spent six years writing about shopping, budgeting and money-saving strategies before being promoted to editor. Courtney has been interviewed as a retail authority by Good Morning America, Cheddar and CBSN. Her prior experience includes freelance writing for California newspapers.
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The rising cost of electricity from traditional sources and government incentives to go green make the idea of installing solar panels more attractive for many homeowners.
But the true cost of solar panels, and whether they’ll help you save money. depends on a few key factors.
How much do solar panels cost for homes?
On average, solar panel installation and the system together can run from 15,000 to 25,000, according to the latest information from the Center for Sustainable Energy. Home services booking site Angi bumps that up, putting the normal range for solar panel installation in the U.S. from around 18,000 to 35,000 based on its database of completed projects.
Before you make the leap, learn how your electric bill. location and incentives can impact your wallet over time. Here are five steps to take to determine whether you’ll save more than you spend on solar panels.
Review your electric bill
Solar panels generate their own power and can therefore greatly offset your monthly electricity bill. if not eliminate it. The higher your bill, the more likely you’ll benefit from switching. But be aware that electricity rates and usage — the main charges on your statement — are volatile.
If a utility’s electricity fluctuate, so could the amount of savings, says Garrett Nilsen, deputy director for the U.S. Department of Energy’s solar energy technologies office. Similarly, if energy consumption changes, the amount of savings can also vary.
Electricity rates vary by location. The national average is about 15 cents per kilowatt-hour, according to year-to-date 2022 data from the U.S. Energy Information Administration 
Visit the EIA website to view the most recent per state.
Evaluate your sunlight exposure
sun means more energy produced and a greater potential to save with solar. Certain states, like Arizona and California, average more sunlight hours per day.
Your home’s orientation toward the sun, the amount of shade it gets, and its roof type also affect a solar system’s output. You can estimate the efficiency of panels on your home using this solar panel cost and savings calculator from SolarReviews.
Estimate and compare the cost of solar panels for homes
The brunt of the expense with solar panels is in installation and the purchase of the actual panels.
Minimal long-term costs can make up for the upfront costs. “Most systems don’t require much maintenance and are designed to last for 20 years or more with little change to the amount of electricity produced,” Nilsen says.
When calculating the total price, consider how much energy you regularly consume — your usage is listed on your monthly utility bill — and what size system will generate the amount needed. Some tools, like the SolarReviews calculator, estimate the system size for you.
With installation, an average residential 5-kW system costs from 3 to 5 per watt, according to the CSE, which results in the 15,000 to 25,000 range. That cost is before any tax credits or incentives.
If you know your current energy usage, you can calculate how much you’ll need to pay for solar panels.
Then comparison shop for solar panels as you would other big-ticket items, such as a car or TV, says Vikram Aggarwal, CEO of the solar marketplace EnergySage. Some companies reduce installation costs through rebates and other programs.
Aggarwal recommends getting quotes from three to five contractors. EnergySage compiles solar companies’ customer reviews, certifications, Better Business Bureau profiles and other information to help you find reputable providers.
Take advantage of government incentives
A federal law passed in 2022 incentivizes consumers to make clean energy enhancements, like installing rooftop solar. A substantial update to an existing energy-related tax break that was set to expire at the end of 2023, the Residential Clean Energy Credit allows taxpayers who have solar (and other approved clean energy equipment) installed to recoup 30% of the cost in the form of a federal tax credit.
What that means: A solar setup that costs 15,000 would yield a 4,500 credit (30% of 15,000) that you can take advantage of come tax time to reduce any federal taxes owed. The credit isn’t refundable though, meaning any money left over after your full tax bill is covered won’t be paid out to you. But you may be able to apply the remainder of the credit toward taxes owed in subsequent tax years.
The credit applies to eligible equipment installed after Dec. 31, 2021, and remains in effect at the 30% rate through 2032. It decreases incrementally after that.
Depending on your state, you may receive extra incentives like cash back, property tax exemption, waived fees and expedited permits. In some states, homeowners with solar panels can sell excess power to their local utility companies. Look up credits available in your state by reviewing the database of state incentives for renewables and efficiency.
Keep an eye on trade policy
Changes in government trade policy also impact prices. There have been varying tariffs on imported solar cells and panels over the last decade affecting costs and supply. For example, tariffs resulted in a 16-cent-per-watt increase for the average consumer in 2018, which translated to an overall increase of 960 for a 6-kW system, according to EnergySage.
President Biden placed a two-year pause on new tariffs on the solar industry in June 2022.
Is solar panel installation right for your home?
If you live in an area with high energy rates and a suitable solar rating, and if you can afford the initial investment, it’s worth installing solar panels on your home while the 30% tax break is in place — for the good of the environment and your wallet. But don’t expect to eliminate your power bill overnight.
If you decide to purchase solar panels, shop around and search for incentives. Consider financing with a solar loan if you’d rather spread out the cost over time. Keep in mind that you don’t have to buy solar panels — you can lease them, too. Leasing offers a lower upfront cost, though since you don’t own the panels, they won’t raise the value of your home, and you may not be eligible for incentives.
Going solar isn’t the only potential way to save money. Learn more about what you can do to lower your bills.
California commission overhauls rooftop solar proposal
The CPUC’s scaled-back plan eliminates consumer fees. The original was abandoned after criticism from the governor and solar advocates that it could hurt the transition to renewable energy.
The California Public Utilities Commission today released a long-awaited overhaul of its proposal to regulate rooftop solar installations, removing an unpopular new fee but reducing how much utilities would pay homeowners for supplying power to the grid.
The revised proposal comes after the CPUC earlier this year abandoned a controversial plan that solar advocates warned would undermine the state’s efforts to battle climate change.
The measures to overhaul management of California’s residential solar program have languished for more than a year. The CPUC’s challenge is to encourage more rooftop solar production while not disproportionately saddling low-income residents with higher energy bills.
Ramping up solar power to replace fossil fuels is considered critical to cutting greenhouse gases in California. State law has set a target of 90% zero-carbon energy by 2035 and 100% by 2045.
The revised proposal addresses some — but not all — of the concerns raised by solar supporters. Power companies say it’s not difficult to discern the governor’s fingerprints on the changes. Newsom, who appoints the CPUC’s five members, twice weighed in, suggesting the original proposal needed to be revisited.
“The changes are stark,” said Kathy Fairbanks, a spokesperson for Affordable Clean Energy For All, which represents 120 organizations, including Pacific Gas Electric, Southern California Edison and San Diego Gas Electric. “It’s clear there was some influence.”
The CPUC will hear oral arguments at a public meeting next Wednesday and is scheduled to vote on the measure on Dec. 15. If adopted, the new rules would take effect next April.
- Remove a proposed 8 per kilowatt monthly fixed charge, a so-called solar tax, on new residential systems.
- Reduce utilities’ payments to homeowners for excess power they sell by as much as 75% compared to current rates. The change would not apply to residents with existing solar systems.
- Fund 900 million in new incentive payments to help purchase rooftop solar systems, with 630 million set aside for low-income households.
- Encourage the installation of solar panels plus battery storage.
- Set lower rates in an attempt to shift consumers’ use of power to the times of day that improve grid reliability.
The CPUC is required under state law to update its net metering rules, which triggered a prolonged, complex and politically thorny process.
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- Stories like this keep all Californians informed. Get a daily round-up of news on state issues with WhatMatters.
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Bernadette Del Chiaro, executive director of the California Solar Storage Association, said the 75% reduction in credits to new solar customers means utilities will pay residents less for the power their rooftop systems provide to the grid.
The proposed rules “would really hurt,” she said. She estimated that new customers would be paid a base rate of 5 cents per kilowatt-hour for power they generate but don’t use, compared to about 30 cents now.
Del Chiaro said the newest proposal “needs more work or it will replace the solar tax with a steep solar decline.”
The solar industry is pleased that the monthly fee was removed. They said the surcharge would have discouraged installation of solar panels and damage the growing clean-energy sector.
The state’s utilities, however, are disappointed that there aren’t changes that would better manage the shared costs of residential solar.
“We expected the [Commission] to do more. It’s frustrating,” said Fairbanks of Affordable Clean Energy For All.
Fairbanks said the amended proposal does not address what is known as “cost shift,” referring to solar customers not paying their fair share of costs associated with delivering residential power and the impact on the function of the electric grid. The utilities say those costs are now spread unfairly among all ratepayers.
than 3 billion was passed on to non-solar customers in 2021, according to the CPUC’s Public Advocate’s Office. The new proposal “went backward” in addressing that gap, Fairbanks said. Rooftop solar customers “ have been getting a sweet deal for decades.”
The original proposal largely reflected the interests of the state’s three largest utilities. It was attacked by the solar industry, clean energy and consumer advocates and environmental justice organizations.
The timing of the proposal was awkward: As the state was ramping up its renewable energy ambitions, Newsom reiterated that rooftop solar power was “essential” to meet California’s clean-energy goals. The state’s popular incentive program has put solar panels on 1.5 million roofs of residences and small businesses.
The policy, called Net Metering, was implemented in 1995 and established a framework for large utilities to buy excess energy from homeowners and supplement power to the grid. The program was bolstered by incentives that brought down the upfront costs of purchasing the systems.
The new proposal cites the evolution of clean energy and its impact on the electric grid. Officials say the rule would align state policy with a grid that is bloated with solar energy during the day and overburdened with demand for power when the sun goes down.
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How Much Roof Space Is Needed For Home Solar Panels?
When it comes to residential solar panels, your home’s roof is the most obvious place to put them. But it’s easy to get confused about how much roof space is needed for solar panels in order to install a home solar power system. Not all roofs are constructed to the same size or specifications, and some homes have roofs with steeper pitches, while others have roofs with more faces or odd shapes.
We’d love to tell you a simple formula for the exact amount of square footage that is required for a certain number of panels, but it’s not quite that simple. Each residential solar panel array is custom designed to match the homeowner’s needs and the unique size, shape, and dimensions of their roof, so the square footage that’s needed is going to depend on a number of factors.
If you’re wondering, “How many solar panels will fit on my roof?” then here are a few things to consider.
How To Calculate The Solar Potential Of Your Roof
There are a few rules of thumb you can follow that can offer a general idea of how much roof space is needed for solar panel installation. These guidelines can also help determine how much roof space you have available to put solar panels on.
Generally, every square foot of roof space has the potential to generate about 15 watts of solar energy. Thus, a solar panel installation on a small home might only need around 200 square feet of roof space, while a larger home can require more than 1,000 square feet of roof space to properly offset electricity usage.
To offset an average amount of energy usage by the average American home, you’ll typically need around 18 to 24 panels to be effective. That is, of course, if everything about those panels is ideal, where the positioning is optimal, the panels are of a standard rating, and the location gets adequate sunlight year-round. If you change any of those variables, the number of panels you need is going to change as well.
If you want to get a sense of how many panels a roof can support, you don’t need a fancy solar panel square footage calculator. Here’s an easy calculation you can do: Multiply the square footage of your roof by.75 to account for the required solar setback. ( on that below.) Take that number, and divide it by 17.5, which is the average square footage of the standard solar panel size. The resulting number is the maximum number of solar panels you can fit on your home’s roof.
If you’re not sure of the square footage of your roof, there’s another relatively easy calculation you can do: First you need to know the dimensions of your roof from ground level. You can measure two sides of your roof from the ground, and then multiply those numbers together to get the square footage. If your roof isn’t flat, you need to account for the angle of your roof as well, so measure the angle from the ground (most smartphones have angle measurement apps that you can use) or just use 35 degrees to get a rough estimate if you don’t have an unusually steep or shallow roof. Then take the square footage that you measured from the ground and divide it by the cosine of your roof’s angle to get the total square footage. If you need a solar panel square footage calculator, you can click this link to get a sample calculation for a roof that measures 400 square feet from the ground, and has a 35 degree angle, and then just change those values to match the measurements that you take.
How Close Can Solar Panels Be To The Edge Of The Roof?
Most roof-mounted solar installations will need a “solar panel setback” for safety. This is one of the most common roof requirements for solar panels in local and state building codes. This setback is the open space between the edge of the solar array and the edge of the roof, and it provides an unobstructed pathway around your rooftop for emergency responders like firefighters to get better access to your home in case of an emergency.
The minimum solar panel setback varies from state to state, but generally, the setback will take up about 25 percent of your roof’s usable space. This accounts for two roughly 36-inch wide pathways that run along the edge of your roof, on a roof with just two basic faces. If your roof is more complicated than that, with multiple faces, or different shapes that come together at odd angles, your setback requirements may be different, which is why it’s important to work with solar professionals when designing your home solar power system. Palmetto’s team of solar designers not only make sure your roof space is optimized for power production but that it also meets the requirements of all jurisdictions as well.
Factors to Consider When Determining How Many Solar Panels You Need
When determining how many solar panels you need, it’s important to start by thinking about what your goals are and why you want to go solar in the first place. Do you want to maximize your return on investment? Do you want to save as much money as possible? Do you want to reduce your upfront costs? Do you want to have the biggest environmental impact and reduce your carbon footprint as much as possible? Most people want a balance of these goals, and may have other priorities as well, so it’s helpful to get a clear idea of what your specific end goals are before you start designing a solar power system.
Once you have your goals in mind, then you can determine how many solar panels you need to get there. This calculation is going to depend on how much energy your family uses, how much roof area you have available for solar panels, the location of your home and the angle of your roof, how much sunlight shines in your part of the country, the efficiency of the solar panels you’re using, and if your local utility offers net metering. Plus, you also need to consider your budget, because a large solar power system might produce more energy, but it’s going to cost more for the initial installation as well.
Here are a few things you should think about when determining how many solar panels you need for your roof.
How many solar panels you’ll need, and thus how much roof area for solar panels you’ll need, starts with an estimate of how much power you use in a given year. There are plenty of ways to determine your annual energy usage, but the easiest is to simply take a look at your current monthly energy bill. It should tell you how many kilowatt-hours of energy you use in a given month, then just multiply that number by 12 to get an annual estimate. If you don’t know your own estimated energy usage, a good starting number is that the average American home uses about 11,000 kWh of energy every year.
You should also consider any potential changes to your family’s energy usage in the future that you might want to account for. For example, if you buy a new electric vehicle that you plan to charge at home, or if you start working from home more often, or if you expand your family with a new child, your energy needs might change pretty significantly from the previous year.
Location (How Much Sunlight You Get)
Different parts of the country get different amounts of sunlight. For instance, Arizona is famous for intensely sunny days. On average, Arizona gets 300 days of sunshine every year. Conversely, Juneau, Alaska, spends more than two-thirds of the year in darkness.
This impacts how much roof space is needed for solar panels, because depending on where you live, you’ll need more or fewer solar panels. So if you live somewhere with lots of sun, you might only need enough roof space for a few solar panels. But if you live in Juneau, you’ll need lots of solar panels on your roof to harness the available energy.
The direction of your roof also determines how many solar panels you need, as southern-facing roofs in the northern hemisphere are ideal, as they receive more direct sunlight and can use that sunlight to create more energy. If your roof does not face south, you may either need a more complicated installation to get your panels facing the right direction, or you may need more panels to make up for the difference in energy-creating potential.
Size and Rating of Your Solar Panels
Solar panels can vary in size and rating, leading to different sized systems for the same amount of energy output. Some panels might be smaller but have a higher watt rating, which means they’re more efficient than a larger panel with a lower rating. That’s why you must consider the efficiency of the panels when determining the total solar panel system size for your roof.
While the efficiency of solar panels might vary, solar panel sizes typically don’t, as most companies have a standard solar panel square footage to make installation easier. The standard solar panel size dimensions are about 65 inches by 39 inches, which is roughly 17.5 square feet.
Your Solar Budget
Generally, larger systems are a great way to quickly offset your current electrical and fossil fuel energy usage. However, larger systems are naturally more expensive. While you may have the roof real estate for a large array, you might not have the financial budget for it, and vice versa.
Another thing to consider when figuring out your budget is whether your local utility offers net metering, and what rate they offer for that net metering. If you’re not familiar, net metering is when your utility company offers you credits for the extra energy that your system produces and feeds back into the grid. These credits can then be used to offset the cost of power that you might need to draw back from the grid, such as at night or during storms if you don’t have a battery storage system. If your local utility offers a generous net metering policy, it may allow you to expand your initial budget and then make up that difference over time.
Is It Possible To Install Too Many Solar Panels?
Believe it or not, it’s not always beneficial to install as many solar panels as you can possibly fit on your roof. Adding extra panels that aren’t needed just increases the cost of your initial investment, and if you don’t have a way of capturing or getting credit for the extra energy that you’re generating but not using, then you’re not getting a good return on that investment.
A good solar installation should offset as close to the exact amount of energy that you use as possible. That’s why we typically ask for samples of previous power bills when designing a system. These power bills help us estimate your power requirements, and design a system that matches your specific needs. Some months you might use more energy than your system produces, and some months you might use less energy than you produce, but at the end of the year, the goal is to generate about the same amount of energy as you use.
That said, there are some instances where it makes sense to install more solar panels to generate more energy than you plan on using. The first is if you plan on installing an energy storage system to capture that excess energy. Solar battery storage lets you use the energy you generated during the day to power your home at night, and also gives you a backup source of power in case you have a blackout or other issue.
Another time that you might want to generate more power than you plan to use is if your utility offers a strong net metering benefit. Net metering is when the utility gives you credit for the extra electricity that your solar power system produces and then feeds back into the grid, and this can help offset the cost of any electricity that you pull from the utility when your system isn’t generating electricity, like nighttime or during large storms.
In general it’s not possible to install too many solar panels (as long as your roof has space for them) but there just might not be a significant advantage to doing so.
How To Put Solar Panels On Your Roof
Your home’s roof space is just one of the factors that determines the optimum solar power system for your family’s needs. The arrangement of panels and the difficulty of the installation is determined by your roof, but you also need to consider your family’s energy needs, any future changes that your family might expect, your local incentives and net-metering programs, and a variety of other factors. Fortunately, Palmetto can help figure out the precise number and type of panels that will work best for your roof, and make it easy to get a system that’s perfectly matched to your family’s needs.
To find out how many panels you can put on your roof, get started with a free solar estimate, and a Palmetto solar expert will help design a system that’s just the right size to meet your energy goals.
The Cost of Solar Panels: Is It Worth It?
Do the benefits of solar panels outweigh their costs?
Nathaniel Riley brings 28 years of experience in financial services, including merger-arbitrage trading, hedge funds, and alternative investments.
Somer G. Anderson is CPA, doctor of accounting, and an accounting and finance professor who has been working in the accounting and finance industries for more than 20 years. Her expertise covers a wide range of accounting, corporate finance, taxes, lending, and personal finance areas.
Skylar Clarine is a fact-checker and expert in personal finance with a range of experience including veterinary technology and film studies.
What Is Solar Power for the Home?
Homeowners who install solar power systems can receive numerous benefits: lower electric bills, lower carbon footprints, and potentially higher home values. But these benefits typically come with significant installation and maintenance costs and the magnitude of the gains can vary widely from one house to another.
This article will help homeowners make the financial calculations required to determine the viability of solar power in their homes.
- Those seeking to go green may want to consider equipping their home with solar panels.
- Not only is solar power good for the environment, but you can earn money selling back excess power to the grid.
- While costs have come down over the past years, installation and maintenance of solar panels can be quite expensive.
- Solar panels are best suited for homes that receive ample sun exposure throughout the year.
- Before committing to solar power, be sure to understand both the social and economic factors.
Understanding Solar Power
In principle, working out whether it makes financial sense to install solar power for your home is simple. You will need to calculate:
- The cost of a solar power system
- How much energy it will produce
- What you would otherwise pay for the same amount of energy
- How many years it will take for your upfront investment to pay for itself in saved energy costs
- Whether the system will pay for itself in five years
If it does and you have the upfront capital, it’s probably a great idea. If you’ll have to wait longer for savings or take out a loan to afford the system, you’ll need to think the decision through carefully.
In practice, however, things are not this simple. There is a large variation in each of these factors, and that can make the costs and benefits of installing solar power for two homes—even if they are neighbors—radically different.
There are some tools that can help, though. Solar Reviews offer a calculator that will quickly provide you with representative costs and savings for a solar power system in every part of the U.S. Calculators like this are a good place to start if you are new to solar energy and want to understand the basic cost model.
In the rest of this article, we’ll take you through each of the key factors you should consider when calculating the costs and potential savings of solar power for your home.
Before getting solar panels, get quotes from several reputable installers to compare.
The Cost of Solar Power for Homeowners
First, let’s look at the cost of installing a solar power system for your home. The average, upfront cost of a residential solar power system is between 3,500 and 16,000.
Why the huge range of costs? Well, a lot of the variation depends on the size of the system you’d like to install and the type of panels you want to use. Whatever system you use, keep in mind that solar power is capital intensive and the main cost of owning a system comes upfront when buying the equipment. The solar module will almost certainly represent the largest single component of the overall expense.
There are some additional costs, as well. Other equipment necessary for installation includes an inverter (to turn the direct current produced by the panel into the alternating current used by household appliances), metering equipment (if it is necessary to see how much power is produced), and various housing components along with cables and wiring gear. Some homeowners also consider battery storage. Historically, batteries have been prohibitively expensive and unnecessary if the utility pays for excess electricity that is fed into the grid (see below). The installation labor cost must also be factored in.
In addition to installation costs, there are some further costs associated with operating and maintaining a PV solar array. Aside from cleaning the panels regularly, inverters and batteries (if installed) generally need replacement after several years of use.
While the above costs are relatively straightforward—often a solar installation company can quote a price for these for a homeowner—determining subsidies available from the government and/or your local utility can prove more of a challenge. Government incentives change often, but historically, the U.S. government has allowed a tax credit of up to 30% of the system’s cost.
details on incentive programs in the U.S., including programs within each state, can be found on the Database of State Incentives for Renewables Efficiency (DSIRE) website. In other countries, such information is often available on government or solar advocacy websites. Homeowners should also check with their local utility company to see whether it offers financial incentives for solar installation and to determine what its policy is for grid interconnection and for selling excess power into the grid.
The U.S. installed 19.2 gigawatts of solar PV capacity in 2020 to reach 97.7 GWdc of total installed capacity, enough to power 17.7 million American homes.
Calculating Your Energy Production
The second factor you’ll need to consider in your calculations is the amount of energy your system will produce and when it will do that. This can be a very complicated calculation to make, even for experienced solar engineers. However, let’s run through the basics.
One of the most important considerations is the solar irradiation levels available in the home’s geographical location; in other words, how sunny it is where you live. When it comes to using solar panels, being closer to the equator is generally better, but other factors must be considered. The National Renewable Energy Laboratory (NREL) produces maps for the U.S. showing solar irradiation levels and the tools on its website provide detailed solar information for specific locations within the U.S.
Equally important is your home’s orientation: For rooftop arrays, a south-facing roof without trees or other objects obstructing sunlight maximizes the available solar energy. If this is not available, panels can be mounted on external supports and installed away from the house, incurring additional costs for the extra hardware and cables.
And then you must factor in the size of your system. Solar panel size is quoted in terms of the theoretical electrical output potential in watts. However, the typical output realized for installed PV systems—known as the capacity factor—is between 15% and 30% of the theoretical output. A 3 kilowatt-hour (kWh) household system running at a 15% capacity factor would produce 3 kWh x 15% x 24 hr/day x 365 days/year = 3,942 kWh/year or roughly one-third of the typical electricity consumption of a U.S. household.
How Much Will You Save?
Once you know how much a solar power system will cost upfront, and how much energy it will produce, you can (theoretically) predict how much you can save in energy costs per year.
This is another tricky calculation, however, because a lot depends on how you pay for electricity at the moment. Utilities often charge residential consumers a flat rate for electricity, regardless of the time of consumption. This means that instead of offsetting the expensive cost of peak electricity production, homeowners’ solar power systems merely offset the price they are charged for electricity, which is much closer to the average cost of power production.
However, many utility companies in the U.S. have introduced pricing schemes that allow homeowners to be charged at different rates throughout the day in an attempt to mirror the actual cost of electricity production at different times: This means higher rates in the afternoon and lower rates at night. A PV solar array may be very beneficial in areas where this sort of time-varying rate is used since the solar power produced would offset the most costly electricity.
Exactly how beneficial this is for a given homeowner depends on the exact timing and magnitude of the rate changes under such a plan. Similarly, utilities in some locations have pricing schemes that vary over different times of the year due to regular seasonal demand fluctuations. Those with higher rates during the summer make solar power more valuable.
Some utilities have tiered pricing plans in which the marginal price of electricity changes as consumption rises. Under this type of plan, the benefit from a solar system can depend on the electricity use of the home; in certain areas subject to rates that increase dramatically as consumption increases, large homes (with large energy needs) may benefit most from solar arrays that offset high-cost marginal consumption.
For some homes, it might even be possible to make money by selling solar power back to the grid. In the U.S., this is done through net metering plans, in which residential consumers use the power that they put into the grid (when the rate of electricity generation from the solar array is greater than the rate of household electricity consumption) to offset the power consumed at other times; the monthly electric bill reflects net energy consumption. The specific net metering regulations and policies vary across regions. Homeowners can refer to the DSIRE database and should also contact their local utilities to find more specific information.
Calculating Solar Power Costs
At this point, you will be in a position to make a final calculation, and an assessment of whether solar power makes sense for you.
The overall cost and benefit of a solar system can theoretically be evaluated using the discounted cash flow (DCF) method. Outflows at the beginning of the project would consist of installation costs (net of subsidies) and inflows would arrive later in the form of offset electricity costs (both directly and through net metering).
However, rather than using DCF, the viability of solar power is usually evaluated by calculating the levelized cost of electricity (LCOE), then comparing it to the cost of electricity charged by the local utility. The LCOE for household solar will typically be calculated as cost/kilowatt-hour (/kWh or ¢/kWh)—the same format commonly used on electricity bills. To approximate the LCOE, one can use the following equation:
LCOE (/kWh) = Net Present Value (NPV) of the Lifetime Cost of Ownership / Lifetime Energy Output (kWh)
The useful life of a PV solar module is generally assumed to be 25 to 40 years. The cost of ownership includes the maintenance costs, which must be discounted to find the NPV. The LCOE can then be compared to the cost of electricity from a utility; remember, the relevant price is that which occurs during times at or near peak PV solar production.
Is Solar Power Worth It?
Once you’ve worked through all of these calculations, you’ll likely end up with a single number—the number of years it will take for a solar system to pay for itself in savings from your energy bills. If you live in a sunny part of the country and have high utility bills at the moment, you could be looking at a system that will reach this point in five years. Other homeowners may have to wait 10 or 20 years to reach this point.
In other words, most homeowners will eventually see a benefit from a solar power system; it might just take decades for this to be realized. Whether it is worth installing such a system therefore often comes down to a number of much less technical factors than those we’ve listed above: how long you are going to stay in your home, the subsidies available in your area, and simply whether you want to do your bit for the environment.
Pros and Cons of Solar Panels for Your Home
Like most things, solar power has its benefits and drawbacks. At the same time, some economic costs may be defrayed by the social benefits to the environment and lowering your carbon footprint, which may be more important to you than a purely monetary evaluation.
- Green energy that lowers your carbon footprint
- Net metering allows you to sell back excess energy produced
- You may be eligible for certain tax breaks
- Installation and maintenance costs are still high
- Solar only works when the sun is out
- Parts of the system need to be replaced every few years
- Some tax breaks may have expired or will be expiring
Can a House Run on Solar Power Alone?
Practically, it is not often possible. This is because solar only works when the sun is shining—when it is cloudy or nighttime, they do not generate electricity. There are some battery solutions to provide power during these times, but they still tend to be quite expensive. Most homes with solar panels still rely on the grid from time to time.
Do You Really Save Money With Solar Panels?
Depending on where you live, it is possible that the system can pay itself back and more over time. This is because you won’t be spending as much money buying electricity from your utility. If net metering is in place, you could reduce your bills even further.
How Much Does a Solar Panel Cost?
have been coming down steadily over the years. The total cost will depend on how many kilowatts of power your array will generate. According to consumer reports, after solar tax credits are accounted for, the cost for a solar panel system on an average-sized house in the U.S. in 2021 ranges from 11,000 to 15,000.
How Long Will It Take To Recoup the Initial Cost?
Depending on where you live and the size of your system it can take, on average, anywhere from 10 to 20 years to break even on a solar installation.
The Bottom Line
Determining whether to install a PV solar system may seem like a daunting task, but it is important to remember that such a system is a long-term investment. In many locations, solar power is a good choice from a financial perspective.
Even if the cost of solar power is found to be marginally more expensive than electricity purchased from a utility, homeowners may wish to install solar power to avoid future potential fluctuations in energy costs, or may simply wish to look beyond their personal financial motivations and use solar for green living.