SolarPowerNerd
Whether solar panels will save you money depends on a handful of specific factors. Your electricity rate, roof condition, local sun exposure, and available incentives all shape the math.
This guide walks through each one so you can make a clear decision.
The Solar Power Picture
The truth with solar power is that results vary. This guide covers many aspects and scenarios in detail so you can figure out whether panels make sense for your specific situation.
Are solar panels justified for your case? Answering that requires looking at the different factors that influence profitability.
Solar panels are still an uncommon sight in much of the United States, but certain states are seeing rapid adoption. Take a drive around Pasadena, California or Fair Lawn, New Jersey and you’ll run into solar panels everywhere.
Falling equipment costs and incentives like the federal investment tax credit for residential solar have helped make this happen. In 2006, there were just 31,000 US homes with solar, according to Alexandra Hobson at the Solar Energy Industries Association (SEIA).
Today, that number is well over a million and growing.
Homeowners frustrated by rising utility bills are searching for alternatives that save money long-term. They’re also looking for ways to help the environment by generating their own clean energy.
The Cost Factor
Jim Jenal, CEO of Run on Sun in Pasadena, California, sees this firsthand. For most homeowners, it starts with wanting to save money.
Once they realize they’re also doing something good for the environment, the decision feels even better.
With the dramatic price drop in solar equipment, solar energy is more affordable than ever. “The cost of residential solar has dropped about 60 percent,” according to Hobson at SEIA.
Falling costs are great, but that doesn’t mean solar panels work well for everybody. Your specific situation matters.
Electricity Costs in Your Area
Another significant factor is the cost of electricity where you live. If you happen to live somewhere with cheap power, you’re probably not going to recover your investment.
Going solar in low-cost electricity areas is more about lowering your environmental footprint and becoming more independent. “We have customers who don’t care about what they’ll save.
They simply want to be as green as possible,” says Jenal from Run on Sun.
Solar Versus Utility: Cost Comparison
When considering solar energy for your home, the first thing that comes to mind is probably sunny skies and long, hot days. While the level of solar radiation in your city is a significant factor, it’s not everything.
There’s another factor that’s equally important: your current utility rate. If solar energy will save you money long-term comes down to whether the cost of solar power is the same or less expensive than electricity from the utility.
Finding Your Current Electricity Rate
Understanding the cost of electricity from your utility isn’t always straightforward. It would be nice if the price per kWh appeared clearly, but it often doesn’t.
A rough estimate can be made by taking your total monthly bill and dividing by the kilowatt-hours used. For example, $300.09 / 1500 kWh = $0.20/kWh.
This isn’t the most accurate number since it includes fixed monthly charges that inflate the cost per kWh. With solar panels, you’d still be connected to the grid and would continue paying those fixed fees.
You can compare several months of bills to see which charges stay the same. You can also contact your utility to get the fixed costs for solar customers.
If you’d rather not share your bills, you can look up state averages published by the U.S. Energy Information Administration.
The Cost of Solar Electricity
Figuring out the cost of solar power might seem complicated, but the math is actually simpler than it looks. The only tricky part is that we’re not used to thinking of ourselves as power producers.
Buying or leasing solar panels is an investment in power generation, so you need to think like a producer, not just a consumer.
To do this, calculate the Levelized Cost of Solar Energy (LCOE). LCOE is the cost of solar power including both the upfront installation costs and ongoing costs like maintenance over the system’s lifetime.
Understanding Levelized Cost
“Levelized” refers to making a fair comparison between different energy sources. All else being equal, the more sun an area gets, the lower the levelized cost of solar energy.
The LCOE shouldn’t be confused with cost per watt. Cost per watt is a convenient way to normalize the total installation cost.
For instance, if a 5 kW system costs $20,000, the cost per watt is $4.
Cost per watt doesn’t depend on how much sun an area gets. It does vary based on other factors like permit costs and customer acquisition expenses.
Where you’re located significantly impacts the LCOE. Sunlight varies by location, and so do financial incentives like rebates and tax credits.
Solar Investment Tax Credit (ITC)
Since there are many different state and local incentive programs, we’ll focus on the federal solar Investment Tax Credit (ITC) of 30%, since it’s available nationwide.
Whether you buy the panels outright or finance them changes the math. Incorporating financing costs into the LCOE calculations gets more complex.
I recommend using a buy or lease calculator to quickly run through different financing scenarios and find the best option for your situation. The levelized cost can be quite different even for identical systems in different locations due to varying sunlight and incentives.
Other Considerations: Roof, Shade, and Orientation
You’ve confirmed that solar energy works financially. Now consider the condition of your roof, its orientation, and shade levels.
Online tools can estimate your shade levels, roof orientation, and slope. That’s a decent start, but solar installers should visit your home and see it firsthand.
They’ll make recommendations on equipment types and panel placement to maximize your investment. Understanding why solar panels face south is important for optimal placement.
The Importance of a Site Visit
James Hahn, CEO of My Solar Home, explains: a home site review lets field specialists take detailed measurements and optimize the framework design for your home’s specific energy needs.
The assessment includes roof measurements, condition, age, and identifying any vents, fans, chimneys, or obstructions that affect the system design. Detailed shade readings help pinpoint the best spots for power creation.
An investigation of your electrical panel determines how the system connects to the utility grid. This thorough site review makes sure the solar energy system is custom designed for your home.
Know Your Power Usage
Solar panels are a significant investment. You need to be as prepared as possible before talking with solar companies.
Understand your options, from central inverters to micro inverters. Know your power usage so you end up with the right system size.
Learn about solar basics.
The installers will walk you through most of it. But you’ll understand much more and make a better decision if you do some basic research first.
Alexandra Hobson from SEIA offers these tips: “Become an educated customer. Know your situation, including power usage, roof condition, and finances.
Get multiple quotes, research your solar company, and understand how tax credits and local incentives may apply.”
Solar Market Growth
“Growth in solar markets is at a level unimaginable at the beginning of this decade,” according to Hobson. The industry employs hundreds of thousands of American workers and deploys over 20 GW of solar electric capacity annually.
With rising electricity rates in many parts of the country, solar energy increasingly makes financial sense for homeowners. The cost of solar power has decreased significantly, making it a viable choice.
Get Your Roof Checked
“Whether you save 10% from day one or just 1%, utility costs are going up and available solar incentives are decreasing,” says Jigar Shah. “Now is the time to get your roof checked and see if you have good sun exposure.”
Beyond installing solar panels, there are things homeowners can do today to manage electricity costs. Start with reducing consumption, especially during peak periods, and implementing home energy efficiency measures.
Frequently Asked Questions
How long does it take for solar panels to pay for themselves?
Most residential solar panel systems pay for themselves within six to twelve years, depending on your electricity rates, system size, and available incentives. After the payback period, the electricity your panels produce is essentially free for the remaining 15-19 years of the system’s lifespan.
Do solar panels increase home value?
Studies consistently show that solar panels increase home value by approximately 3-4% on average. Buyers are willing to pay more for homes with lower electricity costs.
Owned systems add more value than leased ones, so purchasing your panels outright gives you the biggest boost at resale.
Are solar panels worth it if I plan to move soon?
If you plan to move within three to five years, solar panels may not fully pay for themselves before you sell. Leasing or a power purchase agreement can still save you money monthly without a large upfront cost.
Owned systems do add resale value that partially offsets the investment.
What happens to solar panels during a power outage?
Grid-tied solar panels without battery backup automatically shut off during a power outage for safety reasons. If you want power during outages, you’ll need a battery storage system or a hybrid inverter.
Battery backup adds cost but provides energy independence when the grid goes down.
Final Thoughts
Solar panels are worth it for most homeowners with decent sun exposure and moderate to high electricity rates. The combination of falling equipment costs, federal tax credits, and rising utility prices makes the math increasingly favorable.
Do your homework before committing. Get multiple quotes, understand your roof’s condition, and calculate your specific payback period.
The right system, properly installed, will save you thousands over its lifetime. For a look at the other side of the argument, our article on why solar panels are not worth it covers the situations where the numbers do not add up.
