Key Takeaways
- Solar panels are likely worth the investment, but you still want to do your own research to determine if they’re right for your situation and goals.
- A $25,000 solar panel system may pay for itself in under 10 years, giving you another 10 to 20 years of free electricity.
- Consult with a solar panel installation company to help you determine your exact break-even date and total return on investment.
Many homeowners are realizing that solar panel systems can save them big on their electricity bills. However, solar panels (also called photovoltaic or PV panels) come with a significant upfront cost. This leaves many wondering, “Are solar panels worth it?”
Below, we cover all the ins and outs of solar panel costs, benefits, potential savings, and how to determine if investing in this form of renewable energy is worth it for you.
What Are the Upfront Costs of Solar Panels?
A main factor that deters many potential solar panel buyers is the upfront cost. Solar energy systems are generally a significant investment, with the average cost of the panels and installation ranging from $15,000 to $22,500, depending on the system size.
The cost of solar panels not only includes the panels themselves and the installation, but it also includes all the design, permits, inspections, wiring by a licensed electrician, and reinforcement of weak roof areas.
While the initial expense is substantial, it’s worth noting that solar panel prices have declined over the years, making them more accessible for homeowners. Moreover, there are various financing options to help defray or break down the expense into more affordable increments, including solar loans, solar panel leasing, and even home equity loans.
But even with financing options, you’re likely still wondering, “Are solar panels worth it for me?” We’ll cover all the benefits and other key details next to help you decide for yourself.
Do Solar Panels Offer Any Financial Savings?
While an initial investment of $15,000 to $22,500 is daunting (and quite possibly prohibitive) for many people, buying a solar panel system can help you save money in the short- and long-term. In many cases, they may end up paying for themselves at some point. Let’s review some financial savings that could result from investing in PV panels.
Government Incentives and Rebates
The first thing to realize about that high upfront cost for a solar power system is that your net costs will likely be much lower. This is thanks to aggressive incentives and rebates from federal and local governments. These solar incentives come in the form of tax credits, grants, and other financial benefits that can significantly reduce the initial cost of home solar systems.
Before deciding whether or not solar is right for you, research the potential incentives in your area. If you’re unsure where to look for these incentives, you can contact a local solar company, as they will be fully up-to-date on available incentives, whether you qualify for them, and the application process.
One major incentive most homeowners will qualify for is the federal solar tax credit. This gives you up to a 30% federal tax credit based on how much you pay for a residential solar system installed through 2032. For example, if you install a $10,000 solar system in 2024, you’ll get a $3,000 federal income tax credit when you file taxes in 2025. This is not a permanent credit, though. The percentage drops to 26% in 2033, 22% in 2034, and expires in 2035.
The best part?
You can also stack this federal tax incentive on top of state and local solar incentives and lower your cost even further. For example, California has several state-level incentives, such as:
- The Self-Generation Incentive Program (SGIP), which offers a rebate if you install solar battery storage with the panels
- Property tax exclusions for solar panels
- Property Assessed Clean Energy (PACE) allows you to pay back a solar panel loan with your property taxes
Potential Long-Term Savings (and Earnings)
Another big financial consideration is the significant long-term savings of solar energy to offset the initial investment. Solar panels generate electricity from the sun, which significantly reduces reliance on traditional power grids. In some cases, PV panel systems can completely eliminate the need for power from electric providers. As a result, you can enjoy substantial savings on your monthly electricity bills while promoting a more sustainable, renewable energy source that doesn’t rely on fossil fuels.
In addition to potentially lower electricity costs, solar panels might earn you money. You could be eligible for a net metering program depending on your location and local utility company. This setup allows you to sell any excess electricity your solar system creates back to the power provider. Generally, the utility company only pays you the wholesale rate for this electricity, which can help lower your energy bill. And if you produce enough electricity, it can even earn you credits from your utility company for future electricity bills or payouts.
Solar panels generally last 20 to 30 years, so you have decades of these potential credits coming your way.
For example, let’s say you have a $200 monthly electric bill and manage to offset that bill completely every month. In the summertime, the extra hours of sunlight give you a boost that earns you a $50 credit monthly for four months. Each year, your solar panels would save you $2,600. This means if you paid $25,000 for your system, they’d pay for themselves in just over 9.5 years without accounting for the federal and local incentives. Then, after 9.5 years, you get truly free electricity and even earn about $200 per year in credits.
If your solar panels last for 30 years, this means you’ll earn another roughly 20.5 years of credits, which comes out to about $4,100 at $200 per year. This may also become even higher if electricity prices continue to rise.
Increased Value of Your Home
Installing solar panels can also pay off if you choose to sell your home, as they may increase a home’s property value. Research indicates that solar-powered-equipped homes tend to sell 20% faster and at a 4.1% higher price than those without solar panels.
Many potential buyers are attracted to the idea of lower energy costs and environmentally friendly features, making your property more desirable if you choose to sell it.
What Are Some Non-Financial Benefits of Solar Panels?
Evaluating the financial benefits of solar panels alone shows they are likely worth the investment. The non-financial benefits are simply the icing on the cake.
Environmental Advantages
An important factor that may help you determine if solar panels are worth it is their environmental benefit.
Solar energy is a clean and renewable power source with no greenhouse gas (GHG) emissions or air pollutants. Investing in solar panels reduces your carbon footprint and contributes to a more sustainable future. If you can offset 100% of your home electricity use with solar energy, you’re essentially keeping an average of 7.27 metric tons of CO2 emissions from the sky per year.
Solar power also decreases your fossil fuel dependence, lowering demand for mining, drilling, and refining of these non-renewable resources.
An often-overlooked environmental benefit of solar panels is water conservation. Traditional electricity generation, such as coal and natural gas power plants, requires a lot of cooling, which consumes significant amounts of water. These methods also use water to convert it to steam and activate the turbines.
By switching to solar energy, you can alleviate the strain on finite water resources, especially in regions prone to droughts.
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Energy Independence
Relying on strained power grids can lead to power outages and blackouts, particularly in heavily populated areas. This can be a nuisance at best, but it can also threaten the well-being of those who rely on electronic devices to survive.
When you install solar panels with enough output to power your entire home, you no longer need to worry about blackouts. When the power goes out, you can keep generating power as long as the sun shines. This means all your electronic devices continue working, your refrigerator keeps running, and the heat or air conditioning keeps going.
Moreover, you can expand on this independence by adding a solar battery backup. This stores all the excess energy for those times when the sun isn’t shining. This means you’ll have power if there’s a blackout or power outage and during the night or an overcast day.
With high-capacity solar batteries, you may even be able to completely disconnect from the power grid — as long as local laws permit off-grid living — and be 100% energy independent.
How Can You Evaluate the Return on Investment for Residential Solar Panels?
Now that we’ve covered all the financial and non-financial benefits of going solar, let’s put it all together and look at the most important factor: return on investment (ROI).
ROI represents the financial return expected from your solar panel investment over its lifespan. Various factors will impact your solar panel ROI, such as the system’s upfront cost, financing terms, maintenance costs, electricity savings, payouts from net metering, and applicable incentives.
Many solar panel installation companies can offer an analysis of your expected break-even time and ROI. But if you don’t want to take that step yet, you can calculate this yourself. Just make sure to use conservative estimates so as not to overestimate.
Start with the anticipated upfront cost. For example, let’s say you would need a $25,000 system to offset 100% of your energy usage. If you qualify for the 30% ($7,500) federal incentive, the net cost is $17,500.
Now, let’s say you took out a five-year solar loan at 7% interest, which is just one option among average solar loan interest rates. Over the life of that loan, you would pay another $4,701.80 in interest if you used none of the federal income tax credit to pay down the loan, according to Nerdwallet’s solar loan calculator. That brings your total net cost to $22,201.80
You’ll also want to maintain the panels, and you can expect to pay upward of $180 per year for this.
Now, let’s go back to our old estimate from earlier and say you offset a $200 monthly electricity bill and net an extra $50 for four months in the summer by selling electricity back to the power company. That’s $2,600 per year. Now subtract out the maintenance costs, leaving you with $2,420 per year in savings and credits.
To determine your break-even time or payback period, simply divide your total net cost by the leftover savings and credits after subtracting your maintenance fees. In this example, that would be $22,201.80/$2,420. That equals a payback period of 9.17 years. So you would cover the full cost of the panels via energy savings and credits in just over nine years.
To calculate the anticipated ROI, subtract the expected lifespan of your solar system. The average system lasts 20 to 30 years, so that leaves you with 10.83 to 20.83 years of free electricity. To get your actual return amount, multiply the remaining years of useful life by the $2,420 in annual savings and credits to get a total ROI of $26,208.60 to $50,408.60.
Compared to the initial cost of $25,000, that’s a 104.8% to 201.6% return on investment. That’s a pretty significant return and leaves you ample savings to reinvest into a new system at the end of its useful life.
Of course, your numbers will vary, depending on the system you install and your energy consumption. Chances are, you’ll see similar results, though.
What Are Some Considerations Before Investing in Solar Panels?
Before installing solar panels, consider the factors that affect solar panel efficiency, costs, and overall ROI. Some of these factors include:
- The sun exposure your location receives and any modifications needed to increase exposure
- The size and orientation of your roof
- The available space for solar panel installation
- Your current and future electricity needs, such as buying an electric car or adding a hot tub
- The solar panel quality and efficiency
- The local regulations and incentives for solar energy
By considering these factors along with the standard costs of the panels, installation, and potential credits, rebates, and buyback programs, you can determine if solar panels are a worthwhile investment for you. Of course, you can always contact a local solar panel company to help you sort through the specifics of your situation to make a fully informed decision.
Are Solar Panels Worth It for You? Your Research Will Help You Decide
Solar panels have loads of benefits, such as long-term savings, environmental friendliness, and potential financial returns. By thoroughly researching the upfront costs, conducting an ROI analysis, and considering various factors, you can more easily answer the question, “Are solar panels worth it for me?”
Keep in mind the solar panel industry is fast-moving, so keep up-to-date with the latest technology and potential incentives. To learn more, get the details on solar panel efficiency and whole-house solar systems.
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- Source: https://justenergy.com/blog/are-solar-panels-worth-it/