Ready to cut out your energy costs? Perhaps even gain credits for months down the road by getting a solar panel system installed on your property. This appears to be the ideal scenario for many, but there’s an array of upfront costs, incentives, tax credits and other factors that muddy the water. However, it’s not outrageously complex to figure out how much money solar panels can save you.
Gilbert Michaud, a Loyola University Chicago environmental policy professor, suggests looking into solar options. “It makes a lot of sense financially because costs have gone down so much and the incentives are really strong,” he said. Just be aware that residential solar isn’t one size fits all. You’ll need to take into account all the factors that can influence the outcome specific to your unique situation.
Long-term solar savings is the focus for most people who dare to go solar. Payback period is the time it takes to earn back your initial investment via monthly energy savings. The savings per month depends on the solar system’s size, your home’s energy consumption, and other variables. Essentially, excess solar energy generated by your residential system is credited against the amount used, but you won’t typically receive cash payments for solar power. Nonetheless, saving money on local utility bills over years or decades can add up to substantial savings.
Michaud says, “Most systems pay for themselves in about 10 years. Then you have decades of free electricity after that.” However, younger homeowners who tend to move around frequently might hesitate due to the commitment required. Nonetheless, the investment can often be recouped from the boost in a home’s value stemming from a new system.
The payback period will vary due to differences in upfront solar costs and energy costs depending on your location. Here are some guidelines to help you estimate when you’ll break even.
It’s feasible to calculate how long your solar savings will take to cover the cost of installing the system. Start with the upfront cost of installation, then subtract all tax credits, rebates, grants and other incentives you received. This gives you the net system cost. Next, estimate how much you’ll save on your annual electricity bills with the system. Divide the net system cost by the annual bill savings to get your solar payback period in years.
Calculations show that solar panel systems, warrantied for 25 years, typically cover their own cost within 10 years, with an astonishing 15 years of savings to follow. Although the calculations appear exact, in reality, even the most efficient solar panels become less effective over time.
If you’re covering 100% of your bill using solar energy and net metering, while currently paying an average of $125 a month in electricity bills, you could save $1,500 annually.
The average cost of residential solar systems as of June 2023 was $31,558 before incentives and rebates, based on a typical solar system size of 8.6 kilowatts. The average solar panel installation cost for most states ranged between $18,480 and $22,440 after incentives and rebates.
Federal tax credits of 30% also contribute to the reduction of the upfront installation cost. Additionally, local incentives also bring down the final price. After installation, using your solar panels can decrease your energy bill over the years, and net metering is a popular way for utilities to compensate homeowners feeding solar energy onto the grid.
