Budgeting

How much do solar panels cost?

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Men installing solar panels | moodboard/Getty Images

Solar power offers many benefits: reduced carbon footprint, lower electricity bills and a possible increase in your home’s value. The cost of installing solar panels was once prohibitive but the decline in prices has made converting to solar energy not only affordable but cost effective, in many cases saving homeowners and business owners money over time.

Understanding solar panel basics

Solar powered homes and buildings typically rely on solar energy during sunny days. The buildings remain connected to the power grid, drawing electricity from the grid when solar energy is not available, such as on cloudy days and at night.

You are charged for the electricity you draw from the grid, but then are credited for excess power you produce and contribute back to the grid. The goal is to produce as much power as you use.


Solar panel costs

On average, the cost to buy a solar system is $15,000 to $20,000 after federal tax credits. You can expect to reduce your electricity bill by 70 percent or more.

While solar energy users aim for no electricity bill, many utilities are beginning to charge solar users fees to offset expenses to maintain utility lines and emergency crews.

Experts estimate most solar systems pay for themselves in 5 to 7 years. However, these numbers are rough averages. When calculating the costs and savings of installing a solar system, it’s important to consider the following factors.

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Your current electricity usage

As a rule, the average home consumes 1 kilowatt per hour (kWh) of electricity at 10 cents per kilowatt (kW). Based on this estimate, the average monthly bill would cost about $73 for 730 kW. This varies widely based on the size of your home, your family size and factors like heating and air conditioning.

The more electricity you consume, the more solar panels you’ll need to purchase.

How much power will you generate?

Temperature does not impact the effectiveness of solar power but cloud cover does. Solar panels are most effective in areas that have little or no shade.

Determining how much solar energy your home can generate is primarily based on the amount of sunshine your area receives and the length of daylight available.

This varies dramatically between regions. In places like Seattle, you might have only three hours of sunlight to generate power. In sunny locales like Arizona, you may have seven hours.

Your current electricity rates

Local utility rates vary significantly. Utility costs in Hawaii are approximately 25 cents per kWh and the rates in Louisiana are about 8 cents per kWh. If your electricity rates are higher, expect to save more money.

Your local utility’s net metering policy

Utilities subsidize solar energy producers for the excess energy they provide, but the subsidy rates and methods vary significantly. The common practice of subsidizing solar users at the retail rate is dwindling and many utilities are starting to subsidize at the wholesale rate instead.

Tax credits and discounts

In December 2015, Congress extended a federal tax credit known as the investment tax credit. This allows homeowners and businesses to deduct 30 percent of the value of a solar system from federal taxes through 2019.

In 2020 the tax break starts to gradually decline to 10 percent in 2022. After 2022, the credit will be eliminated for residential properties but will continue for commercial properties.

Some state and local municipalities also offer tax incentives and discounts for solar installation.


Leasing versus buying a solar system

Because the upfront costs of solar systems are significant, many homeowners choose to lease their solar system. When you lease your solar system, the solar company installs the panels in exchange for a set monthly payment.

The idea here is that you still save money because your lease payment is less than what you currently pay for power. However, critics of leasing argue that the savings are far less than if the homeowner had purchased the system. A

Additionally, many leases have escalation clauses, raising the leasing costs over the years, therefore reducing your savings even further.

Conclusion

While the upfront costs of installing solar panels is high, the investment may be worth the cost and save you money over the long term. For many people investing in solar panels isn’t only a financial decision, it’s about making the planet a better place.

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