Consider solar if you have a high utility bill, live in a prime location and qualify for tax breaks or other savings.
Lauren Schwahn March 13, 2020
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The rising cost of electricity from traditional sources makes solar installation seem like a no-brainer for many homeowners.
But the true cost of solar panels, and whether they’ll help you save money, depends on a few key factors. On average, installation and the system together can run between $15,000 and $25,000, according to the Center for Sustainable Energy.
Before you make the leap, learn how your electric bill, location and incentives can impact your wallet over time. Here are six steps to take to determine whether you’ll save more than you spend on solar panels.
Location largely affects electricity rates. The national average is about 13 cents per kilowatt-hour, according to 2019 data from the U.S. Energy Information Administration.
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- 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 you should note that electricity rates and usage — the main charges on your statement — are volatile.
“If a utility’s electricity prices fluctuate, so could the amount of savings,” says Garrett Nilsen, a program manager at the U.S. Department of Energy’s solar energy technologies office. “Similarly, if energy consumption changes, the amount of savings can also vary.”
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- Evaluate your sunlight exposure
More 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 and its roof type also affect a solar system’s output. You can estimate the efficiency of panels in your area by using the Solar-Estimate calculator. Enter your address, the average cost of your monthly energy bill and your utility provider.
- Estimate residential solar panel cost
The brunt of the expense with solar panels is in installation and the purchase of the actual panels.
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Minimal long-term expenses 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 Solar-Estimate calculator, estimate the system size for you.
With installation, an average residential 5kW size system costs between $3 and $5 per watt, according to the CSE, which results in the $15,000 to $25,000 range. That cost is before any tax credits and incentives.
If you know your current energy usage, you can calculate how much you’ll need to pay for solar panels.
» MORE: Calculate your monthly payments on a solar loan
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 lower 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.
- Look for incentives
The government offers homeowners significant incentives for installing solar panels as an alternate energy source. For example, a residential federal tax credit allows taxpayers to claim 26% of installation costs for systems placed in service by Dec. 31, 2020. The credit dwindles to 22% in 2021 and expires Dec. 31, 2021.
The federal tax benefit is nonrefundable, meaning you can’t get the savings in the form of a refund. Instead, you can reduce — and possibly eliminate — the amount you owe on your taxes.
Additional credits vary by location. 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.
“Incentives may actually go away and it may not actually pay to wait for too long.”
Vikram Aggarwal, CEO of EnergySage
But benefits aren’t guaranteed to last. “As solar is becoming cheaper, state and city governments and utilities continue to reduce the kind of incentives that are available,” Aggarwal says. “Incentives may actually go away and it may not actually pay to wait for too long.”
- Keep an eye on trade policy
Changes in government trade policy also impact prices. In January 2018, President Trump imposed a four-year tariff on imported solar cells and panels that started at 30% and drops 5% each year until February 2022. So far, the tariff has resulted in a 16 cent per watt increase for the average consumer, which translates to an overall increase of $960 for a six-kW system, according to EnergySage.
The cost of foreign-manufactured panels may still drop, lessening the tariff’s effect over time. However, as the tariff decreases, so does the federal tax credit. If you’re leaning toward going solar, you might save more if you do so sooner rather than later.
- Make the call
If you live in an area with high energy rates and a suitable solar rating and can afford the initial investment, it’s worth installing solar panels in your home while the 26% 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. Keep in mind that you don’t have to buy solar panels — you can lease them, too. That offers a lower upfront cost, although since you don’t own the panels, they won’t raise the value of your home, and you may not be eligible for incentives.
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About the author: Lauren Schwahn is a personal finance writer at NerdWallet. Her work has been featured by USA Today and The Associated Press. Read more