Key Takeaways
- Your solar panel payback period plays a big role in how quickly you start enjoying solar panel savings.
- You can greatly reduce your upfront solar panel costs through various federal, state, local, and utility company incentives.
- Solar panel costs extend beyond initial installation and include ongoing maintenance and repairs.
Solar panels are steadily growing in popularity with homeowners and businesses as they look to reduce electricity bills and be more environmentally friendly. But the big question in many homeowners and business leaders’ minds is: Do solar panels save money in the long run?
We’ll discuss the upfront costs of installing solar panels, available incentives, long-term savings, and how to maximize solar panels’ financial benefits. We will also outline the ongoing costs of owning solar panels and calculate the payback period to help you determine if and when solar panels will start paying you back.
What Are the Upfront Solar Panel Costs?
Solar panel cost depends on many factors, such as solar system size, solar panel type, and installation requirements. On average, homeowners can expect the average cost of solar panel installation to be between $30,600 to $47,600 for a 2,000-square-foot home. The typical solar panel installation on a business is $200,000 to $500,000+, but it can vary greatly based on the size and type of business.
These costs include a wide range of services and components, such as:
- Surveying
- Designing
- Permitting
- Installation
- Structural upgrades
- Solar panels
- Inverters
- Monitoring systems
- Solar batteries (if applicable)
- Electrical work
- Utility company approvals
Keep in mind, though, federal and state incentives are available to help offset these upfront costs. These incentives significantly reduce the initial investment for installing solar panels, so they are more affordable for homeowners and businesses. We’ll dive deeper into these incentives next.
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What Are the Ongoing Costs of Owning Solar Panels?
Solar panels significantly reduce monthly energy bills, but they also include some ongoing costs, such as maintenance and repairs. Fortunately, these ongoing costs generally pale in comparison to the savings the panels generate.
Solar panels are surprisingly low-maintenance compared to other household investments. Maintenance generally includes simple tasks like twice-yearly panel cleaning to ensure optimal performance. The only other maintenance item is occasional professional inspections to identify any issues early and prevent costly repairs later.
While maintenance costs may vary depending on the size and type of solar panel system, they are usually manageable and can be budgeted for in the long run.
This should cost just around $31 per kilowatt (kW), so maintenance on a 6-kW system would cost less than $200 per year.
What Solar Panel Incentives Are Available?
A significant solar energy incentive is the federal solar Investment Tax Credit (ITC). This tax break allows homeowners to deduct some of the home solar panel system installation costs from their federal tax liabilities. The ITC currently offers a 30% tax credit for all solar systems installed now through 2032. So, if you installed a $20,000 solar system, you may be eligible for a $6,000 tax credit.
The federal tax credit drops to 26% in 2033 and 22% in 2024. Unless Congress renews it, the incentive will expire at the beginning of 2035.
The federal tax credit for businesses is far more complex, but the base credit is 30% now, and it falls to 15% by 2035 before expiring in 2036. Businesses can also earn bonus credits for meeting various other requirements.
Businesses also have the option to go with a Production Tax Credit (PTC) instead of the ITC. The PTC bases the credit on annual solar energy production. This base credit is currently at 2.75 cents per kilowatt-hour (kWh) produced and falls to 1.3 cents in 2035 before expiring in 2036. Like the ITC, businesses can earn extra credits for meeting specific requirements.
Many state and local governments offer solar panel incentives, such as rebates, grants, or tax credits. These state-level incentives can further reduce the cost of installing solar panels, but they vary greatly by location.
Even some local utility companies provide incentives for installing solar panels. These incentives can be common ones like net metering programs, where homeowners can receive credits on their electricity bills for the excess energy their solar panels produce and put back into the electricity grid. However, some utility companies even offer cash rebates.
For example, in Texas, you can get up to a $3,000 rebate, depending on your utility company and the size of your solar system. The highest rebate is in New Braunfels. So, if you lived in New Braunfels and installed a $20,000 solar panel system, you’d get up to $6,000 in federal credits and up to another $3,000 from the utility company. That brings your net system cost down to little as $11,000.
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How Do Solar Panels Save Money Long Term?
Even with all the tax credits and utility company rebates, the upfront cost of solar panels may seem significant. Even with this big upfront cost, solar panels can lead to substantial long-term savings.
Reduced Energy Costs
Solar panels generate renewable electricity from the sun, reducing your need to draw electricity from the grid. This leads to significant reductions in monthly electricity bills for homeowners and businesses with solar panels.
With volatility in electricity prices, these savings will likely increase as time passes and electricity costs rise.
Homeowners and businesses with solar panels may produce more solar electricity than they need. They can then sell this energy back to the utility company through net metering. This often leads to credits on their monthly utility bills or even payments directly from the utility company. Over time, this can dramatically reduce overall expenses and offset the solar panel costs.
Increased Property Value
Installing solar panels can also increase your business or home value. Studies show properties with solar panels often sell at a premium compared to those without. This means that homeowners and businesses benefit from reduced energy costs but can also profit when they decide to sell.
How Can You Maximize the Financial Benefits of Solar Panels?
Several strategies can help homeowners and businesses maximize the financial benefits of solar power. Let’s review these strategies and how they can help.
Choose the Right Solar System
The first step to maximizing the financial benefit of your solar system is to ensure your solar energy system is properly sized to meet your energy needs. When you accurately assess your energy consumption, you can avoid over- or under-sizing your system. This helps you minimize the upfront cost while maximizing the long-term energy savings.
Explore Various Financing Options
You have several solar panel financing options, and choosing the right one can make solar panel installations more affordable and stretch out that initial financial hit. You can go with a traditional solar loan, which will allow you to spread out the initial installation cost over the loan term. You can also opt for solar leases or power purchase agreements (PPAs), which eliminate the upfront cost in most cases.
Optimize Panel Placement and Angle
Optimizing solar panel placement and angle can also enhance their financial benefits. By placing the solar panels at the optimal location and at the right angle will maximize their sunlight exposure throughout the day, increasing energy production and savings. In more challenging setups, you can also install sun-tracking systems, which automatically adjust the solar panel position as the sun moves across the sky.
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How Do You Calculate the Payback Period on Solar Panels?
The solar panel payback period is how long it takes for you to recoup the system cost through electricity bill savings. When you calculate the payback period, you must consider the upfront costs, incentives received, ongoing power bill savings, and any financing expenses.
The payback period will vary based on individual circumstances, you can generally expect to recoup your investment within six to 10 years. After you reach the payback period, you’ll continue enjoying significant savings on your electricity bills while piling up the return on investment (ROI)
Calculating your anticipated payback period is fairly straightforward. First, review your loan documents, if applicable, to find the total finance charges. Add this to the amount you paid upfront for the solar system to get the total cost. Now, subtract any incentives you received to get the net cost.
Next, determine your average monthly energy savings. Let’s say you had an average electricity bill of $200 per month, and this solar system offsets that. So, take your net cost and divide that by the $200 in energy savings to get the total months until you reach your payback date.
For example, if your net cost was $10,000, your payback period is 50 months or about 4.2 years (10,000 / 200 = 50).
Do Solar Panels Save Money and How to Calculate Total Savings?
Yes, solar panels save money in the long run.
You can calculate your total savings from solar panels by looking at the upfront costs, incentives received, ongoing savings on electricity bills, and the lifespan of the system. With these factors in place, you can determine the total financial benefits of installing solar panels.
With this information, you can calculate the payback period, as we did above. It’s at this point you’ll start to see net savings. So, using the above calculation, we determined the solar panels save $200 per month.
A solar panel system’s typical lifespan is 20 to 30 years. So, let’s subtract out the 4.2-year payback period, and we get 15.8 to 25.8 years of savings. That equals 186 to 309.6 months at $200 per month, which comes out to a total of $37,200 to $61,620 in total savings over the solar system’s anticipated lifespan.
Also, keep in mind that panels don’t simply stop working at 25 to 30 years. That is just when they have noticeable degradation and drops in efficiency. You’ll continue saving money at this point, but it may be less per month.
Save Money and the Environment With Solar Panels
So, do solar panels save money? Absolutely. They can save you thousands of dollars throughout their lifespan. On top of these savings, you’re also doing your part to reduce your carbon footprint by reducing your reliance on fossil-fuel-powered power plants and relying on clean, renewable energy.
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