You can save money by going solar. Find out here what are the costs and benefits of having your own solar system. Learn about solar incentives and how to reduce your energy bills.
Saving with Solar - An Overview
Switching to solar energy can be expensive, but the money saved in the long term makes solar a financially worthwhile investment. So, let’s answer the question: How to save with solar?!
Homeowners who live in areas with high electricity costs will see their utility bills gradually shrink with solar energy. The exact amount you will save depends on electricity consumption, solar system energy size, whether you purchase or lease your system, direct hours of daily sunlight, size and angle of the roof, and local electricity rates. Local electricity rates tend to play the biggest role when it comes to saving. If the costs of generating solar are lower than your current electricity costs, you will see savings by switching to solar.
Need less energy than you produce and get credit for net metering
Installing solar panels does not mean that your electricity bill will just vanish. As long as your property is connected to the grid you will still receive an electricity bill. This does not mean that you will have to pay for anything. Net metering is a policy that is active in most states in which solar energy that you don’t immediately use is sent to the grid in exchange for credits. Credits from one month can roll over and be used to offset any energy you might have taken from the grid. Most of the electric bills won’t require you to pay anything and simply display how your credits have offset your energy usage. There will still be a small monthly fee for delivering the electricity.
Increase the value of your property
Adding a solar system is considered an upgrade to your home and will help increase your property value. The addition of a solar system increases the value of a home by up to $30,000. So don’t worry about leaving a solar system behind if you want to move, the added home value will give you a good return in addition to what you have already saved by using the system.
Carbon emissions savings
The number of carbon emissions you will offset will depend on the size of your solar system. Larger solar systems will offset more emissions. The Environmental Protection Agency has the formula to calculate the number of carbon emissions that your system will offset: 7.44 × 10-4 metric tons CO2 / kilowatt-hour of energy produced. Even a smaller 2-kilowatt system can reduce carbon emissions by almost 2 metric tons in one year.
Savings all around
Switching to solar is all about saving. Saving money in the long run with utility bills, saving the amount of carbon your property is emitting into the atmosphere, and even adding to your assets in the form of increased home value. Now you know how to save with solar!
How Much Do Solar Panels Reduce Your Electricity Bills?
Installing a solar system is an excellent investment that allows you to earn returns. Returns are the benefits that you receive from purchasing an investment. Returns are great ways to gain money or save costs when purchasing solar systems. The best way that solar allows you to gain returns is by lowering your electricity bill. So how much can solar lower your electricity bills?
How much you save on your electricity bills is dependent on where you live, local electricity rates, and your electricity consumption. Each state has different electricity costs. If you live in areas with high electricity costs, you will see your utility bill shrink the most. To determine how much you will lower your electricity costs you can use our example to perform a simple cost-benefit analysis. This analysis is simple because we are only factoring in electricity consumption, rates, inflation rates, and up-front solar installation costs. Other factors such as solar incentives are not considered. If the costs of generating solar are lower than your current electricity costs, you will see savings by switching to solar.
Savings over the next years
Step 1: Calculate monthly electricity bill
The money you will save using solar panels will depend on your electricity rates. To calculate how much money you spend on your electricity every year, simply multiply the amount of energy consumed by the electricity rate in your state. For example, an average US household uses 877kWh per month and 10,524kWh per year. The New York electricity rate at the end of March 2021 was $0.1803 per kWh. This would mean that the average American is spending around $158 per month and $1897.5 per year on their electricity bills. In our example below, for simplicity, we use the value of $150 per month. Furthermore, these costs increase every year due to the rising nature of prices.
Step 2: Adjusting for Inflation for Monthly and Annual Bill
In order to determine how electricity rates rise, we use a constant annual inflation rate of 2% to simplify the calculations. To find out how much your monthly bill will be in five years time, use this formula:
Monthly bill in year n = Monthly bill in year 1 x (1 + inflation rate)n
Monthly bill in year 25 = 150 x (1.02)25 = $246.09
Annual bill in year n = Monthly bill cost in year n x 12
Annual bill in year 25 = 246.09 x 12 = $2953.08
Step 3: Calculating the Cumulative Annual Total
To calculate the total you will spend on your energy bills over the span of 25 years, you can use the following formula:
Total annual bills over n years = Annual bill in year 1 + (Annual bill in year 1 / inflation rate) x (1 – 1/1+inflation raten-1)
Total annual bills over 25 years = 1,800 + (1,800/0.02) x (1-1/1.0224) = $35,845
Our solar PV chart shows you how your current electricity bill will change over the next 25 years due to inflation (25 years is the guaranteed lifespan of a solar system).
Example monthly bill: $150.00
From the chart, you can see that, while assuming a 2% constant inflation rate, annual electricity bills rose from $1800 in year 1 to $2953.10 in year 25. In addition, the cumulative total of electricity bills is $35,845.07 in the year 25. If the initial cost of going solar is less than this, going solar is definitely worth the investment! In addition, the initial cost of going solar may be less than you think because of the many solar incentive programs available.
Save with solar
Since you are generating your own power, the only costs associated with solar are its up-front installation costs. The benefits of a long-term investment in solar panels are larger than no investment because of the significant reduction in electricity bills.
Residential Solar System Cost
So, you’ve decided to switch to solar energy. You have already settled on where the system should be installed, but what should you expect in terms of the system’s costs? Solar panel costs can vary, but the easiest way to compare costs is by price in dollars per watt. This metric is relatively standard across the United States.
Factors to consider
The cost for an average-sized installation of a PV system in the U.S. usually ranges from $1.00 to $4.00 per watt. So, what does this mean for you? The size of the installation that you choose to install on your home will change the cost. Installing a larger system will require more equipment and more labor, which will increase the cost. The type of panel that you choose to install will also change what price you pay. Monocrystalline, polycrystalline, and thin-film panels all have different costs and efficiencies. Other factors, such as tax credits and the general cost of electricity in the state you live in, will also influence the cost of your system.
Pros and cons by state
Every state in America has different energy costs. When it comes to solar, these price variations are no different. For the most part, the different costs in each state fluctuate with the state by state electricity costs.
Not only do the costs of solar vary by state, but the savings vary as well. Different cities and states have electricity costs charged by local utility companies, different amounts of sunshine, and different local rebates and incentives for going solar. The solar panel payback period will also vary depending on where you live. The average U.S. household can break even on their solar energy system in just over 8 years, but in many cities, that number is even lower. Using an online calculator can be a huge help in determining whether solar is right for your roof.
Solar tax credit
The federal solar tax credit, also known as the investment tax credit (ITC), allows you to deduct 26 percent of the cost of installing a solar energy system from your federal taxes. As long as you own your solar system, you are eligible for the solar tax credit. The ITC applies to both residential and commercial systems, and there is no cap on its value. However, this tax credit is expiring. In 2023, the tax credit will fall by 4%.
Single panel costs
If you are not in need of a huge installation, or just feel like you have enough knowledge to do it yourself, you may be wondering the costs for single panels. Solar installers have direct relationships with distributors and can buy in bulk. Therefore, they can often purchase solar panels at a much lower rate than the average consumer. Solar companies can typically get a single solar panel at a price of $0.75 per watt. If the solar panel output is 250 watts, that single panel might cost you $187.50.
However, if a homeowner is trying to buy one or two panels for their own for a small DIY project, they will pay closer to $1 per watt. That means the same solar panel could cost closer to $250. Typical solar panel costs run from as low as $0.85 per watt to $1.25 per watt with output ranging from 150W to 350W. The inverters, solar batteries and other additional equipment that are needed for a fully working system also add to the solar panel costs. There is no doubt that having a contractor install your whole system is cheaper than trying to do it yourself.
There are a few tips to keep in mind when you decide to switch to solar. Getting a variety of quotes from different companies can help you weigh your options, and make sure that you are not being overcharged. Homeowners who get 3 or more quotes can expect to save $5,000 to $10,000 on their solar panel installation. Also, when determining which company can get you the best price, it is our first instinct to look at big companies. When it comes to solar, however, big companies tend to charge more than smaller companies. A recent report by the U.S. government found that large installers are $2,000 to $5,000 more expensive than small solar companies. And finally, consider all of the possible equipment before deciding on your panels. While certain panels will have higher efficiency ratings than others, investing in the highest quality solar equipment doesn’t always result in higher savings. The only way to find out what is right for your property is to evaluate quotes with varying equipment and financing offers.
To find out how much it costs to remove solar panels check out our FAQ here.
A solar incentive is a government program that pays you money to switch to solar. There are many different types of solar incentives. They range from one-time tax credits or cash payments to continued payments over the life of your system. Here we cover the main types of solar incentives.
The Federal Investment Tax Credit (ITC)
One of the most important solar incentives available in the U.S. is the solar Investment Tax Credit (ITC). The ITC is a federal program that offers tax credits to home and business owners who invest in solar projects for their properties. It was enacted in 2006 and will expire at the beginning of 2024. For 2022, 26% of the total purchase price of your solar system can be deducted from your income taxes owed to the federal government the following fiscal year. In 2023, the ITC is set to reduce to 22%, and will expire in 2024.
State Specific Policies
Besides the ITC, many states have their own solar incentive programs. States such as California, New York, Massachusetts, New Jersey, and Maryland have some of the best incentives in the nation, but incentives to go solar can be found anywhere. Common programs include:
- Property tax exemptions for the value of your solar system
- Sales tax exemption on the purchase of a solar system
- Low-interest loans
- Cash rebates to offset project costs
- Low-income incentives
These are just a few examples of solar incentives that can greatly reduce the cost of going solar. There are many different types of solar incentives, and not all of them will be available in every area. DSIRE manages a comprehensive database on the specific incentives available in each state. It is important to research your state’s policies to maximize your savings and enlighten.energy is happy to help! Reach out to us!
Performance Based Incentives
An important category of solar incentives offered by many states and utility companies is performance-based incentives (PBIs). These programs reward home and business owners for the energy produced by their solar energy system. There are two main categories of PBIs.
In many states, utility companies are required to produce a certain percentage of their electricity from renewable sources like solar. To meet their clean energy requirements, many companies will purchase the energy produced by home solar systems to count it towards their quota.
SRECs are the mechanism through which ownership of the energy is transferred. One certificate is issued to a home or business owner for every 1,000 kilowatt-hours of energy produced by their system. Each SREC can typically be sold for hundreds of dollars!
In many states, your utility company can install a two-way meter on your property and connect your solar system to the grid. The meter can measure both the electricity used by your property and the excess electricity produced by your solar system that is fed into the grid.
Throughout the day, the energy produced by your solar system will exceed the energy needs of your house. To minimize waste, the energy produced by your system can be sent into the grid for others to use. To compensate owners for their energy, they receive credit for their energy bill.
What is solar panel payback period?
Installing solar panels is a long-term investment with significant financial benefits. With that said, it would be of interest to you to be able to calculate the solar payback period. The solar payback period measures how long it would take you to ‘break even’ on your solar investment. For example, the average payback period is 8 years. This indicates that it would take 8 years for your electricity bill savings to equal the initial installation costs. However, solar panels usually have a lifespan of between 25 – 30 years. This would indicate that after the solar payback period, you would start significantly saving on your costs for the remaining 17 – 22 years.
In the case of solar leases and PPAs, the solar payback period is equal to zero. You instantly start seeing returns as long as your solar payments are less than your electricity bills. However, you will receive fewer savings in the long run.
How is the solar panel payback period calculated?
To determine your solar payback period you need to calculate how much your solar system will cost and how much you will save on your electricity bill every year. It is also crucial to know what solar incentives you are eligible for. Here is a step by step guide for how you can calculate your solar payback period.
- Calculate your total costs by subtracting any solar incentives (tax credits, rebates) from your initial installation costs.
- Find out your annual savings which can be determined by calculating your annual savings on your electricity bills and any other incentives such as SRECs or net metering.
- Divide your total costs by your annual savings to get a number that will represent the solar payback period.
If you need help, don’t hesitate to reach out! Sign up with us and we will help you with anything!
Solar Net Metering
Solar net metering is a billing mechanism that allows you to store the excess energy generated by your solar system in the electric grid. Sometimes you produce more energy than is required. When the excess energy you generate is stored in the electric grid, you receive credits in exchange. Credits from one month can roll over and be used to offset any energy you might have taken from the grid.
Advantages of Net Metering
There are many advantages of solar net metering. The greatest benefit of net metering for solar energy homeowners is that it can result in thousands of dollars saved over the lifetime of the solar panel system. Net metering can also contribute to a shorter payback period. Thanks to the reduction of utility bills, homeowners can retrieve their investment costs much faster. Another benefit is a reduction of the load on the utility. Power generated by the private households helps the utilities to reduce the stress on the electrical grid. The produced energy can also be used by the utility company clients in the neighbourhood, which further decreases the demand for energy production from the power plant perspective. Finally, solar net metering is virtual energy storage. For solar energy homeowners, the net metering becomes a way to store the produced energy surplus in the grid which becomes a kind of energy storage without a need to have physical storage like an expensive high capacity battery at home.
When is the Right Time For Me to Go Solar?
The decision to go solar is an investment many families and businesses consider. Whether you want to live more sustainably or save money on your monthly utility bills, going solar has numerous benefits.
And the solar industry is booming. According to the Solar Energy Industries Association, the solar industry has seen an annual average growth rate of 42% over the past decade. The cost of solar installation has also decreased by over 70%.
These plummeting costs have motivated many to go solar. For some, however, the upfront costs of owning a solar system can still be daunting. The truth is that with solar’s many financing options, the cost of going solar can end up being less than your electric bill.
So, when is the right time to go solar?
When you want to save money on your utility bills
Choosing solar becomes cheaper each year. This is due to a number of factors, such as the development of inexpensive, efficient technology and an increase in state and federal incentives to install solar.
At the same time, over the past 10 years, average retail residential electricity rates have increased by 15% nationwide. There are many reasons that energy rates are rising, including the cost of producing electricity, increased energy demand, fluctuating weather conditions, and government regulations.
Going solar can help you transition to energy independence and save money on expensive monthly utility bills. This is especially beneficial for people with fixed incomes, or for small businesses who benefit from the stability that going solar provides. The average home can save between $10,000 and $30,000 over the course of a system’s lifespan.
When you know how to access state and federal incentives
Did you know that many states offer financial incentives to encourage residents to install solar panels? For example, in New York state, the Solar Energy System Equipment Credit offers residents a tax credit (capped at $5,000) equal to 25% of the total cost of their solar system equipment.
Curious about the incentives offered by your specific state? Recognized by the Department of Energy, The Database of State Incentives for Renewable Energy and Efficiency provides a state-by-state look at financial incentives for solar and other types of technologies. Federally, consumers who purchase their own solar systems are eligible for the Federal Solar Investment Tax Credit. The ITC plays a crucial role in stimulating growth in the solar industry. This year, the tax credit available for homeowners will amount to 26% of net installation costs, and the tax credit offered to businesses will amount to 26% of gross installation costs. This money, received in the form of a rebate, can help you pay your federal income taxes!
A reason to go solar now, rather than waiting, is that as the popularity of solar grows, financial incentives often decrease. For example, in 2023 ITC will decrease by 4%, to 22%. Decreases like these are also occurring on a state level. Below is an example of how the ITC works. Tax liability is the amount of tax owed to the government. The tax credit is the amount of money you save from not having to pay the tax. The example obtains the tax credit by multiplying the percentage by the net installation costs. That tax credit is then subtracted from the tax liability. In the example, you can see that tax credits are declining. Transition to solar now by signing up with us, and take advantage of these state and federal incentives!
When you want to be more green
Solar energy is a type of renewable energy, meaning that it provides an infinite supply of energy. As one of the cleanest forms of energy in existence, solar is a great way to shrink your carbon footprint and limit your greenhouse gas emissions — all while saving money on energy bills! Every kilowatt of solar installed saves 1.5 tons of carbon from entering the atmosphere each year.
Generating electricity from burning and extracting fossil fuels, on the other hand, releases harmful greenhouse gases in large amounts, such as methane and carbon dioxide. These greenhouse gases contribute to global climate change, and the chemicals used in extraction processes pollute and degrade our air, land, and water. Going solar is an investment in a greener planet. It is an investment in future generations.
Go solar today!
In many ways, you will experience significant returns on your decision to pursue a solar system for your home or business. From saving and making money to limiting your environmental impact, there are so many benefits to going solar.
So don’t wait! Find out your financing options, take advantage of financial incentives, and start building equity in your home or business.