Solar energy systems provide immense benefits. They help home owners and businesses conserve energy and save money. They increase property value. And because of advances in technology and manufacturing, solar panel systems are more affordable than ever before.
Your solar panels can produce electricity for 25+ years with minimal maintenance.
But many people still wonder about the return on their investment of solar energy. How much does a solar system cost? When can I expect my solar panels to start “paying me back?” Do the pros outweigh the cons?
Let’s clear up a few misconceptions about solar before we dive into cost analysis.
1) Solar energy system installation is too expensive.
Many people mistakenly believe solar power installation costs are too high. The panels themselves are budget-friendly. It’s the labor and materials to correctly set up the panels that cause people to balk.
A number of factors go into the initial installation costs—even if you go the DIY route. Every home and business solar system installation project is different. The key to reducing these costs is to research ahead of time.
Find out what tax credits and incentives apply to your situation and geography. Work with experts to make the most of your roof space. Get a feel for how much energy you generally consume (this will tell you how much energy you need and prevent you from buying extra power you don’t need). And this one-time installation cost could save you a lot of money—both in the short- and long-term.
2) The payback period is too long.
In solar energy, there’s a “break-even point” where your investment has paid for itself in cost savings created by the solar power generated from the system. The time between installation and break-even is called the payback period. A common myth is that it takes 25 years before you exit the payback period and really see major return on your solar investment. This simply is not true.
If you choose to sell your home or business at any point after solar energy installation, you’ll enjoy higher property values, estimated as high as $15,000-20,000 increase.
Depending on the size of your solar energy system and how you set up the initial investment (buying outright versus a loan), you could see ROI much sooner. You see an immediate return on your electricity, utility, and energy bills. If you take advantage of generous federal and, often, local tax credits the money you invest in solar energy could be paid back to you in as few as six years. Further, if you choose to sell your home or business at any point after solar energy installation, you’ll enjoy the additional reward of higher property values. Current estimates point to a $15,000-20,000 increase.
3) You need to live in a warm, sunny climate to have solar.
You can use solar energy systems in any climate. Cold, warm, sunny, cloudy, snowy—solar works in them all because every climate region has periods of sun. Solar panels operate by harnessing the sun’s energy—not its temperature. In fact, solar panels are more efficient and work better in colder climates because excessive heat can strain the system.
What about snow? Expert solar installers take weather into account when installing your solar panel system. They augment the tilt and placement of the panels to work in all of the elements. This includes installing them at an angle that helps snow slide off. Snow cover on the ground and trees may also increase the amount of light reflected in the environment. This means more light absorbed by your solar panels, potentially making them more effective in generating energy.
4) Relying on fossil-fuel energy is more cost-effective.
Prices for conventional fuel sources are projected to increase over time. The world’s consumption of fossil fuels is predicted to continue an upward trend, which will drive costs even higher than they are today. In fact, the cost of electricity produced by solar is now cheaper than coal. The sun is a free, renewable energy source you can harness via solar energy systems and the efforts to harness that energy has very little impact on the environment, unlike fossil fuels. Once you compare the long-term escalation of fossil fuel prices against the long-term gains of solar energy, the benefit of solar is clear.
Now that we’ve dispelled some of the common myths around solar energy systems, here is a breakdown of ROI cost analysis.
Calculating Your ROI for a Solar Panel System
Think of your solar energy system like a financial asset. It is capable of generating annual returns on your initial investment from 12-15%, maybe even more. “It’s all about how much your cost is, how much you’re paying versus the grid,” Tom Kimbis, executive vice president of the Solar Energy Industries Association, told Time Magazine].
The total cost (equipment and installation) of the average residential solar panel system in 2018 ranged from $11,380 to $14,990, according to EnergySage. This is after applicable tax credits are taken into account—and there are several to help offset your costs. You’ll also want to take into account the cost-per-watt of your solar power system. “The average price per watt for solar panels ranges from $2.71 to $3.57 and the average U.S household system size is 6 kilowatts (6,000 watts), therefore the average gross solar panel cost is $18,840. That’s six and a half percent lower than it was a year ago, and solar panel system costs are continuing to fall.”
To calculate your individual rate of return, simply divide the financial benefits you receive each year by your initial investment. Bear in mind these returns add up year over year, compounding your ROI.
Your solar panels will produce electricity for 25+ years with minimal maintenance. Over that time, you will generate returns in the form of solar savings: The more you use of your renewable solar energy means less use of electricity or other fossil fuels. So be sure to calculate utility bill savings into the mix.
As previously mentioned, in addition to savings on utility bills, your solar panels can earn you generous tax breaks, both at the federal level and state/municipality levels. The federal government offers a solar tax credit called the investment tax credit, or ITC. The ITC allows you to deduct 30% of the cost of installing a solar energy system from your federal tax return. The ITC applies to both residential and commercial systems, and there is no cap on its value. Be sure to check if your state or region offers special credits or rebates for solar, as well. Every dollar counts in calculating ROI.
How much can you save with solar? EnergySage has a calculator to quickly estimate your potential savings with a solar power system. All you need is your address and average electric bill cost.