Do solar panels save money? Yes. here’s how

This story is part Tips for the houseCNET’s collection of handy tips for getting the most out of your home, inside and out.

More than 500,000 new residential solar panel systems were installed on rooftops last year, according to the Solar Energy Industries Association. Despite greater uncertainty in the economy and solar industry in 2022solar panels are almost certain to pay off in the long run. Panels purchased from a reputable solar installer and optimized for greater energy production will save more money over time. And there is even solar options for tenants.

Residential solar installation costs vary due to size, local incentives and local costs, but an average installation cost is around $20,000, according to energy analysts Wood Mackenzie. (Wood Mackenzie uses an average install size of 8 kilowatts and an average of $2.99 ​​per watt. Many residential solar systems will be smaller.) Tax breaks and funding opportunities can make solar more affordable.

With just a little information and some calculations, we’ll show you how to estimate the payback period of your solar panels and know when they’ll start saving you money.

Read more: 5 things to consider before buying solar panels

Are solar panels really worth it?

A payback period is the time it takes to recover your initial investment. Solar panels can help you save enough money on energy bills over time to offset initial costs. The amount you save per month depends on the size of your solar system, your home’s energy usage, and other factors.

Calculating the payback period will be unique to your situation due to the variability in initial costs, as well as the difference in energy costs depending on your location. But here are some guidelines to help you estimate when you’ll break even.

Find out your initial costs

First, you need to estimate your initial investment amount. In addition to system costs, you should include potential installation costs and other fees as part of your service setup. Check cost estimates in your area and go from there.

Tax incentives can help a lot

Owners can receive a one-time payment tax credit of 26% off purchase price of a solar system. If the initial solar panel investment typically costs around $20,000 in your area, the tax credit will earn you $5,200 the next time around. file the taxes.

Additionally, some utilities offer incentives and rebates for installing solar power. Check with your local energy supplier to see if they offer any incentives.

You need to know how much you pay on your electricity bill

This estimate assumes you will get all your solar power. While some homes will be able to get 100% of their electricity from solar power, or even sell some of the excess energy back to the grid, others will still have an electricity bill to supplement their consumption. This will vary greatly from home to home, depending on the number of solar panels installed, normal energy consumption and more. Get more tools to calculate your home’s potential savings here.

Now that you have an idea of ​​how much energy you will save, log in to your utility company account and calculate an average of your latest utility bills. Go back at least six months, if possible, to account for seasonal temperature changes and other cost fluctuations. Let’s say you get 100% of your usage from the panels and you currently pay an average of $125 per month in electricity bills, or $1,500 per year. You now have the information you need to estimate the payback period for solar panels.

Estimate how long it will take you to pay for your solar panels

First, multiply the cost of your solar panel by 0.26, which is the tax credit you receive for installing your system. If you spend $20,000 initially, your tax credit is $5,200. This brings your initial investment down to $14,800.

Now let’s consider energy savings. Divide your initial investment by the $1,500 you typically pay the utility company per year; this is the time it will take for your savings to equal the amount you spend. Using the example above, you would divide your initial investment of $14,800 by $1,500: The result is a payback period of just under 10 years.

It may seem long at first glance, but solar panels can easily last 25 years.

You can further speed up your recovery period by the sale of renewable energy certificates, or RECs. These are measured in megawatt hours of electricity from a renewable source. Electric companies must buy electricity from renewable sourceswhich means you could save more by selling the energy generated by your solar panels.

Another important thing to know about solar

Certain factors could increase your recovery period. Before installing solar panels, you should inspect the condition of your roof. The panels can last 25 years, so if your roof isn’t in perfect condition, you may need to make improvements before installing solar panels. If this applies to you, be sure to add these costs to your initial investment.

All in all, solar power can be an expensive proposition, especially with the upfront costs. However, the long-term effectiveness they provide can more than offset the initial investment, resulting in savings for years to come.

Save money now: more home energy tips

Learn more about solar energy