Why Install Home Solar Panels? Should You Go Solar?
Rising energy prices and new tax incentives for green home improvements this year are heating up interest in solar.
Experts say it’s a good time for many homeowners to harness solar energy. Though solar power may not work for every home, when it does it can drastically cut home heating bills and lessen damage to the environment caused by the burning of fossil fuels. And while installing a solar energy system is still not cheap, the up-front cost has gone down significantly in the past 10 years.
Cost of solar panels
Costs vary from state to state and depend on things like the size and quality of the solar array. Nationally, the average cost for a residential photovoltaic system is about $20,000 after 30% in federal tax credits, according to EnergySage.com, an information website for residential alternative energy.
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Nick Liberati, communications manager for EnergySage, breaks it down: The national average for a 10-kilowatt system, priced at the national average of $2.86-per-watt, costs $28,600. The federal tax credit allows you to deduct 30% of the cost of installing solar panels from your federal taxes (or in this case, a total of $8,580), bringing the cost to $20,020.
On average, it takes 8.7 years to break even — that is, to save enough on power to recover the cost of solar panels. After that, your solar energy is free until the equipment wears out. Solar panels are typically guaranteed to last 20 to 25 years, although the system’s inverter is generally guaranteed for 10 years. The inverter converts DC electricity generated by solar panels into AC electricity that's used in your house.
Should you buy a solar panel battery?
The average solar panel cost quoted above doesn’t include storage. A battery can add an average of more than $9,000 after the federal tax credit, depending on the size and other features. Specifically, Liberati says, the national average cost for a battery in the 10-12 kilowatt hour size range is about $13,000. Starting in 2023, all residential batteries will be eligible for the full 30% tax credit as long as they’re over 3 kWh in size. So you'd be able to deduct $3,900 from your taxes, leaving you with a post-tax credit price of $9,100 for the battery.
Although batteries are becoming more popular, most solar houses don’t have them. Instead, most consumers send their excess energy to their utility as credit toward their power usage when the panels aren’t collecting enough, such as at night.
Without a battery, if your utility loses power, your home does, too, even when it’s sunny. “The primary reason for this is safety,” Liberati says. “If your solar panel system is still producing electricity and sending it to the grid during an outage, those energized wires pose a serious safety threat to any utility workers trying to restore electric service to the grid.
That won’t be a problem if you have a battery with “islanding capability.” Islanding is a technology that allows your home to support itself. “You can keep producing solar energy and feeding it to your battery during an outage without posing a risk to line workers because a system that is islanded won't push excess electricity onto the grid,” Liberati explains. He notes that not all solar panel systems with energy storage can automatically island. If you get a battery, you should make sure your installer gives you the right equipment to enable this technology.
Things to consider when getting solar panels
With so many thousands of dollars required upfront, going solar can be intimidating for many people, notes Vikram Aggarwal, CEO and founder of EnergySage.
Aggarwal urges comparison shopping and checking any claims — such as that your utility or the government will give you solar for free. EnergySage, he says, helps with this and connects consumers with reputable contractors. The site also has information about incentives offered by different states.
Another factor to consider is how your utility company credits you for the solar energy it gets from you, particularly if you don’t have a battery and are reliant on the utility to run your home when your panels aren’t collecting enough.
Michael Ware, a senior solar specialist with consulting firm EcoMotion, says there’s tension over how the utilities credit customers for solar power. The utilities want a discount, similar to how they pay for other forms of energy that they sell to consumers. But solar advocates want the utilities to credit customers the full amount they have to pay for their power, known as net metering.
Sherri Shields, director of communications and marketing for the Florida Solar Energy Center at the University of Central Florida, said people who install solar should check with their insurance companies about whether they cover the panels or whether you have to purchase extra insurance.
Other reasons to go solar
Saving money is just one reason people go solar, notes Robert Stoner, deputy director for Science and Technology of the MIT Energy Initiative. “I think most people who invest in residential rooftop solar simply want to be part of the transition, and to a lesser degree to be seen to be,” he says. “Nothing wrong with that…Some, like me, own homes — my weekend home is at the end of a five-mile-long barrier beach — that simply don’t have the option to have grid electricity.” Stoner says his solar system, which includes a bank of lead acid batteries, provides all of his electricity, “And it brings me a lot of joy! Some of that comes from the feeling of independence I get, and some of it from getting to experience the miracle of electricity being produced from the sun.”
Rotraut Bockstahler, 86, of Sarasota, Fla., with her husband, installed 26 solar panels and a Tesla battery in November 2016. Installing the solar panels cost just under $28,000, and they received a tax credit of about $8,400, leaving a net cost of about $19,600. Getting the battery cost about $8,400, and they received a tax credit of about $2,500, for a net cost of about $5,900. “We feel strongly about climate change and wish to make a contribution to reverse that trend,” Bockstahler says. Going solar “was one of the most positive decisions we made for our living in Florida. We have saved money, made a contribution to fighting climate change and were fortunate enough to have electricity every time there was an outage in the electric grid.”
Going solar doesn’t always cut you off from the power company entirely. When the system was first installed, Bockstahler says, their need for electricity from the utility dropped significantly and their power bills went down to about $40 to $60 a month. With increasing energy costs, they’re now over $100 a month. But in addition to the power bill savings, she counts the money saved on food that didn’t spoil and hotel rooms they didn’t have to get when the power grid failed.
If they have any regrets, she says, it’s that they didn’t get a bigger system. “We feel that the decision we made about the number of panels we have, was maybe a little too conservative and should have included more circuits that could be powered by the battery,” she says.
Should you wait for new solar panel technology?
Another reason you might hesitate to go solar is that technology might advance to offer more efficient and/or less expensive options. And it’s true that different technologies continue to emerge. For instance, some companies are offering roof shingles that serve as solar collectors. Also, standard solar panels have become more efficient, less expensive and better looking.
If you wait, might you have a chance to get something better?
Aggarwal says solar panels do improve slightly each year, but not enough to justify waiting for a dramatic change. A decade ago, he said, the panels would each generate maybe 240 or 245 watts. Now, they each produce 400 or 420 watts of power. So this means, you can get more power from a system that covers the same amount of roof space. The panels, he says, used to be bright blue with silver around the edges. Now, they’re all black and “look beautiful,” he says. And they’re more durable.
Solar shingles, he says, so far haven’t turned out to be ready yet for broad use. Aggarwal says a roofing company plans to introduce “an interesting product” along those lines sometime this year. But solar shingles are still less efficient and more expensive than traditional solar panels. However, if you’re planning to replace your roof, he says, solar shingles may be worth considering.
Ware said he expects the price of batteries to come down in the next five or 10 years as companies explore different battery technologies. The currently most popular battery technology is lithium-ion, which may pose a fire hazard in some instances, leading some jurisdictions to require that they be mounted outdoors.
Is solar right for you?
Some homes are not suitable for solar:
- If you have an old roof that needs to be replaced in a few years, for example, it makes sense to wait because removing and reinstalling solar panels can cost thousands.
- If your roof faces north or is in the shade, you probably aren’t a good solar candidate.
- It’s also more complicated and expensive to install solar on roofs covered with clay tiles, Liberati says.
There is another option for people who can’t put solar collectors on their roofs.
Community solar involves an array of solar panels that people can purchase an interest in. People who participate in community solar generally receive credit from their utility company for power generated by their share of the project. You can find information about community solar projects in your area on the EnergySage website.
Note: This item first appeared in Kiplinger’s Retirement Report, our popular monthly periodical that covers key concerns of affluent older Americans who are retired or preparing for retirement. Subscribe here if you want retirement advice that’s right on the money.
What Is Solar Power for the Home?
Homeowners who install solar power systems can receive numerous benefits: lower electric bills, lower carbon footprints, and potentially higher home values. But these benefits typically come with significant installation and maintenance costs and the magnitude of the gains can vary widely from one house to another.
This article will help homeowners make the financial calculations required to determine the viability of solar power in their homes.
Key Takeaways
- Those seeking to go green may want to consider equipping their home with solar panels.
- Not only is solar power good for the environment, but you can earn money selling back excess power to the grid.
- While costs have come down over the past years, installation and maintenance of solar panels can be quite expensive.
- Solar panels are best suited for homes that receive ample sun exposure throughout the year.
- Before committing to solar power, be sure to understand both the social and economic factors.
querbeet / Getty Images
Understanding Solar Power
In principle, working out whether it makes financial sense to install solar power for your home is simple. You will need to calculate:
- The cost of a solar power system
- How much energy it will produce
- What you would otherwise pay for the same amount of energy
- How many years it will take for your upfront investment to pay for itself in saved energy costs
- Whether the system will pay for itself in five years
If it does and you have the upfront capital, it's probably a great idea. If you'll have to wait longer for savings or take out a loan to afford the system, you'll need to think the decision through carefully.
In practice, however, things are not this simple. There is a large variation in each of these factors, and that can make the costs and benefits of installing solar power for two homes—even if they are neighbors—radically different.
There are some tools that can help, though. Solar Reviews offer a calculator that will quickly provide you with representative costs and savings for a solar power system in every part of the U.S. Calculators like this are a good place to start if you are new to solar energy and want to understand the basic cost model.
In the rest of this article, we'll take you through each of the key factors you should consider when calculating the costs and potential savings of solar power for your home.
Before getting solar panels, get quotes from several reputable installers to compare.
The Cost of Solar Power for Homeowners
First, let's look at the cost of installing a solar power system for your home. The average, upfront cost of a residential solar power system is between $3,500 and $16,000.
Why the huge range of costs? Well, a lot of the variation depends on the size of the system you'd like to install and the type of panels you want to use. Whatever system you use, keep in mind that solar power is capital intensive and the main cost of owning a system comes upfront when buying the equipment. The solar module will almost certainly represent the largest single component of the overall expense.
There are some additional costs, as well. Other equipment necessary for installation includes an inverter (to turn the direct current produced by the panel into the alternating current used by household appliances), metering equipment (if it is necessary to see how much power is produced), and various housing components along with cables and wiring gear. Some homeowners also consider battery storage. Historically, batteries have been prohibitively expensive and unnecessary if the utility pays for excess electricity that is fed into the grid (see below). The installation labor cost must also be factored in.
In addition to installation costs, there are some further costs associated with operating and maintaining a PV solar array. Aside from cleaning the panels regularly, inverters and batteries (if installed) generally need replacement after several years of use.
Subsidies
While the above costs are relatively straightforward—often a solar installation company can quote a price for these for a homeowner—determining subsidies available from the government and/or your local utility can prove more of a challenge. Government incentives change often, but historically, the U.S. government has allowed a tax credit of up to 30% of the system's cost.
More details on incentive programs in the U.S., including programs within each state, can be found on the Database of State Incentives for Renewables & Efficiency (DSIRE) website. In other countries, such information is often available on government or solar advocacy websites. Homeowners should also check with their local utility company to see whether it offers financial incentives for solar installation and to determine what its policy is for grid interconnection and for selling excess power into the grid.
97.7 gigawatts
The U.S. installed 19.2 gigawatts of solar PV capacity in 2020 to reach 97.7 GWdc of total installed capacity, enough to power 17.7 million American homes.
Calculating Your Energy Production
The second factor you'll need to consider in your calculations is the amount of energy your system will produce and when it will do that. This can be a very complicated calculation to make, even for experienced solar engineers. However, let's run through the basics.
One of the most important considerations is the solar irradiation levels available in the home's geographical location; in other words, how sunny it is where you live. When it comes to using solar panels, being closer to the equator is generally better, but other factors must be considered. The National Renewable Energy Laboratory (NREL) produces maps for the U.S. showing solar irradiation levels and the tools on its website provide detailed solar information for specific locations within the U.S.
Equally important is your home's orientation: For rooftop arrays, a south-facing roof without trees or other objects obstructing sunlight maximizes the available solar energy. If this is not available, panels can be mounted on external supports and installed away from the house, incurring additional costs for the extra hardware and cables.
And then you must factor in the size of your system. Solar panel size is quoted in terms of the theoretical electrical output potential in watts. However, the typical output realized for installed PV systems—known as the capacity factor—is between 15% and 30% of the theoretical output. A 3 kilowatt-hour (kWh) household system running at a 15% capacity factor would produce 3 kWh x 15% x 24 hr/day x 365 days/year = 3,942 kWh/year or roughly one-third of the typical electricity consumption of a U.S. household.
How Much Will You Save?
Once you know how much a solar power system will cost upfront, and how much energy it will produce, you can (theoretically) predict how much you can save in energy costs per year.
This is another tricky calculation, however, because a lot depends on how you pay for electricity at the moment. Utilities often charge residential consumers a flat rate for electricity, regardless of the time of consumption. This means that instead of offsetting the expensive cost of peak electricity production, homeowners' solar power systems merely offset the price they are charged for electricity, which is much closer to the average cost of power production.
However, many utility companies in the U.S. have introduced pricing schemes that allow homeowners to be charged at different rates throughout the day in an attempt to mirror the actual cost of electricity production at different times: This means higher rates in the afternoon and lower rates at night. A PV solar array may be very beneficial in areas where this sort of time-varying rate is used since the solar power produced would offset the most costly electricity.
Exactly how beneficial this is for a given homeowner depends on the exact timing and magnitude of the rate changes under such a plan. Similarly, utilities in some locations have pricing schemes that vary over different times of the year due to regular seasonal demand fluctuations. Those with higher rates during the summer make solar power more valuable.
Some utilities have tiered pricing plans in which the marginal price of electricity changes as consumption rises. Under this type of plan, the benefit from a solar system can depend on the electricity use of the home; in certain areas subject to rates that increase dramatically as consumption increases, large homes (with large energy needs) may benefit most from solar arrays that offset high-cost marginal consumption.
For some homes, it might even be possible to make money by selling solar power back to the grid. In the U.S., this is done through "net metering" plans, in which residential consumers use the power that they put into the grid (when the rate of electricity generation from the solar array is greater than the rate of household electricity consumption) to offset the power consumed at other times; the monthly electric bill reflects net energy consumption. The specific net metering regulations and policies vary across regions. Homeowners can refer to the DSIRE database and should also contact their local utilities to find more specific information.
Calculating Solar Power Costs
At this point, you will be in a position to make a final calculation, and an assessment of whether solar power makes sense for you.
The overall cost and benefit of a solar system can theoretically be evaluated using the discounted cash flow (DCF) method. Outflows at the beginning of the project would consist of installation costs (net of subsidies) and inflows would arrive later in the form of offset electricity costs (both directly and through net metering).
However, rather than using DCF, the viability of solar power is usually evaluated by calculating the levelized cost of electricity (LCOE), then comparing it to the cost of electricity charged by the local utility. The LCOE for household solar will typically be calculated as cost/kilowatt-hour ($/kWh or ¢/kWh)—the same format commonly used on electricity bills. To approximate the LCOE, one can use the following equation:
LCOE ($/kWh) = Net Present Value (NPV) of the Lifetime Cost of Ownership ($) / Lifetime Energy Output (kWh)
The useful life of a PV solar module is generally assumed to be 25 to 40 years. The cost of ownership includes the maintenance costs, which must be discounted to find the NPV. The LCOE can then be compared to the cost of electricity from a utility; remember, the relevant price is that which occurs during times at or near peak PV solar production.
Is Solar Power Worth It?
Once you've worked through all of these calculations, you'll likely end up with a single number—the number of years it will take for a solar system to pay for itself in savings from your energy bills. If you live in a sunny part of the country and have high utility bills at the moment, you could be looking at a system that will reach this point in five years. Other homeowners may have to wait 10 or 20 years to reach this point.
In other words, most homeowners will eventually see a benefit from a solar power system; it might just take decades for this to be realized. Whether it is worth installing such a system therefore often comes down to a number of much less technical factors than those we've listed above: how long you are going to stay in your home, the subsidies available in your area, and simply whether you want to do your bit for the environment.
Pros and Cons of Solar Panels for Your Home
Like most things, solar power has its benefits and drawbacks. At the same time, some economic costs may be defrayed by the social benefits to the environment and lowering your carbon footprint, which may be more important to you than a purely monetary evaluation.
Pros
Green energy that lowers your carbon footprint
Net metering allows you to sell back excess energy produced
You may be eligible for certain tax breaks
Cons
Installation and maintenance costs are still high
Solar only works when the sun is out
Parts of the system need to be replaced every few years
Some tax breaks may have expired or will be expiring
Can a House Run on Solar Power Alone?
Practically, it is not often possible. This is because solar only works when the sun is shining—when it is cloudy or nighttime, they do not generate electricity. There are some battery solutions to provide power during these times, but they still tend to be quite expensive. Most homes with solar panels still rely on the grid from time to time.
Do You Really Save Money With Solar Panels?
Depending on where you live, it is possible that the system can pay itself back and more over time. This is because you won't be spending as much money buying electricity from your utility. If net metering is in place, you could reduce your bills even further.
How Much Does a Solar Panel Cost?
Prices have been coming down steadily over the years. The total cost will depend on how many kilowatts of power your array will generate. According to consumer reports, after solar tax credits are accounted for, the cost for a solar panel system on an average-sized house in the U.S. in 2021 ranges from $11,000 to $15,000.
How Long Will It Take To Recoup the Initial Cost?
Depending on where you live and the size of your system it can take, on average, anywhere from 10 to 20 years to break even on a solar installation.
The Bottom Line
Determining whether to install a PV solar system may seem like a daunting task, but it is important to remember that such a system is a long-term investment. In many locations, solar power is a good choice from a financial perspective.
Even if the cost of solar power is found to be marginally more expensive than electricity purchased from a utility, homeowners may wish to install solar power to avoid future potential fluctuations in energy costs, or may simply wish to look beyond their personal financial motivations and use solar for green living.
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