A solar panel system offers the promise of saving you money on your energy bills. Will it really work? Find out more.
At first glance, investing in solar panels seems like a no-brainer.
There’s quite a bit of hype surrounding this technology. It’s getting cheaper and cheaper as time rolls by. As a result, spending on it is on a roll nationwide.
Even so, the answer to whether the solar panel system is really worth it isn’t cut and dried. Yes, the panels tend to save a lot of money in the long-term. They are more than a viable option for many homeowners.
But, installing a full-blown setup is a big undertaking. Returns aren’t guaranteed, as they depend on a multitude of factors. These range from your geographical location to the size of the system.
Therefore, you need to do better than making a back-of-the-envelope calculation. Due diligence prevents unpleasant surprises and maximizes ROI.
To help you be the most informed, we’ve compiled a comprehensive overview of costs and savings.
Down the Green Path
Solar panels are an amazing way to make your home greener.
They represent one of the cleanest energy sources in the market. You can use them to supplement or completely offset conventional needs. We’re talking about everything from heating water to powering appliances.
You also have a chance to shield yourself against the rising costs of electricity. You’re less dependent on the grid, as well as the twists and turns the market takes.
For these reasons, photovoltaic (solar panel system) setups hold the potential to benefit your household budget.
In fact, we can look at them as a major investment in your financial future. Much of the savings come in the form of avoided costs and they kick in over the long-term.
Here we list both their strength and weakness. We’ll begin with the latter.
Namely, making accurate forecasts in a decades-long timeframe is quite challenging. Production per kilowatt hour (kWh) and its economic value aren’t set in stone. Additionally, the variance in energy use and price varies greatly from one state to another.
The takeaway is clear. You cannot just look at the national average figures and dive in right away.
It’s a Numbers Game
Like it or not, there’s a lot of ground to cover.
You can start by assessing your electricity bills. Determine how much you’re spending as it is. Identify areas where you can save money.
Studies reveal a typical American family spends around $1,335 annually. But, the actual numbers go well above and beyond that benchmark. Naturally, the higher the electricity price in your region is, the more inclined you are to go solar.
Utah’s electricity costs are low and its citizens are not overly prone to transitioning to solar. Hawaii is on the opposite side of the spectrum, with unusually high electricity prices.
Make no mistake: The discrepancy is big and it makes a whole lot of difference.
Another aspect is the fluctuation of expenditures from month to month. The best way to address it is to work out the yearly average. In order to do that, you have to anticipate how the rates may change in years to come.
While at it, take into account the assumed rate of utility inflation. This term refers to price escalation, which in past years has been 2.2%.
The upward trajectory is poised to increase in the foreseeable future. It means your relative savings will rise over the years.
The beauty of it is that, with a solar panel system, you become immune to fluctuations. You basically cement energy costs at a constant rate.
The Spoils Vary
The next major factor to consider is the number of direct hours of daily sunlight.
To put things into perspective here, let’s take the example of several states across the US.
California and Arizona are hot spots: they have the most sunlight hours per day. In Washington, on the other hand, lack of sunshine for much of the year discourages solar investment.
Now, despite what many assume, you can still profit in poorly ranked states. Your house doesn’t need to be in the strong sun all day long. It’s just that ROI is lower and also slower to materialize.
Another thing to keep in mind is solar systems store energy. This energy can be used during the night, where no sun is shining at all.
Furthermore, investigate if the home orientation toward the sun is working to your advantage. Make sure there’s no external shade reducing the solar output. The installation has to be performed at optimal tilt and azimuth as well.
Speaking of which, it’s crucial to properly gauge the size for your system. Going for overkill unnecessarily inflates the costs. It could also undermine the structural integrity of the building.
Consult with the experts and check online resources to decide on the number/size of panels.
The Hurdle of Upfront Costs
Once that is sorted out, figure out total upfront costs.
As expected, solar panels vary widely in price.
A standard, 5kW residential system goes for around $15,000 to $25,000 (installation included). A 10kW system costs more than $32,000. These numbers include labor costs, the product, and other equipment.
The panels themselves account for 30% of the cost. That’s to say their type, shape, and size impact the price tag. The often-neglected truth is that better quality doesn’t necessarily translate into greater ROI.
There’s really no need to splurge too much. You’re better off being frugal.
To make it happen, keep an eye on cost per watt. When purchased in bulk, most panels go about $0.7 per watt. Otherwise, they can cost $1.5 per watt.
Apart from panels, see to it you don’t overpay for other equipment either. Most of it involves the wiring, inverters, and electrical components needed for panels to harness sunlight.
We know this is already a lot to grasp, but don’t fret if math is not your strong suit. There are a plethora of online tools for number crunching. They factor in parameters like your address, utility provider, and monthly bills.
For instance, you can use this solar calculator to obtain customized estimate nice and easily.
Exploring Your Solar Panel System Options
There’s no going around it: upfront expenses are quite unpleasant.
They hold back many people from investing and that’s understandable. But, the good news is there is more than one way to trim them.
First off, solar providers aren’t created equal.
You want to do the research and shop around for best prices. Talk with people who have already integrated panels. Get their recommendations or seek online reviews.
It’s always a good idea to get quotes from multiple contractors. Reputable providers like this Los Angeles Solar company are a safe bet and hopefully available in your region. They have a solid track record and offer additional value with their services.
Some installers also boast amazing financing options. Power purchase agreement (PPA) is a prime example— it includes 0% money down. A nice selling point no doubt.
To save even more money, look for solar incentives on the local, state, and federal level.
There’s no shortage of programs supporting residential investments. Most notably, we have a federal tax credit. It enables homeowners to recoup up to 30% of installation costs.
Depending on your location, there could be additional credits and rebates.
States with high solar ranking offer property tax exemption, waived fees, and cash back.
NY State, for instance, has a 25% tax credit. Contrary to that, states like Oklahoma are yet to provide serious incentives.
Focusing on the Long-term Horizon
A steep price of installing panels shouldn’t dissuade your investment.
Good systems involve minimal maintenance and can serve you for 25 years. So, if you can take the initial financial investment, solar power is the way to go.
Systems pay rich dividends over the course of their lifetime.
In Washington, 20-year savings stand at $10,483. If you’re in Massachusetts, the figure exceeds $30,000. Most other states fall somewhere in between.
If you want to think in terms of yearly savings, the average is $1,401 yearly ($100 monthly). The payback period is about five years. Not bad at all, right?
Let’s not forget either that solar systems boost the price of the property. Namely, homes with rooftop panels sell faster and for 3-4% higher price.
We didn’t even mention a reduced carbon footprint or other environmental benefits!
Weighing all these pros and cons, the verdict has to be in favor of solar. Done correctly, tapping into it is a win-win.
Just bear in mind that some incentives are time-limited. The aforementioned tax credit will shrink to 26% next year. After 2021, only commercial users will be able to qualify.
You might need to act sooner rather than later.
The Green Light is On
The green economy is booming and reshaping the residential landscape of today.
Prices are at a record-low and are still dropping. Financial incentives encouraging you to embrace solar power abound. That’s all fine and well, but there’s one problem.
There are many variables in the profitability equation.
ROI is a product of your location, energy needs, and several other factors. What you can expect to save varies considerably state-by-state.
Thus, ballpark figures don’t cut it. You have to do your homework diligently and look beyond upfront expenditures. The real spoils wait down the road and they add up.
Before you take the plunge, check whether you qualify for various financial incentives. Confirm that your property can capture a sufficient amount of sunlight. Come up with savings forecasts and pick the optimal solar panel system.
Feel free to check out our frugal living section for a holistic approach.
Following these steps, you should be able to boost your energy security and independence. Power your home the green way!