Why Go Solar?

If you’ve considered adding solar panels to your home, then you are likely also curious about how much do solar panels really save you. But that answer can vary based on the factors that make up your unique solar situation.

That’s why we put together this article. The information below will tell you how much do solar panels save on electricity bills on average. We’ll also provide you with the information that you need to calculate exactly how much you can save by swapping to solar in your unique situation. Let’s get started.

How investing in solar saves you money

Before diving into the specifics of how much you can save by swapping to solar, let’s start by reviewing exactly how investing in solar saves you money.

When you add solar panels to your roof, they generate energy that you can use to power your home. The more energy that your panels create, the less electricity that you need to pull from the utility grid.

This means that once you’ve paid for your solar panels, you are able to power your home for either nothing or for a fraction of what you used to pay for electricity. These monthly savings add up over your system’s 25-30 year lifespan and typically allow homeowners to earn a positive return on their solar investment.

How much do solar panels save really?

There is quite a bit of variability in how much you can save by adding solar panels to your roof. The factors that will impact the exact amount that you save will be discussed in the next section.

That being said, the average homeowner can save between $10,000 and $30,000 over the lifespan of their solar panels.

This number is based on the fact that the average home in the United States uses approximately 10,600 kWh of power each year. And the average cost per kWh of electricity is 13.31 cents. That means the average home in the United States spends about $1,410 on electricity each year.

Now imagine that you install solar panels on your roof that cover 95% of your energy needs throughout the year. If you hit that same percentage every year for 25 years you would save $33,507 on electricity.

Then we just need to deduct the cost of your solar system from that number to determine what your total savings would be. For example, if you paid $15,000 for a solar system, then you would save about $18,500 over its lifespan.

Factors that can impact how much money solar panels save you

The math shown above is based on numbers that reflect the average home in the United States. But your input values could be vastly different than the ones described above, which would impact how much you save by investing in solar.

Here are the key factors you need to know in order to determine precisely how much you can save with a solar investment.

Solar system size

The first factor you need to know is how much energy you’re going to be able to produce with your solar system. This is a function of the system’s size.

For example, if you only purchase a system that can produce 6,000 kWh of power each year but your home uses 10,000 kWh of power in a year, your electricity savings will be capped.

How much energy you currently use

You also need to know how much energy your home uses in a year. The more electricity that you pull from the grid now, the greater your savings potential.

Figuring this out is usually pretty easy. You can do so by looking at your electricity bills for the past year and adding up the total kWh of electricity that you were charged for each month.

How much you pay for electricity in your area

Your total savings potential will also be a factor of how much you pay per kWh of electricity that you consume. Once again, the more that you pay for electricity now, the greater the amount that you may be able to save by switching to solar.

The amount you spend on a residential solar system

Finally, this is one of the biggest factors in determining how much you can save by investing in solar. The amount that you spend on your solar system will influence how long it takes you to break even and then go positive on your solar investment.

The average cost to install solar panels in the United States is $12,000 after tax incentives. But you may need to pay more than that depending on the state you live in and the size of the system that you need to power your home.

How much do solar panels save on electricity bills yearly and over their lifespan?

Both the yearly and lifespan savings that you can get from solar panels will depend on your personal calculation of the factors covered in the previous section. The key is to figure out how much you spend on electricity now and the percentage of your home’s energy needs that your solar system will be able to cover.

Here’s a table that highlights what your solar savings might look like in different scenarios:

What solar savings might look like in the future

The numbers shown in this article are all based on data that are relevant as of the time of writing. However, the average solar investment may have a very different profile in the years to come.

One thing to keep in mind here is the impact of electricity-rate inflation. The average cost of residential electricity in the United States has risen from 7.83 cents per kWh in 1990 to about 13.31 cents per kWh in 2021. That number should continue rising at a rate of approximately 2% annually.

This means that with a solar investment now, you could save even more on your electricity bill after you take future inflation into account.

Another factor to consider is that the cost of solar panels should continue falling in the years to come. In the early 2010s, the average residential solar system cost more than $50,000. That number has come down significantly to today’s average price of between $15,400 and $18,800 (6 kW system).

We may not see prices go down that much over the next decade. But it’s likely that we will see further price reductions in some capacity. This would bring down the average solar payback period, which would allow residential solar users to save even more on their annual electricity bills.

How solar panels earn you money

Before we consider the precise solar panel return on investment that is available to you, it is important to review exactly how you can save money by swapping to solar. Here are three ways that making the change to solar can reduce your expenses.

Reduce or eliminate your electricity bills

The biggest way that solar saves you money is by significantly reducing or even potentially eliminating your electricity bills. When you install solar panels on your property, your home will use all of the power that they generate before pulling any electricity from the grid.

This means the more power that your solar panels generate, the less you will need to use electricity from the grid. And the less electricity from the grid that you use, the lower your monthly energy bills will be.

Your exact monthly savings will vary based on your location and how much energy your solar panels generate. But nearly everyone who swaps to solar will save themselves upwards of $10,000 throughout the lifespan of their panels.

Net-metering is another factor that is worth mentioning here. This is when your utility provider tracks the amount of power that your solar system generates and gives you a credit for any excess power that you send back to the grid.

Net-metering enables you to save even more on your electricity bill because it lets you pay for the electricity that you use when your solar system isn’t active with credits instead of dollars.

Increase the value of your home

Adding solar panels to your home will also increase its value, which could be meaningful if you decide to sell in the future.

Research from Zillow suggests that a home with solar panels increases its value by about 4.1% on average. That translates to an extra $9,274 in value for the average home in the United States.

Earn tax credits and rebates

The government wants to encourage people to adopt cleaner forms of energy such as solar energy. One of the ways that they do that is by offering tax credits and rebates to people who add solar systems to their homes.

More detail on the types of credits and rebates that are available as well as information about how much they can save you will be provided in a later section. For now, it is enough to just know that they exist.

How long does it take to earn an ROI on solar panels?

On average, it takes 8 years for a residential solar system to pay for itself. But your number could be larger or smaller than this depending on a few key factors. These are discussed in the next section.

Factors that can impact your ROI on solar panels

There are four major factors that will determine how quickly you are able to earn an ROI on solar panels. The first is electricity costs. The more you spend on electricity now, the more that you will save by swapping to solar. And the more you save on electricity, the sooner you will earn an ROI.

The next factor is the cost of your system. This is self-explanatory. The more that you pay for your system, the more that you need to save in order to break even.

The third factor is the **financial incentives **that you receive for swapping to solar. If you get more rebates or tax credits than the average solar owner, you will reach an ROI faster.

Finally, the efficiency of your system can also influence your ROI. Solar systems with lower levels of efficiency will save you less on electricity, which means it will take you longer to earn an ROI on your solar panels.

How to track/calculate ROI on solar panels

If you would like to figure out your timeline for earning an ROI on solar panels, you can do so by downloading this Excel spreadsheet.

It allows you to simply input your information into the appropriate cells and automatically figure out your ROI without having to do lots of math on your own.

The formula

For those of you who want to calculate your solar panels return on investment yourself, here’s the formula for doing so:

(Total System Cost - Value of Incentives) / Cost of Electricity / Annual Electricity Usage = Your break even point.

How lifespan impacts solar panels return on investment

The lifespan of your solar system can also impact whether you’re able to earn an ROI on it or not. The reasoning for this is straightforward.

Every month that your solar system lasts is another month that you will save on your electricity bill. That means each extra month that your solar system operates you increase your total ROI on the system.

For example, imagine that you save $100 per month on your electricity bill with solar panels. That translates to $1,200 in annual savings.

In this scenario, if your solar system lasted 20 years instead of 15, you would earn another $6,000 on your investment. This is why it’s often worth paying extra for a high-quality solar system that will last longer than a cheaper, lower-quality alternative.

Tax credits and local solar incentives help with ROI

In this section, we’ll take a look at three types of rebates and tax credits that will boost your solar panels return on investment.

Federal Solar Investment Tax Credit (ITC)

The ITC is a tax rebate that deducts 26% of the purchase price for a new solar system. For example, if your system cost $20,000, you would save $5,200 on it by using this tax credit.

State-level incentives

Most states offer credits and rebates for homeowners who invest in solar systems as well. These vary in type and in the amount of savings that they offer based on where you call home. But these are the types of incentives that you could get from your state:

• Solar renewable energy credits (SRECs)
• Net-metering
• Property tax credits
• Sales tax exemptions
• State government-issued cash rebates

Federal grant programs

There are other federal grant programs that can help you earn a great return on your solar investment as well. One of the most popular options in this category is the FHA PowerSave Grant program.

This program lets you take out a loan to pay for your solar system so that you can begin enjoying the savings that solar offers right away. Homeowners can use the FHA PowerSave Grant program to borrow up to $25,000. They have up to 20 years to pay this loan off.

Exactly how much can be saved by swapping to solar?

The exact amount that you can save by swapping to solar is highly variable. It depends on numerous factors, such as:

• Your location
• The tax incentives your state offers solar users
• The efficiency of your system
• The cost of your system
• How much you save on electricity each month

All of that being said, it is still possible to provide a very broad estimation of the total ROI that the average person will get from their solar system. Many homeowners will see about a 10% ROI on their investment in solar.

Comparison of solar to other types of investment

An investment in a solar system compares favorably to many other types of investment opportunities. For example, the average ROI for a stock market retirement plan is about 7%. The average return on bonds has historically been around 5.3% but is much lower than that currently.

Plus, solar systems are a relatively low-risk investment. Once you install your system, you are essentially guaranteed to get free energy for the next 20-30 years. You don’t have to worry about things like stock market crashes or other black swan events ruining your investment.

Ways to maximize your solar investment

If you have decided to make an investment in solar energy, it is worth exploring some of the ways that you can maximize the ROI that you get. Here are three actions you can take to make sure you get the best ROI on your solar panels possible.

Be smart about your energy usage

One of the best ways to maximize your ROI on solar panels is to get in the habit of being more mindful of how you consume electricity.

Generally, it’s best to use as much electricity during the daytime as possible since that’s when your power is free. Here are some strategies for doing that:

• Charge your solar batteries during daylight hours
• Place timers on appliances like washing machines and dishwashers so they only work during the day
• Get your home set to the right temperature in the afternoon so you don’t have to use energy doing so at night

Take full advantage of tax credits and rebates

When it comes to maximizing your solar investment, it’s incredibly important to take full advantage of the tax credits and rebates that are available to you.

We’ve covered the most commonly-used government solar incentives in an earlier section. But make sure that you look into the specific options that are available in your state to ensure that you are not missing anything.

Hunt for the best deal on your system

Getting the best deal possible on your system is another factor that can have a big impact on your ROI. That’s because the less that you pay for your solar panels, the quicker you will pay off your initial costs and begin earning money on top of your initial investment.

That being said, simply going with the cheapest system available to you is rarely a good idea. Instead, you need to balance cost with quality to try and find a system that offers you the best value possible.

Are solar panels truly worth investing in?

Solar panels are a great investment. They provide the opportunity to earn great returns on the initial capital that you invest in them.

The exact ROI that you get from a solar system will depend on factors like how much you’re spending on energy now and how much you pay for your system.

But the average homeowner will see about 10% ROI on their investment in solar panels, which is a number that compares favorably to many other common investment opportunities.