How to Decide Whether to Install Solar Panels in Your Home
Compared to a new bathroom or kitchen remodel, installing solar panels on a roof is as exciting as insulating an attic. But just like adding insulation, switching to solar power can be a home improvement that continues to benefit – perhaps pays off, and then a little. Here’s how to find out if this is a good investment for you.
Why solar energy is still worth considering
Most of us probably already think of solar energy as a smart idea: to capture abundant and free sunlight and turn it into energy. You will save on energy bills and use less natural resources. Everybody wins.
For a while, however, solar power was too expensive, unless you were a modern day Daddy Warbucks. Other home improvement projects tended to rank higher on homeowners’ wishlists. All of this has changed over the past few years, although for some the benefits are not as obvious as they might have been before.
Between 2011 and 2014, the cost of solar modules from leading Chinese solar cell manufacturers fell by about 60 percent (from about $ 1.31 per watt in 2011 to about $ 0.50 per watt in 2014). But today, you are likely to pay between $ 2.57 and $ 4.35 per watt, according to EnergySage —And that after taking into account the federal tax credit you can get to install solar.
If this difference seems large, think about the cost of installing a midsize system in 2010 – $ 40,000 according to the Solar Power Association – up to about $ 18,000 today. Even with the rise in cost over the past few years, this is still significantly lower than when interest in home solar systems just started to grow.
Federal subsidies still exist – as long as
The US Federal Renewable Energy Tax Credit previously offered a loan of 30% of the cost of installing a home alternative energy system. Expired at the end of 2019. For systems installed thereafter, the tax credit is 26% for 2020, 22% for 2021, and thereafter zero.
If you installed a solar system in 2020 for $ 18,000 and received a 26% tax credit, that would be like saving about $ 4,700 in your taxes. The loan can be carried over even to later years if you can’t use it all in one year, Consumer Reports notes.
But there is a chance that the tax credit will be extended or a new one will take its place. The original 30% tax credit was due to expire at the end of 2016 and was then extended for another three years.
How Much Can You Save With Solar Power
In general, the higher your electricity bill, the more you can save by switching to solar energy.
In some cases, solar energy can completely cut your electricity bills after you reimburse installation, system and maintenance costs. In other cases, solar panels will simply cut your utility bills by 10% to 50%.
How you pay for the system and how your home is set up will depend on how much you can save. EnergySage estimates that a solar system used for 20 years could save the average home $ 10,000 to $ 30,000.
But this is a fairly large range. The amount of money you can save using the power of the sun depends on where you live, your current energy consumption, how you finance the system, and how long you plan to stay in the house.
How to evaluate your solar savings
While solar power may seem obvious, not everyone will benefit from it, and taking on debt may not pay off in the long run.
Take a look at your home’s solar potential with Google Project Sunroof . All you have to do is enter your mailing address, just like in Google Maps. Get instant feedback on how many hours of sunlight hit your roof per year, how much space there is to house solar panels, and your estimated savings over 20 years. You can also adjust your monthly electricity bill to save even more.
Plus, Project Sunroof will show you your savings (or costs) if you buy, finance, or rent out your solar system.
You may be surprised at the results. For example, my house gets a lot of sunshine every year (1706 hours to be exact), but due to the location of my house and trees in my area – and my already low electricity bill – my savings over 20 years will be only $ 1000 after all solar panel costs.
However, to get a more accurate estimate, you need to ask the solar panel installer to come to your home and personally inspect your roof.
How to pay for solar panels
If you choose to continue, you will get the most out of your investment by paying for the system in cash and planning to stay at home for a while. But there are other funding options as well. Here’s a quick overview:
Buy the system directly or on credit
You will see 100% savings on utility bills once you pay back the investment. If you use a loan to buy a system, it will take longer to recoup your investment than prepaying it. You are saving more on utility bills each year compared to renting or buying and selling, and will also likely increase the value of your home’s property. However, keep in mind that you will also have maintenance costs.
Zillow’s analysis found that homes with solar panels sell on average 4.1% more than comparable homes without them, which could ultimately offset your upfront costs.
Rent out the system
You pay a fixed monthly amount to use the system and receive a guaranteed amount of electricity in return, approximately 10-20% lower than your current utility costs. Most leases include system maintenance, but you will not be able to receive any tax breaks or rebates using this method since you do not own the system.
Make a Power Purchase Agreement (PPA)
A PPA is similar to a lease in the sense that you have no upfront costs and do not own the system. You pay for the amount of electricity you use as you pay, but usually at fixed, predictable rates that are lower than your utility company. It is also possible to transfer your PPA to a new owner if you decide to sell your home.
In all three cases, the solar power system works like this: solar panels capture sunlight, an inverter converts it into current that can be used in your home, and an electrical panel in your home (which may need to be upgraded) powers power from the inverter to electrical chains of your home. The electricity meter monitors energy consumption, so if your panels are generating excess power, it is sent to the utility company, which will provide you with an energy loan. Now you are powering up the network!
As with any home improvement project, take a close look at the installers and get a few suggestions before making a decision. Ask about system warranties and service, find certified installers (more precisely, “certified PV installers”), and ask for directions or recommendations from people you know.
This post was originally published in 2015 and was updated in February 2020 to provide updated information.