The average cost of solar panel installation in the United States has decreased by about 70% in the last decade. Given the numerous federal and state-based solar incentives offered throughout the country, coupled with reduced utility bills, going solar can help you save a lot! Let’s take a look at how this works.
3 Ways Solar Power Saves You Money
1. Reduced Power Bills
One of the major ways in which solar power saves you money is by mitigating, or in some cases even eliminating, your reliance on your local utility to supply you with power. Provided that the weather outside is sunny, your solar panel system should provide you with enough output to serve you as your primary power source. This means that you can run all your power-draining appliances such as air-conditioners and heaters on solar.
However, you may have to rely a bit more on your utility during the night and on an overcast and stormy days when there is limited sunshine. But keep in mind that if you store enough of the surplus solar energy in your batteries during the day, you might even be able to get through the night without needing your utility.
This directly results in a noticeable reduction in your electricity bill that, over time, will sum up to become substantial enough to cover the installation cost of your solar panel system. Solar power seems even more cost-effective when you consider that you’ll be able to power your air conditioning on solar during the extremely hot summers without having to worry about a hefty utility bill. Factor in the annual increase of 2.5% to 3% in the utility bill, and solar power seems like a great deal.
If your system cannot deliver peak performance due to cloudy outdoor conditions and can only get you a few hours of solar power. Utilize those few hours of solar power during the on-peak hours, that is when the electricity cost is at its highest during the day.
2. Solar Incentives and Tax Credits
All the states in the US have their own respective state incentive programs for going solar, which means that depending on where you live, you may be eligible for various tax credits for making the environmentally-friendly decision to go solar. Additionally, the federal government also offers a solar tax credit program. There are also several utility-based solar incentives that are limited to the customers of that utility.
All of these solar incentives combined help chip off a substantial portion of your system’s installation cost. Here is all you need to know about these incentive programs:
State Solar incentives
In addition to the federal ITC, several state-based solar incentives are also offered to encourage residential property owners to go solar. Although every state has its own set of solar incentives, there are some that are common such as rebates and tax credits.
There are still many more state-based incentives that vary from state to state. In order to better learn about the incentives offered in your specific state, look up your state on the Database of State Incentives for Renewables & Efficiency or ask your solar company.
State Tax Credits
The way State tax credits work is quite similar to the federal ITC, except they only apply to your state taxes. The exact amounts substantially vary from state to state, and they don’t usually lessen your federal tax benefits.
State Government Rebates
Installing a solar power system may also qualify you for an upfront rebate in some states. They’re usually only offered for a limited time as the funds for such rebates are quite short and quickly run out. Therefore, if you’re having a system installed, immediately search for rebates in your state to take advantage of the offer before it ends. Solar costs can be reduced by 10% to 20% with a state government rebate.
Solar Renewable Energy Certificate
The Solar Renewable Energy Certificate (SREC), also known as the Solar Renewable Energy Credit, is another state-based solar incentive. Once your solar power system is installed, get it registered with the relevant state authorities. The authorities will regularly check your system’s power output and grant you SRECs periodically. You can use your SRECs as a form of payment to pay off your municipal utility bill.
Federal Solar Investment Tax Credit
The Federal Solar Investment Tax Credit (ITC) is a tax incentive program introduced by the federal government to promote the installation of rooftop solar panel systems on residential properties. The program was enacted by the federal government in 2006. The ITC program allows homeowners to claim the tax credit on federal income taxes.
The credit reimburses you for a portion of the net cost of your solar panel system installation. Only homes in the United States are eligible for the program, provided that their solar panel systems must be installed and operated during the designated years. Initially, a 30% tax credit was offered for systems installed before December 31, 2019. In December 2020, the US Congress extended the program. For systems that are installed between 2020 and 2022, a tax credit of 26% is offered.
For systems installed in 2023, the tax credit falls to 22% and will expire thereafter unless Congress extends it further. Keeping this in mind, if you’re getting a system installed or have an installation underway. Factor in a 22% or 26% discount on your net cost depending on when the installation commenced.
Eligibility Criteria for ITC
Following are some mandatory requirements that you must meet in order to be eligible for the ITC program:
- The solar panel system should be new, and the installation should not date back before January 1, 2006, or after December 31, 2023. Unless Congress renews the ITC, it expires in 2024.
- The system must be located in the United States.
- The systems should be purchased, not leased.
- The installation site must be your primary or secondary residence within the US or an off-site community solar project.
Local Utility Rebates
Many local utilities also offer solar incentives to promote the installation of solar panel systems on residential properties. Some companies give energy bill rebates depending on how much electricity your system generates, while others offer one-time incentives to install solar panels.
PBIs, or performance-based solar incentives, are incentives that pay you a per-kilowatt-hour credit for the power your system generates.
3. Metering Credits from Solar Power
You will often come across instances when your system will be putting out surplus energy, for instance, on an ideal sunny day when your system is generating more energy than you need or you and your family are out for a while, and your home’s energy consumption is quite minimal. In both scenarios, the excess energy output of your solar power system qualifies you for net metering.
Strictly speaking, net metering refers to when the surplus energy of your system is being fed back into the national grid. A digital meter will keep track of the amount of energy that you are either drawing from the grid or providing to the grid. The benefit of this is that you will be compensated for the energy you provide the grid with in the form of a reduced monthly utility bill.
However, it is important to know that not all states permit net metering and those that do have various policies regarding it. Net metering policies are not in place in Alabama, Mississippi, Tennessee, or South Dakota. Although Idaho and Texas don’t have any state-wide net metering regulations, energy companies in certain of their localities do.
The majority of states that have net metering legislation have established retail tariffs for excess electricity. This means that your utility pays you for your surplus energy at an equal rate to what it charges you when you buy energy from the grid.
How Much Your Solar Power System Actually Saves – Solar Savings Calculation
There are several factors that need to be considered when calculating the amount of money your solar power system will save you, such as the utility cost, cost of solar panels, etc. In this calculation, the average value for the entire US will be used; therefore, keep in mind that the actual value of savings will fluctuate from any one state to another.
Step 1: Determining Your Monthly Energy Consumption
The annual energy consumption of an average American home is approximately 10,715 kWh per year. Dividing this by 12 in order to calculate the monthly usage, we get average monthly consumption of about 893 kWh.
Average monthly consumption: 893 kWh
Step 2: Work Out the Number of Peak Hours of Sunlight You Receive
This is probably the most difficult aspect of figuring out because most people are not even aware of what it means, let alone knowing what their state values in at.
A peak sun hour is defined as a period of time during which the incident solar radiation of the sun provides an average of 1000W for each square meter (roughly 10.5 feet). To put it another way, one peak sun hour equals 1000 W/m2 of sunlight every hour.
Knowing how many peak sun hours your property receives is crucial in determining the size of the system you’ll need and hence how much you’ll need to spend on solar panels. The peak hours of the sun vary from state to state.
For this example, let us assume that the number of peak hours of sunlight you get in your area is 5.38 peak hours which is the value for California.
Peak sun hours: 5.38
Step 3: Choose a Solar Installer and Determine the Installation Cost Per Watt
Going with the average value for the entire US, the average installation cost is $2.77/W
Average installation cost: $2.77/W
Step 4: Calculate the Size of Your Solar System
To calculate the size of the system, first, we need to find the monthly peak sun hours.
Now we calculate the size of the solar power system you need for your home using the formula given below.
According to the calculation above, your home will need a 6.2kW system. Divide the size of your system by the capacity of each panel to get the number of panels you’ll need. If the number is a decimal, always round up. This means that if you use 400W panels, you’ll need 16 solar panels.
It is important to note that the sizes in which solar panels are available do not allow for a 6.2kW system. Therefore, assuming you’re using 400W panels, your next best option is a 6.4kW system.
Size of the system: 6,400kW
Step 5: Calculate the Cost of the System
Multiplying the average installation cost by the size of the system will give you the initial installation cost, which comes out to be $17,728. Now factoring in the 26% federal tax credit, the final cost becomes $13,118.
Final cost: $13,118
Step 6: Calculate Payback Period
To calculate the payback period, we divide the cost of the system by the amount of utility cost it saves. Taking the average utility cost to be $0.14/kWh.
Converting hours into years by dividing 105 by 12 (number of months in a year) we get 8.7 years. This means that your solar power system will pay you back in 8.7 years.
Payback period: 8.7 years
Step 7: Savings
Assuming a lifespan of 30 years, you still have 21.3 years of free electricity left.
This means that your Solar power system will save you $31,955 that is after it has covered its installation cost.
Frequently Asked Questions
Why Is My Power Bill So High When I Have Solar Panels?
There are several reasons for this, such as faulty installation, high energy consumption at night, weather is not conducive for optimum performance of your system, or solar system is not switched on after meter installation.
What Are the 2 Main Disadvantages of Solar Energy?
Cloudy weather substantially reduces the output of the system, and solar power systems are very inefficient.
Are Solar Panels a Rip-Off?
No! Solar power systems are a time-tested and proven technology that actually does what they are advertised to do – provide green energy.
What Happens to Solar Panels After 25 Years?
The industry standard lifespan of a solar panel is 25 to 30 years. However, solar panels won’t die after this period of time has passed; only their output will have been substantially reduced.
Why Are My Solar Panels Not Saving Me Money?
Some potential reasons can be that panels are being shaded by trees reducing their output. Or your roof size does not allow the installation of a sufficiently-sized system.
Do Solar Panels Give You Free Electricity?
Solar panels convert the solar energy from the sun into electricity and therefore, yes! Solar panels give you free energy.
The calculations above should help you understand how solar power saves you money. However, it is important to remember that these calculations are based on average values, and your actual savings may be higher or lower than this depending on the state you live in.
The team at Firefly Solar are ready to answer your questions and give you a no-obligation price quote. Feel free to call us at 864-252-7858 or book a consultation online. And we’ll get in touch within 24 hours.