Are Solar Panels Worth It? Calculate Your Return on Investment
Are solar panels worth it?
Over the past decade, solar panels have risen in popularity at an increasing rate. Odds are, if you drive through any suburb, you’d see at least a few houses with solar panels on their roof. That leads many homeowners to wonder — are solar panels worth it?
Aside from the environmental benefits, solar owners benefit financially, too. In previous decades, solar panels weren’t nearly as cost effective to install as they are today. Due to technological advancements, increased competition, and healthy incentives, solar owners can save hundreds of thousands in energy costs over the life of their system.
Today, installing solar panels is considered a long-term investment with strong rates of return — much like buying a house.
There are three main reasons why solar panels are worth it:
- The initial cost of installing solar panels is dropping continuously
- Homeowners can avoid having to pay for grid electricity, which costs on average twice as much per kilowatt-hour as solar electricity
- Solar panels add to your home value and help it sell quicker
Depending on the location of the home, homeowners can save high sums of money in the long term.
For people deciding if it’s worth installing solar panels on their home, it’s important to weigh out the total return on investment (ROI). This might seem obvious, but calculating the ROI of solar panels isn’t always as simple as it seems. Every person’s situation is slightly different, and predicting the 10-year benefit of your roof’s solar panels can be quite difficult without any guidance.
In this article, we’ll explain how to weigh the costs, benefits, and overall ROI of installing solar panels on your home.
Weighing the costs of going solar
Just as with any investment, it’s important to calculate the initial costs when considering if solar panels are worth it.
In this case, that would include the installation costs of the solar panels on your home. However, that’s not the only thing to keep in mind. It’s important to realize that the actual process of installing solar panels on your roof could include a series of costs in addition to installation. Some of these (depending on your provider) could include soft costs like sales tax and permitting fees.
The next step would be to determine exactly what kind of solar system you want to purchase. These solar systems range anywhere from 5 kW (average) to 15 kW and above depending on your electricity usage and sun exposure.
Broken down to the simplest level, the average cost of solar electricity is 6 to 8 cents per kWh for homeowners that purchase through solar.com. Meanwhile, the average cost of grid electricity in the US was 16.7 cents per kWh(and rising) in August 2022 — more than double the cost of going solar.
The cost of going solar varies from home to home. The only way to get an exact figure is to get multiple bids from vetted installers.
Enter your zip code above or call (800) 337-6527 get multiple quotes through the solar.com marketplace.
Weighing the benefits of going solar
After installing solar panels, there are two main kinds of benefits: financial benefits and practical benefits.
Simply put, going solar replaces the ever-rising cost of grid electricity with a flat monthly payment on your solar equipment.
One way to measure the financial benefit of solar panel installation is to analyze what you’re currently paying for electricity per year. Dig up electricity bills from the past 12 months, add up what you’ve spent over the year, and consider this your “money saved” by installing solar panels.
For example, if you paid $2,000 per year, you would deduct that number by the overall costs incurred for going solar. If the net cost of going solar is $10,000 (after rebates and tax credits), then the solar panels would pay for themselves in roughly 5 years. But because utility electricity rates consistently rise each year, this payback period may be shorter.
This is called the “break-even point” — or the point solar panels become worth it financially.
If you plan to sell your house sometime soon, the shorter the break-even point, the better — although you’ll likely recoup the cost of your solar system in the home sale. For people expecting to own their home for a long time, calculating the lifetime savings after the break-even point is where the gold is.
Solar panels are typically under warranty for 25 years (but often last much longer). If your break-even point is reached within 5 years and you expect to save at least $2,000 a year for electricity, then you benefit from around 20 years of no electricity bills and save at least $40,000… and that’s before factoring in your added home value or rising grid electricity prices.
Finding the break-even point for solar panels
Another way to find your break-even point is to compare the price of grid electricity versus the price of paying for your solar panels over 20 years.
As we mentioned above, the average cost of grid electricity is 16.7 cents per kWh in the US and rising at 2.79% per year.
Meanwhile, a 6.4 kW solar with a net cost of $20,484 (after the 30% solar tax credit is applied) averages out to 8 cents per kWh over 20 years.
The chart below shows cumulative cost of grid versus solar electricity over 20 years, and a break even point around Year 8. After 20 years, the solar owner has saved nearly $34,000 and still has plenty of life on their panels!
Aside from only financial benefits, there are also more ambiguous, qualitative benefits that homeowners would benefit from in the long term. Some of these benefits, although difficult to measure, potentially include:
- Less stress from unpredictable electricity bills that rise 2-5% each year
- Drastically reducing your carbon emissions and environmental footprint
- Improving local air quality
- Increasing local grid resiliency
- Setting a good example for your children and community (plus a $599 credit per referral through solar.com!)
- When paired with battery, solar can power your home during power outages
Measuring the ROI of installing solar panels in your home doesn’t have to be cryptic and confusing. It’s actually quite simple. If you keep in mind that investments like these take a little bit of time to come to fruition, it becomes a lot easier to go solar (not to mention the intangible benefits).
Even if you don’t feel that you’ll benefit much from going solar today, if you plan to pass down your house to your children, other family members, or even sell it to a stranger, you’ll benefit financially in the long-run.
Find out if solar panels worth it for you
The quick and easy way to find out if solar panels are worth it for your home is to use our Solar Savings Calculator.
Just punch in your address and select your average electricity bill to get an estimate of how big of a solar system you need and how much you can save over the life of the system. If you like what you see, click “Get Customized Offers” to get matched up with an Energy Advisor who can turn those savings into reality.
Giving the rising price of grid electricity and the falling price of solar panels, solar panels are worth it in a vast majority of the US. And even if your solar savings aren’t astronomical, there are plenty of reasons to go solar and accelerate to the clean energy transition.