Row of houses with solar panels on them.

How Much Do Solar Panels Save Homeowners?

Apr 5, 2022

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Aside from the environmental benefits, one of the biggest advantages of going solar is the utility bill savings. Solar energy customers have dramatically reduced their electricity bills, even during the dog days of summer when the AC is blasting.

Let’s examine solar system savings so you can determine if it is a wise financial investment for your household.

What Factors Determine The Upfront Cost And Ongoing Costs For Solar Panels?

Not all clean energy systems result in the same utility bill savings. For example, an identical solar system in Arizona and Pennsylvania on comparable homes will not result in the same energy production or energy bill savings. Therefore, it’s better to base solar saving estimates on the size of your roof, historical weather data for your area, household electricity consumption, and shading.

Local Energy Prices

One of the biggest factors in how much you will save depends on electricity prices. Rates vary by the utility company and location – the greater the energy costs, the larger the potential utility bill savings from solar power.

According to the U.S. Energy Information Administration (EIA), the average retail price per kilowatt-hour (kWh) of electricity is 14.11 cents. However, the actual price can vary drastically by state and region. Florida, Pennsylvania and Arizona have electricity rates that are right around the national average, but Texas has rates that are typically a bit lower. Unfortunately, electricity rates tend to go up over time.

But, as the cost of electricity increases, so will the savings from a solar panel system. Therefore, considering the future price of electricity can be helpful when calculating the lifetime savings from a solar photovoltaic (PV) system.

Time-of-use Rates

Some utility companies offer time-of-use rates, which means that electricity rates vary by the time of day. For example, rates are commonly higher in the late afternoon and early evening, when demand for electricity is highest. Then, rates are lower in the middle of the night and the morning when energy demand wanes.

For homes with solar system batteries, this rate structure can result in greater cost savings because homes can consume power from the battery and the solar panels when rates are high and draw power from the grid to charge the batteries when rates are lowest.

Net Metering

Under net metering, also known as net energy billing, the local utility company compensates customers for the electricity they supply to the grid. Most states have net metering laws, which is great news for solar system owners. This means that utility companies will compensate solar system owners at the retail rate for excess electricity they supply.

However, these credits typically expire after 1 year, so we do not recommend oversizing a solar system. Instead, it’s ideal to design solar systems that will maximize your return on investment without giving you more than you need.

Average Household Energy Usage

The more electricity a household uses, the greater the potential savings from solar. And there is also usually an economy of scale with installing a solar energy system. Therefore, larger systems save more money and cost a little less per kilowatt-hour of capacity. The best way to determine household electricity use is by looking at a year or more of utility bills.

It’s also a good idea to consider if your electricity consumption will change significantly in the near future. For example, are you planning to get an electric vehicle or swap out gas appliances for electric ones? It’s important to factor those changes in when estimating your energy usage.

Roof Size

Unfortunately, rooftop solar systems are limited by the size of available space. In addition, if the roof has obstructions, this could further limit the system's capacity. For example, it is not advisable to cover skylights with solar PV panels. Also, other features such as dormers can further limit available space.

One way to overcome space issues is to use higher-efficiency solar panels. These typically cost a bit more, but the added energy production might be worth the additional cost, especially when space is limited.

Local Climate

The production of a solar energy system depends on available sunlight. Across the United States, the climate varies greatly, which impacts how much electricity the solar panels produce.

And there will always be seasonal variations in weather. For example, the days are shorter in the winter months, and our average sun hours are less in most areas. However, in June, July, and August, we have a ton of sunshine and long days. This timing works out well because many homes use more electricity in the summer when running the air conditioning.

If it is an unseasonably rainy spring, production might be a bit lower than usual. Then, a mild drought might increase solar production if there is a lack of cloudy weather. Therefore, examining historical weather data provides more accurate estimates over long periods of time but may not be accurate over the short term.

Shading

Trees, buildings and even architectural features on a home can shade the solar panels. When designing solar systems, it is critical to reduce shading as much as possible.

In some cases, trimming a tree could make a big difference. There are also pieces of specific solar equipment, such as microinverters and power optimizers, that can help minimize production losses from shading.

The Average Cost Of Solar Panel Installation

The cost of a solar system depends mainly on its capacity, the equipment, and where the panels are located. Adding a solar battery for backup storage can boost the total cost by $10,000 or more.

The primary consideration when sizing a solar system is the total annual electricity consumption of the household, the size of available roof space, and whether the household needs backup power during outages. The EIA stated the average household in 2020 used 10,715 kWh of electricity for the year, or 893 kWh per month. That means that at an average of 14.11 cents per kWh, the typical household electricity bill was around $126 a month. 

Contrary to popular belief, the amount of energy a home uses and not square footage is the most essential consideration. A small house of maybe 800 square feet with electric heating, water heater, stove, and an electric vehicle (EV) will likely consume more power than a larger home with gas appliances and no EVs. The size of the roof is another important consideration because many solar systems are limited by available roof space.

For our examples below, we used the most common 6kW solar system. According to Energysage, the average cost of a 6kW system was around $16,560 in 2021. We consider a typical 2,000-square-foot home with and without solar storage below.

Example 1: 6 kW Solar System Without Batteries

Say you’d like to put solar panels on your 2,000-square-foot house. The most popular size array is a 6kW system; at this size, homeowners can expect to eliminate supply charges on their utility bills. For a system of this size without a solar battery, consider the following:

6 kW solar system before incentives = $16,560

If you factor in the solar income tax credit (assuming you are eligible to claim the credit), you can expect to save an average of $4,308 on your system. This takes the cost of the entire system down to something like $12,252.

In addition, there are incentives, rebates, and Solar Renewable Energy Certifications (SRECs) available in many places. These incentives can further boost the return on investment or lower the total solar system cost.

Example 2: 6 kW Solar System With Batteries

Adding a solar battery increases the cost but also increases energy independence and reduces reliance on the power grid. Solar storage is especially useful when extreme weather events cause power outages, such as the 2021 Texas power crisis. Although it’s hard to pinpoint just how much a battery may increase costs without understanding your unique situation, multiple sources suggest adding storage can add an average of about $10,000 to system costs.

6 kW solar system with a battery = $26,560

Thankfully, the solar tax credit will apply to most systems with batteries (again, assuming you qualify for the credit), reducing the total system cost by about $6,905. Overall, this system could cost around $19,655.

How Much Can Solar Panels Save You?

In Miami, Florida, a 6 kW solar system will produce an estimated 9,490 kWh and can save about $1,000 annually. By comparison, an identical system up in Houston, Texas, would generate 8,640 kWh and about $950 in savings. In Philadelphia, Pennsylvania, the same system would produce about 8,020 kWh and save about $1,035 each year.

Also, the price of electricity is very likely to increase over time. Thus, the solar savings will also increase.

Remember solar panel systems typically last 25 – 30 years, and the payback period is usually around 8 – 12 years. This means you will enjoy “free energy” for decades while increasing your property value! In addition, because most solar systems include warranties, it means that solar energy is a low-risk, high-return investment.

Will You Still Have An Electric Bill?

Yes, solar system owners will still have a power bill. This is because utility companies charge two fees: a supply charge that depends on how much electricity the household consumes and a transmission/distribution fee, which is usually a flat monthly charge. The photovoltaic system can eliminate the supply charge but not the transmission/distribution fee. Thus, utility customers will still have a bill of around $5 – $15 a month.

The only way to have no electricity bill is not to be connected to the power grid and to use solar batteries to supply power as needed. However, this is not an ideal or practical arrangement for most households.

Incentives And Rebates To Lower The Cost Of Going Solar

Both federal and state programs can reduce the total cost of a solar energy system. The federal tax credit is a dollar-for-dollar reduction in income taxes owed to the government. Assuming one qualifies, it is more valuable to the taxpayer than a write-off that merely reduces the taxable income. The tax credit applies to the total solar system cost, including installation costs.

Also, many utility companies or state governments offer other incentives. For example, the Arizona Residential Solar Tax Credit can reduce the cost of a solar system by $1,000. In Pennsylvania, homeowners can benefit from Solar Renewable Energy Certifications (SRECs) and receive a couple of hundred dollars in income annually.

Solar Savings Can Make Switching To Renewable Energy A No-Brainer

More and more homeowners are looking to the sun to dramatically reduce electricity bills, use of fossil fuels, and greenhouse gas emissions.

Interested in learning more about how going solar can fit into your budget? Visit our Learning Center to explore your options.

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