Right up front, we want to acknowledge that there are individual and collective benefits to solar energy — regardless of the financials.
Solar is undebatably a greener source of energy than traditional alternatives, even taking manufacturing and transportation emissions into account, with 13 to 18 times less of a carbon footprint than coal and natural gas.
But here we’ll discuss the circumstances in which it makes pure financial sense — or not — for you as a homeowner to go solar.
Key Takeaway: Solar is worth the investment for most homeowners, but there are a few exceptions.
Keep reading if you feel like you’re in the gray area between a hard “yes” and “no” based on our key takeaway. We’ll break down the nuances within each of the following topics to help you determine the best choice for you:
A word on payback timelines before we dig in:
A system’s payback period depends on the system size, energy usage, cost of grid power, and overall cost of the system, but 5 to 10 years is typical for paying upfront. Payback periods tend to be longer if you’re financing, and 15 years or less is ideal in that case. We generally do not recommend a loan term length greater than 20 years.
Here are some baseline numbers that can serve as an example as we walk you through some points to consider:
Solar System Cost | 6-kW x $4.00/watt | $24,000 |
Federal Tax Credit | 30% x $24,000 | $7,200 |
Total Cost After Tax Credit | $24,000 - $7,200 | $16,800 |
To get your average savings over one year, you divide the total cost of solar by your average electric bill (the average monthly electricity bill in the U.S. is $121), then multiply that number by 12.
$16,800 Total Cost of Solar / $1,666 Savings on Electric Bills per Year = 10-Year Solar Payback Period |
All other factors staying the same, if your electric bill is higher than the average amount of $121, your savings will be greater and your payback period will be shorter.
If you pay for solar with a loan, interest will be added to the total amount, so the savings amount decreases, and the payback period will be longer.
Solar System Cost (+ 1.99% interest) | 6-kW x $4.00/watt | $29,040 |
Federal Tax Credit | 30% x $24,000 (Cost - Interest) | $7,200 |
Total Cost After Tax Credit | $29,040 - $7,200 | $21,840 |
Your monthly payment would be $121.30 over a 20-year term, nearly identical to the sample $121 monthly electricity bill we started with. Therefore, your average bill would need to be higher, based on more usage or rising rates, for you to see substantial financial benefits prior to the 20-year payoff period.
And an important note on federal tax incentives:
There is a 30 percent tax credit offered for home energy upgrades, including solar, called the Residential Clean Energy Credit. Be aware that this amount applies only to taxes owed. Therefore, you can only use the credit if you owe federal taxes. If you don't owe significant federal taxes, solar is generally still worth the investment, but know that you won't be able to utilize the incentive offered.
Most homeowners use enough electricity and are paying enough for their power already to justify the cost of a solar system, even if that means substituting monthly solar loan payments for monthly power bills. Even so, some households simply don’t use and pay for enough power to make the investment worth it.
A 6- or 8-kilowatt system tends to be average for a U.S. home. Look at your power bills from the last year to see how many kilowatts you are using on average, each month. If it’s close to the average usage or above, you’re almost sure to see a sizable return on your solar investment, especially as grid-supplied electricity costs rise.
While rare, there are households expending far less energy. Relevant causal factors could be a small house size and little to no HVAC usage. These customers won’t see quite as dramatic a return on solar, even when electric rates rise.
Some solar companies may have a minimum size solar system required to make it worth it to them to complete an installation, so keep that in mind, too.
In the past, net metering buyback incentives made it possible for homeowners to make money off of excess energy generated by a larger-than-necessary solar system. Now, excess power can only be utilized as a credit for your lower-power-generating days and nights throughout the year.
There’s really not a compelling financial incentive to install more solar panels than you absolutely need.
Your monthly power bill, of course, corresponds directly to your monthly power usage that we discussed above. But states vary in their average energy costs per kWh and monthly bills, so your energy supplier determines your cost per kilowatt used. In 2021, these states had especially high rates for power through the grid:
When you get a solar quote, you should be presented with your projected monthly savings from the start, if relevant, as well as overall savings over the life of the solar panels.
Keep in mind that the lifetime projections are based on the compounding effect of electric rate inflation. If that doesn’t feel sure enough to you, you can calculate the savings of solar over time if rates were to stay the same.
If a monthly solar loan payment would be less than what you’re paying monthly for electricity now, that’s a good sign that your power costs are high enough to justify solar.
If your monthly solar loan payment would be more than your current average utility bill, solar may not be worth the investment in the short term. That being said, rising electricity costs may change those numbers in the future, so it’s a good idea to still consider the long-term savings even if solar feels counter-intuitive. Solar can be seen as an insurance-type investment against electricity inflation.
Attention: Plan on paying a monthly connection fee after your solar is installed.
Be aware that most power companies charge a grid connection fee even if you’re supplying your own energy, so plan to pay around $10 per month to your power company even after a solar install — in addition to any power usage in excess of what your panels are producing.
There is a phenomenon that we notice in solar reviews wherein consumers sometimes see a higher power bill than they were expecting even after installing solar, followed up by a reply from their installer with the energy output numbers before and after installation.
The customer has intentionally or unintentionally increased their electricity usage after a solar installation, thinking solar will cover their entire electricity needs. Whatever savings the customer might've gained goes to paying off a second bill to the local utility company.
To combat this tendency and to truly take advantage of solar savings, be prepared to maintain your current usage or make your home even more energy-efficient after installing solar. Run your HVAC and use your most energy-intensive appliances, such as the dishwasher and washing machine, during peak sunlight hours.
Solar panels are installed onto mounting hardware that drills directly into your roof. And it can be costly (plan on $2,000 at minimum) to pay for a solar system takedown and re-installation if you need to replace your roof during the lifetime of your panels.
To fully maximize your solar savings, you’ll want to be strategic about the timing of your roof and solar installations as well as your roof’s solar favorability.
Building a new construction is a good time to go solar since the roof is, by default, brand new.
If your existing roof is due for a replacement in the near future, opt to get a new roof before going solar. You can also consider going straight to a solar company that specializes in roofing as well as solar. By replacing both in tandem within the same company, you can eliminate conflicting project timelines and workmanship warranties and potentially save money in a bundle deal.
If your existing roof is in good condition, you’re good to go on solar. But choose a solar installation company that provides an extensive workmanship warranty inclusive of roof damage.
Highlight: Solar roofing combines roofing and solar in one product.
If money is no object, solar roof tiles are a unique option to consider. A solar roof is designed to look somewhat like a traditional roof but the materials utilize photovoltaic technology, doing away with the need for separate solar panels. Be aware that the cost can be prohibitive; Tesla’s solar roof costs twice that of Tesla solar panels.
Just as kilowatt usage is a key factor in determining solar’s investment potential, kilowatt generation is just as important. Because of miscalculations regarding how much sun your rooftop gets, you can get a system installed only to be shocked when the system doesn't produce the power you need to cover your household's needs.
Though solar panels can generate power even in indirect sunlight and cloudy weather conditions, they function best in direct sunlight. Therefore, you should ideally live in a moderately sunny region with a south-facing roof.
If any of the following descriptions apply to your home, make sure your solar company has a game plan for combating them and maximizing your roof’s solar potential:
The best solar companies provide production guarantees, which guarantee your system will produce power within the estimated range. If not, the company will compensate for the production gap, usually by adding more solar panels to your system.
Solar costs can vary widely depending on location, home size, and energy storage solutions, but you can expect your system to cost between $10,000 and $20,000 after accounting for the federal tax credit, where applicable. Solar batteries cost an additional $10,000 on average.
As we discussed at the beginning, you’re getting a better deal on solar if you pay with cash since you’re avoiding interest.
That said, the average U.S. consumer doesn’t have that much cash available to put toward solar.
Financing is a great way to pay for solar, in general. But you should weigh your eligibility, your ability to keep up with loan payments, and the terms and conditions of the loan to confirm it’s a good way to go in your situation.
If you pay for your system upfront, you won’t have a monthly solar loan payment. You're reaping the benefits of clean energy and minimizing monthly payments. And once you reach your payback period, the savings accumulate even more. You will likely still have a small energy bill — as mentioned, many power companies charge a connection fee in addition to the energy use bill.
If you finance your system, a monthly loan payment to your lender will take the place of — or reduce — your utility bill. This means you’ll still make a monthly payment, but rather than pay your utility company, you’re paying off your solar system as an investment.
You can think about solar financing as renting-to-own.
Most solar installers partner with a preferred lender to qualify you for a loan and get you set up to finance your solar. Or, you can take out a personal loan or HELOC if that’s what you prefer.
Read More: How to Get Solar Power Financing
Some consumers who can qualify for a loan are dissatisfied with their quoted interest rate, term, and/or monthly payment.
Kyle Shirley: Owner
Expert Tip
“These are broad averages that may not apply to every situation, but solar might not be a good investment if the APR is above 12 percent and/or the term length is 20+ years. At high-interest rates and/or long loan terms, homeowners end up paying so much in interest that the financial benefits of solar are eroded.”
If you’re unhappy with your loan conditions at first glance, don’t give up yet. There’s a strong case to obtain a second or third quote from another solar company or two so you can weigh your options and select the most favorable loan offer.
The implications of solar on home value and moving are difficult to define across all situations, and experts sometimes differ in their advice. But here are some things to consider.
The solar quote, installation, and grid connection process takes, at minimum, several weeks, and can take up to several months if there are supply chain delays or permitting delays. So we suggest forgetting about solar altogether if you’re moving within the next year.
Of course, you can start benefiting from your system's power and greener energy as soon as it is operating and connected to the grid. But you won’t be able to reap the financial benefits in that short of time.
If you’re moving in the next five years, you will likely just barely hit your solar payback period at moving time if you pay for your system upfront.
And, you will have a loan balance to pay off if you finance a loan with a term longer than five years. At that point, you can use cash from your home sale to pay off the balance of your solar or work out a different arrangement with your buyer.
Solar has been shown to contribute positively to a home’s overall value in a sale, but even if your solar is paid off, the ROI may not be as high as you expect. A study by Zillow found that homes with solar installed sold for 4 percent more than homes without solar, but don’t bank on that statistic as a rule.
We do not recommend entering a solar lease if you plan to move before the lease contract ends, as a leased solar system can be seen as a liability and actually decrease the value of your home.
Erin Shine: Founder
Expert Tip
“If you lease a solar system, you effectively don’t own it and now the company has control over equipment bolted on your roof. They can rope people into very high-contract payoff amounts, sometimes 2-3 times what the solar system actually costs. And you cannot sell your house without paying it off.”
When a newly installed system kicks into gear without a hitch, savings can start accumulating right away. But if the system doesn't work properly or isn’t as efficient as promised, customers can find themselves paying for solar alongside their usual high utility bill.
Not good.
And any investment, however smart numbers-wise, can leave a bitter taste in your mouth if you’re not getting a high quality of service.
That’s why the who is just as important as the what when it comes to solar.
If you’ve determined that solar is worth the investment, go with a highly-rated company that has a track record of transparency, reliable communication, and delighted customers.
Don't leave the success of your solar project up to chance. We've identified the best solar companies by zip code based on the quality and quantity of a company's customer reviews as well as the company's responsiveness to those reviews.
Learn MoreNovember 13th, 2024
Solar
By Best Company Editorial Team
May 29th, 2024
By Carlie Ellet
May 21st, 2024
Sign up below to receive a monthly newsletter containing relevant news, resources and expert tips on Solar and other products and services.
We promise not to spam you. Unsubscribe at any time. Privacy Policy
We're on a mission to empower consumers to make the best decisions and connect confidently with companies that deserve their business.
© 2024 BestCompany.com LLC - All rights reserved Privacy Policy | Terms | Do Not Sell My Personal Information