Solar Panels: Are They Worth the Investment?

Right up front, we want to acknowledge that there are individual and collective benefits to solar energy — regardless of the financials. 

Solar is undeniably a greener energy source than traditional alternatives, even when considering manufacturing and transportation emissions. In fact, it has 13 to 18 times less of a carbon footprint than coal and natural gas. 

But here, we’ll focus on when going solar makes financial sense for you as a homeowner.

If you feel like you’re in a gray area between a clear "yes" and "no," keep reading.

Understanding Solar Payback Timelines

A solar system’s payback period depends on several factors, including system size, energy usage, grid power costs, and overall system price. Typically:

• If you pay upfront, the payback period is about 5 to 10 years.
• If you finance your system, the payback period is longer—15 years or less is ideal.
• We don’t recommend loan terms longer than 20 years, as the added interest can reduce savings.

Here are some baseline numbers that can serve as an example as we walk you through some points to consider: 

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.

If your electricity bill is higher than the U.S. average of $121/month, your savings will be greater, and your payback period will be shorter.

Note: 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.  

If your current utility bill is around $121/month, your solar loan payment would be similar—meaning you wouldn’t see immediate savings. However, if rates rise, you’ll benefit from locked-in costs.

Important Note on 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.

Power Usage and Costs 

Most homeowners use enough electricity to justify going solar, even when replacing utility bills with solar loan payments. However, some exceptions exist.

Power Use and Savings

A 6- to 8-kilowatt (kW) system is average for U.S. homes. Check your past energy bills to see your monthly kilowatt-hour (kWh) usage. If it’s close to or above the national average, you’re likely to see significant solar savings. Low-energy households (e.g., small homes without HVAC usage) may not see as strong of a return.

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. 

Monthly Energy Bills by State

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: 

• Hawaii (27.55 cents per kWh) 
• Alaska (19.82 cents per kWh) 
• Connecticut (19.13 cents per kWh) 
• Rhode Island (18.54 cents per kWh) 
• Massachusetts (18.19 cents per kWh) 
• California (18.00 cents per kWh) 

If you live in a high-cost state, solar can provide more substantial savings.

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.

Grid Connection Fees

Most utility companies charge a monthly grid connection fee, even if you generate your own power. Expect to pay around $10 per month post-solar installation.

Increased Consumption After Installation

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. 

Roof Condition and Sunlight Potential

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. 

Roof Replacement Timeline

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. 

Sunlight Potential 

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: 

• Little sunlight 
• Directly east-west facing roof
• Flat roof 
• Tall shade trees 

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.  

Cash vs. Loan: Which Is Best?

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. 

Monthly Costs

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. 

Identifying a Good Loan 

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. 

Some consumers who can qualify for a loan are dissatisfied with their quoted interest rate, term, and/or monthly payment. 

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. 

ROI if You Plan to Move

If you're selling your home within a year, skip solar—the installation process alone can take months.

If you plan to sell in five years or more, you’ll likely hit your solar payback period by then.

How Solar Affects Home Value

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. 

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. 

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. 

Final Thought: Choose a Reputable Solar Company

Even if solar makes financial sense, a bad installation can ruin your savings potential.

Go with a highly-rated company known for transparency, reliability, and great customer service.

Ready to explore solar? Get multiple quotes to compare your options and find the best deal.