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How Much Money Do Solar Panels Save You on Electricity Bills?

Solar panels have become popular thanks to their simplicity and excellent return on investment. When you install a home solar system, the long-term savings can be up to 3 times higher than the upfront cost. Also consider that electricity prices tend to increase each year, making solar energy more valuable over time.

On average, solar panels will save you over $1,100 per year on your electricity bills. This is assuming a system size of 6 kilowatts, which is common in the US. The estimate also considers the average sunshine available in the country, and the average electricity price of 13.34 cents per kilowatt-hour reported by the Energy Information Administration.

The US is a large country, however, where sunshine and electric tariffs change a lot from place to place. For this reason, average performance values can be misleading. Solar panels offer increased savings in places with abundant sunshine or expensive electricity. California has both conditions, for example, and the annual savings from a 6-kW solar system can reach up to $2,000.

How Local Sunshine Affects Solar Panel Savings

The savings achieved by solar panels are directly related to the sunshine they receive. To visualize the concept, assume you have two identical solar systems in different states, where one gets 50% more sunshine. Since the panels simply convert sunlight into electricity, you can expect them to produce around 50% more kilowatt-hours as well.

  • The local sunshine cannot be changed, but you can make solar panels more productive with smart placement.
  • Ideally, they should be installed in an area that does not get shadows from surrounding objects or buildings.
  • Avoiding shadows can be tricky: their position changes throughout the day depending on the sun’s position in the sky.

In the US and other Northern Hemisphere countries, most sunshine comes from the southern portion of the sky. To take advantage of this and save more energy, solar panels should be tilted slightly south. If you work with qualified solar installers, they can arrange your panels so they avoid shadows, while having an optimal orientation to increase the sunlight received.

solar installers arranging where to place the solar panels

Solar companies use a metric called the “specific yield” to describe solar panel productivity under the sunlight conditions of a given site. The specific yield provides the annual output in kilowatt-hours, for every kilowatt of installed capacity. Since the metric is expressed per kilowatt, it applies for solar power systems of any size.

For example, if the specific yield is 1,600 kWh per kW with the local sunshine, a 10-kW solar system will deliver 16,000 kWh per year.

  • A specific yield of 1,400 kWh/kW can be considered average for the US.
  • A value of 1,200 kWh/kW would be considered below-average.
  • On the other hand, a value of 1,800 kWh/kW indicates above-average solar productivity.

The electricity produced by a single solar panel can be estimated if you know the specific yield for the project site of interest. You just have to multiply the panel wattage by the kWh/kW value, and then divide the result by 1,000. For example, if you are considering a 330-watt solar panel model and the local sunshine allows a specific yield of 1,500 kWh/kW, each panel produces around 495 kWh per year.

How Electricity Prices Affect Solar Panel Savings

There is a common misconception that solar panels are worth the investment only in sunny places, but this is not the case. If local electricity prices are high, even a modest electricity output can cut your power bill significantly. Generating 2,000 kWh with a tariff of 12 cents achieves the same result as generating 1,200 kWh with a tariff of 20 cents. In both cases, $240 are subtracted from your power bills.

Of course, the highest possible savings are achieved when you have both abundant sunshine and high kilowatt-hour prices. The following table estimates the annual savings for a 6-kW solar panel system, considering various electricity prices and solar productivity values (specific yield):

Electric Tariff

(Cents/kWh)

Annual Savings ($) with Various Specific Yield Values (kWh per kW Installed)

1,200

1,400

1,600

1,800

2,000

10.0

$720

$840

$960

$1080

$1200

12.5

$900

$1050

$1200

$1350

$1500

15.0

$1080

$1260

$1440

$1620

$1800

17.5

$1260

$1470

$1680

$1890

$2100

20.0

$1440

$1680

$1920

$2160

$2400

This table demonstrates how both sunshine and electricity prices are important when estimating the savings achieved by solar panels. Even sites with below-average sunshine can be viable for solar panels if local electricity prices are high.

The US Northeast provides a clear example of how solar panels can save money even with modest sunshine. These states are not particularly sunny, but they have some of the highest electricity prices in the country. Even if solar panels are less productive compared with sunnier states, their electricity output has a high monetary value.

If your state has a Solar Renewable Energy Credit (SREC) program, this is great news. In addition to saving on electricity bills, you will earn one SREC for every 1,000 kilowatt-hours generated by your solar panels.

  • A 6-kW solar panel system will normally accumulate between 7 and 10 SRECs per year.
  • SRECs have a variable sales price, but they represent extra income beyond your power bill savings.

The best recommendation is getting in touch with SREC broker to sell yours, since the required paperwork can be complex. In states that have SREC markets, they typically sell for over $150 each. This means that 7 SRECs will leave over $1,000 in your pocket!

Comparing the Upfront Cost and Long-Term Savings of Solar Panels

While it is true that solar panels are expensive, the savings they achieve in the long run outweigh their upfront cost. Solar panels are durable and easy to service, and they come with solid warranties if you purchase them from a trusted supplier.

In the US, the cost of installing solar panels on a house is around $3 per watt of capacity. Assuming a capacity of 6 kW, which is quite common, the expected budget is around $18,000. However, the 30% federal tax credit cuts the net price to around $12,600, and incentives from local utilities and authorities can make solar panels even less expensive.

Assuming favorable conditions, a 6-kW solar panel system can save over $30,000 during its service life. In other words, the long-term benefit is 2 to 3 times higher than the upfront cost. Also consider that electricity tariffs increase over time, typically between 2% and 4% annually. On the other hand, solar panels have minimal maintenance costs after the initial investment.

With high-quality equipment and a professional installation, the lifespan of your home’s solar panels will likely be over 25 years. In other words, you get a reliable electricity source that will not become more expensive over time, unlike the local utility service.

How Smart Financial Decisions Can Help You Purchase Solar Panels

If solar panels pay for themselves, they can be installed at zero net cost. For example, if you borrow $12,600 for a 6-kW solar system, with an interest rate of 4% and a repayment period of 15 years, the annual debt payment is slightly over $1,100. Typically, the annual savings will be higher than this, and no money will come out of your pocket.

Depending on local regulations, it may even be possible to make money from solar panels.

  • Utility companies in the US normally offer net metering, which consists on giving credit for any surplus solar generation you inject into the grid.
  • If the power generation from your solar panels exceeds your monthly consumption, there is a balance in your favor.
  • Most electric companies carry the balance over to the next month until you consume it. However, in some cases you may be offered cash payments for surplus electricity, which essentially turns your home into a small-scale power plant.

Another financial benefit of solar panels is increasing the value of your home. Property values depend on several factors, but an average home with solar panels is around $20,000 more valuable than an identical home without them. Also, there are many states that offer a property tax exemption for clean energy systems: you will not pay higher property taxes if the increase in home value is due to a solar panel installation.

When you have more solar financial information at your disposal, you can make better purchasing decisions. Using high-quality solar equipment and working with qualified installers is important, but you also need make sure you’re analyzing all of your purchasing options.

References

1) US Energy Information Administration (EIA) Electricity Data

https://www.eia.gov/electricity/monthly/epm_table_grapher.php?t=epmt_5_6_a

2) SOLARGIS. Solar Resource Map for the USA

https://solargis.com/maps-and-gis-data/download/usa

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