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Will Solar Panels Pay for Themselves?

Carlos

Written by qualified solar engineer Carlos on December 26, 2018

Yes, solar panels will be able to pay for themselves within their lifespan. However, the time it will take to reach the payback time or the earnings that can be obtained are deeply varied and site dependent. Below are the main factors that influence this timescale.

Factors such as solar panel costs, incentives, the type of solar panels, and your location influence the payback period of your system. Nevertheless, across the US it is possible to assure that the solar panels will pay for themselves in their lifetime no matter where they are located. Actually, by establishing an average in many states of the US, a solar panel system would be able to pay for itself between 9-12 years. If you are worried about the cost of installing solar panels initially, don’t be, as a lot of solar companies throughout the USA will provide solar financing.

In order to estimate the payback times of solar panels, we must first understand how these factors affect the break-even point of a solar system.

Which Factors Affect the Break-even Point of a Solar Panel System?

Location

The location is a crucial factor. The amount of energy that your PV system can produce is entirely based in the solar irradiance available in your household. If you are located in a place with high levels of irradiance, then your probabilities to reach the break-even point sooner will be bigger.

The location is also related to the electricity rate from your utility and will be a decisive factor to determine when your PV system will start saving you money.

The average electricity rates vary from State to State. They can be as high as 21.57 c/kWh (Alaska) or as low as 9.56 c/kWh (Louisiana). Therefore, payback times will vary according to the electricity rate of your household and the energy demands that will be taken into account to size your PV system. However, there is no doubt that installing solar panels will help save money on your electricity bills and over time also increase the value of your home.

Some States like California and Florida have the perfect match between high electricity rates and high solar irradiance values, therefore break-even points will reach much faster than on other States.

Measuring how these two variables interact between them might not be easy if you are not familiar with the solar industry. However, there are reliable tools like PVWatts that can make this task easier

Incentives

One of the greatest benefits in the US is the access to excellent incentives from the government to go solar.

The first one of them is the access to the Renewable Energy Tax Credit at Federal level where you can obtain up to 30% discount on the total capital cost of your PV system, discount that will be attributed to your taxes at the end of the year. An important detail about this incentive is that from 2019 the discount will only be 26%. In other words, these are actually the last days where you can gain access to a 30% rebate.

The second incentive is Net Metering which is based on revenues obtained by feeding solar electricity to the grid that will vary according to the State

PV System Costs

To measure the capital cost of a PV system, the expenses are generally divided between hardware costs and soft costs. Hardware costs are attributed to all the equipment needed to install the PV system: modules, inverter, wires, mounting systems, combiner box, etc. On the other hand, soft costs are attributed to all the permitting, taxes, labor including the installation time required and interconnection to the utility grid of the system.

PV System costs have reduced radically over the last decade. Actually, back in 2010, the average price of PV modules was close to 2.15 USD/W, while today the price barely reaches 0.35 USD/W. Such cost reduction is due to the accelerated growth of solar installations and improvements in module efficiency that have decreased manufacturing costs of solar panels

Moreover, soft costs related to permitting and labor tend to change slightly according to the jurisdiction and utility that you will get connected to. Soft costs in the US tend to represent almost 50% of PV system costs, values that have maintained solar installation prices above other countries.

Nevertheless, 2017 was a great year for reductions in PV prices, a factor related to the increase in PV system installations around the world. We can take a look at a PV system cost breakdown using the latest data from NREL (2017).

pv system cost breakdown using the latest data from NREL (2017)

As we can see on the graph above, there are variations in the prices according to the type of grid-tied PV system selected.

PV Systems in the US, Are They Worth It?

Based on what we discussed above let’s make a little exercise. Let’s suppose that we want to install a PV system of 5kW.

As you could see in the image, the average price of a grid-tied PV system for residential purposes is close to 2.80 USD/W, therefore, we could approximate a capital cost close to 14,000 USD. If we apply the Federal Tax Credit of 30%, then the real cost would be approximately 9,800 USD

Moreover, we can estimate the average US savings of PV systems as 865 USD, according to data from Energy Sage and PVWatts. Based on these numbers, it would take about 11 years to reach a breakeven point. Additionally, if we consider that solar panels can last up to 25 years, then we can estimate total average savings as 12,110 USD!

If we want to obtain the highest savings that can be achieved in the US, then we need to install the PV system in California (with average annual savings of 1,272 USD). Here we could obtain payback times in almost 8 years and achieve savings close to 22,000 USD by installing a 5kW grid-tied system.

On the other hand, if we refer to the State of Missouri that has low electricity rates and one of the lowest solar irradiance values in the country, then payback times could be close to 15 years and savings around 6,425 USD.

As we can see payback times can vary a lot depending on the size of the system, the location and type of system implemented.

You must choose the right solar installer that helps you achieve the greatest savings based on your energy requirements.

To give yourself a better idea of how much you can save by installing solar panels, you can use our solar calculator where you only need to add some details like your location, monthly electricity bill among a couple other minor details to find out how much you can save.

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