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Home Solar is Worth It: Save BIG Money By Switching to Solar

Save BIG Money By Switching to Solar

TL;DR

Skip ahead to find out how it’s not only worth it to switch to solar, but how a bank will effectively pay you to make the investment!

Introduction

If you’ve been noticing a surprising number of houses in your area installing solar panels on their rooftops, there’s a good chance there’s more to come! 

While the promise of renewable energy can be captivating, the elephant in the room is of course: How much will it cost? One would think that between the solar panels, equipment, and installation, converting the power source of your home must cost a small fortune! 

On top of that, how reliable is a solar power system exactly? What if one of the panels becomes damaged by a storm? What if it’s cloudy and the system doesn’t collect enough energy? Will your house run out of juice and you’ll be stuck in the dark until dawn?

In this post, we’ll explore each of these questions and other questions to determine if installing a home solar panel system makes sense for you financially.

home solar installations and returns from energy savings and renewable energy credits
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What Percentage of Homes Have Solar Panels?

Solar power is a trend in green energy that’s sweeping the country and is expected to increase in the years to come. In 2019, the U.S. hit two million solar installations. Given that there 138 million houses in the U.S., solar installations currently make up around 1.5% of the market. 

While this is still a small percentage, according to the Pew Research Center, the number of homeowners considering getting solar panels is up from 40% in 2016 to 46% in 2019. It’s been growing especially popular in places like the South Atlantic states ranging from Delaware to Florida. This openness to solar is one reason driving Wood Mackenzie to estimate that there will be THREE MILLION installations in 2021 alone, 50% more than we have ever installed! 

Solar power is often looked at as one of the best sources of green energy available. Unlike other ways of producing energy, solar power produces virtually no waste. The solar panels don’t emit smoke, carbon dioxide, or any other harmful toxins into the environment.

Solar power is also one of the most abundant energy sources on Earth. Every day, we’re given a fresh opportunity to turn new sunlight into electricity. Compare that to the current lineup of fossil fuels, natural gas, water, and even wind, and there’s no contest.

On top of that, solar power is one of the quickest energy sources to deploy. Whenever there is a disaster or remote location that needs power quickly, rather than trying to use a generator to produce power, solar panels can be activated and start providing energy immediately.

How Does a Home Solar Panel System Work?

Powering your home with solar power is a fairly straight-forward process. 

During the day when the sunlight is abundant, the solar panels will convert its rays into energy that you can then use to power your entire house. Then, during the night when this supply diminishes, your house will operate off of any stored energy or even tap into electricity from your local power grid.

Hence, you could think of a home solar panel system as almost like a hybrid of energy sources. However, because you’re relying far less on the power company, many state and federal agencies will give special incentives to motivate more people to switch to this type of technology. For instance, on top of the Federal incentive, if you live in New York, you will receive the NY Solar Tax Credit and NYSERDA Solar Incentive. 

How Do Solar Panels Convert Sunlight into Energy?

For a brief explanation of how sunlight is turned into electricity, check out this helpful video.

Thanks to technological advancements, nearly any conventional home can be adapted with a home solar panel system. Just like any other energy source that is fed into your house (such as electricity or gas from the power company), it will require having the proper setup and equipment.

What Happens if a Solar Cell is Broken or Not Working?

Modern panels are built with bypass diodes that reduce the overall power loss from one or more cells having issues. This is not a perfect however as there is still some energy loss. To eliminate this risk, some people opt to use micro-inverters on each cell. 

What Equipment is Needed?

Solar Panels

Solar panels are the flat, dark-colored panes that you see mounted to the tops of roofs or exteriors of buildings. Their job is to absorb the radiation from the sunlight into their silicon photovoltaic (PV) solar cells. As the sunlight interacts with these cells, it causes electrons to react and creates a flow of electric current.

Solar Panel Racks

These are the racks that solar panels are mounted to. Often, they are stationary and do not move. But some advanced systems can be made to tilt as the direction of sunlight changes throughout the day.

Solar Inverter

A solar inverter is a device that converts the direct current (DC) from the solar panels into the alternating current (AC) that most homes use.

Solar Performance Monitoring 

A monitoring system is integrated into the solar inverter to control and measure the solar conversion process. It can be used to display and record how much energy has been collected, converted, stored, and used.

Solar Storage 

A solar storage unit is a system of batteries that can be used to temporarily hold some of the excess energy that was produced. This extra power can be stored for later (when the sun goes behind clouds) or even for night usage.

Can Solar Power Run Your House? 

It is fully achievable to power your entire house with solar power. Additionally, through the use of a battery backup that your solar power system charges with excess power, like Tesla’s Powerwall, you would be able to power your house for multiple days without any new solar coming in. 

What is Net Metering?

Depending on the type and capacity of your solar system, there may be times during the day when it overproduces how much energy you will need or can store onsite. To make use of this excess production, many homeowners will be allowed to use net metering.

Net metering significantly improves the economics of going solar. When your system produces excess energy, the power companies will give you the opportunity to effectively “sell back” some of it in exchange for something called Solar Renewable Energy Certificates (SRECs). These SRECs can be used to credit your bill with the power company. (Note that not all states have SRECs).

Between net metering and the reduced cost of power, there are a lot of financial incentives to using solar. But does that necessarily mean that it’s worth the cost of converting to one?

What Maintenance is Required for Solar Panels?

One of the great things about home solar panel systems is that they don’t require much maintenance. Since they have no moving parts, they are not prone to mechanical failure and can last up to 20 years before needing replacement.

Periodically, the solar panels should be cleaned off to make sure their ability to collect sunlight is not obstructed. You should check that dirt, leaves, and other debris are not stuck to them. This can be done using a broom, leaf blower, or power washer.

During the winter months, you should also remove any accumulated snowfall on the solar panels. Usually, because they are installed on a slanted roof, the snow can be easily knocked off with a broom and allowed to fall under the force of gravity.

A Long-Lasting Warranty 

If something should go wrong with your solar panel equipment, you can rest assured that you’ll be covered. Most reputable solar panel companies will warranty their products for anywhere between 15 and 25 years. 

Besides, even if nothing goes wrong, the manufacturer will also often guarantee that the energy production of your system stays above 85 percent.

Are Home Solar Panels Worth It?

solar panels are worth the investment
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To discover if home solar panels would be worth the investment, there are several variables you’ll first need to consider. You can calculate your return on investment (ROI) as follows:

Step 1: How Much Do Home Solar Panels Cost?

To start, get a quote for the complete installation of a home solar system from a reputable local supplier. The supplier will want to know the size of your house and its typical energy consumption.

To give you some idea of the price, Solar Reviews estimates the average cost of a 5-kW system at $15,800. This figure includes equipment and installation BEFORE any credits.

Because this is a high-cost purchase, you’ll likely need to finance it through a home equity loan or similar option. Assuming you get approved for a 5-year loan with a 5.0% APR, this would work out to a monthly payment of $257. That adds $1,800 of loan interest on top of the price tag bringing the total to $17,600.

Fortunately, because of the popularity surrounding solar panels, the government will allow you to deduct as much as 26 percent of the cost of installing a solar energy system from your federal taxes. This is what’s known as the investment tax credit or ITC. Some people also call it the Federal solar tax credit.

Using these figures, a 26% tax credit would produce a savings of $4,100. This would reduce the total investment of a new solar panel system to just $13,500.

Step 2: How Much Money Will I Save?

The next step is to determine how much money you’ll be saving every year by switching to home solar.

According to the U.S. Energy Information Administration, the average American home consumes 10,972 kilowatt-hours (kWh) of energy per year. You can find out this information for your own home by looking at your energy bill statements or by contacting your power service provider.

Though energy costs can fluctuate widely from state to state across the U.S., the EIA estimates that the average cost per kWh is $0.1328. By contrast, when you have a home solar system, your energy costs are reduced to just $0.06 per kWh used.

Combining this information together, that works out to:

  • Standard power: 10,972 x $0.1328 = $1,457 per year
  • Solar power: 10,972 x $0.0600 = $658 per year
  • Net savings = $799 per year

In addition to saving money on your energy usage, as we mentioned, you’ll also likely receive Solar Renewable Energy Credits. These are from the power company for the excess power you supplied back to the grid.

According to Energy Sage, the average 5 kW home collects enough power to earn an average of 5 SRECs per year. If we estimate a value of $200 per SREC (they range from $50 to $300), that’s an additional $1,000 of credit.

That brings your total savings to $799 + $1,000 = $1,799 per year.

Step 3: Calculate Your Break-Even Point

Intuitively, we know that if we’re saving money every month, then at some point these savings will eventually pay for the entire cost of the system. We can calculate this as follows:

  • Net Initial Investment / Net Savings per Year = $13,500 / $1,799 = 7.5 years

There you have it! Using the numbers in our hypothetical example, your new home solar panel system would have paid for itself in 7.5 years, a 13.3% return. It’s an easy at-home investment with better returns than investing in the stock market. 

Keep in mind however, that in our example, you borrowed money to finance the solar system. Assuming you borrowed at 5%, the annual interest is $585. When you compare this to $1,799 your solar system is generating each year, it is like the bank is paying you $1,214 each year to upgrade to solar power. 

Of course, your actual numbers may vary. Other analyses calculate the payback period to be anywhere from 7 to 20 years.

But, here’s the best part: The savings don’t stop there. Every year after your pay-back period, you can continue to reap those savings year after years for as long as you live in the home. It’s like an investment that continues to pay dividends long after you’ve made your money back!

Other Financial Considerations

Monthly savings aren’t your only financial benefit when it comes to a home solar system. It can also bring you peace of mind in other ways too.

For example, let’s say you’ve got a regular home and a storm knocks your power out. You may know from our other advice, that having a generator is a great insurance plan in case the power goes out for multiple days. You might have a small portable backup generator ($1,000) or one capable of powering your home for multiple days ($5,000 – $15,000).

However, with a home solar panel system, there would be no need for such a system. You could use the power that was saved in your storage system. Again, solar power makes it so that you don’t need to invest in such costly alternatives. The math on having solar full time versus having a generator that you hopefully only need once or twice a year is a no-brainer. 

Summary

Not only is solar power a clean, abundant energy source, it can also be financially motivating too. While there are significant upfront costs for the equipment and installation of a new system, state and federal credits as well as incentives from the power company can make it a lucrative opportunity.

Tip: looking at the next 10 years, be an early adopter of solar. Incentives are likely to get rolled back as more homes install their systems. We are in a sweet spot where the technology has improved drastically AND the incentives are still in place.

To understand if a home solar system is right for you, do your homework and calculate your home energy needs.

Don’t forget to check with your local power company and government to see what other incentives you might qualify for. We suspect you will find that a new home solar system is an investment that will pay you dividends for years to come.

The easiest way to get an assessment on how good of an investment it is for your home is to bring a qualified solar provider into your home for a quote. To do this, a good place to start is with the national leader, SunPower.

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