Are Solar Panels Worth It? – Investopedia

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Homeowners who install solar power systems can receive numerous benefits: reduced electric bills, lower carbon footprints, and potentially higher home values. However, these benefits typically come with significant installation and maintenance costs, and the magnitude of the gains can vary widely from one house to another.

The power of just an hour and a half of sunlight shining across the surface of the earth is equal to a year’s worth of global energy consumption, but to harness that power, we must convert it into electricity. Home solar power systems use energy from the sun to create electrical charges that move, which results in electricity flowing.

Key Takeaways

  • A home solar energy system is one of the most popular and efficient alternatives to traditional power sources.
  • Solar panels have many environmental benefits and can save homeowners money over the long term.
  • While costs have decreased over the past years, installing and maintaining solar panels can still be expensive.
  • Solar panels are best suited to homes with certain kinds of roofs and in environments with plenty of sun exposure.
  • Before committing to solar power, understand both the environmental and economic factors, particularly financing options and possible subsidies or tax credits.

How Do Solar Panels Work?

Home solar panel setups use photovoltaics (PV), a technology used to convert sunlight into electricity. Solar panels contain photovoltaic cells that are often made out of silicon and grouped into larger modules or arrays. When light from the sun interacts with these cells, it causes electrons to move and electricity to flow. Other components of the solar panel then help harness and control this electricity to serve the practical purpose of powering a home.

Solar energy systems can provide numerous environmental benefits compared with other power sources. These include:

  • Renewable energy source: Solar power is a renewable energy source, meaning that it cannot be used up. By contrast, fossil fuels have a finite supply, and as the supply dwindles, prices may increase significantly. Some estimates suggest that the global oil supply may be exhausted by 2052.
  • Reduced carbon emissions: Solar energy generation reduces greenhouse gas emissions and the production of various pollutants associated with other power sources.
  • Reliability: Solar power systems work in most environments worldwide and in droughts, heat waves, and other conditions that may strain traditional power grids.

Besides the many environmental and public health benefits of solar power, it can also lead to various cost savings and financial benefits for homeowners. These include:

  • Tax credits: Homeowners can claim a 30% tax credit on their income taxes for the cost of installing a solar system.
  • Reduced utility costs: The costs of electricity with solar systems tend to be lower than those of traditional utilities. These systems also provide homeowners added flexibility, including the possibility of hosting a third-party system and buying the electricity it generates at a reduced rate.
  • Reduced costs during grid outages: Solar setups with batteries can provide stable electricity even when the broader power grid goes down, saving residents on costs associated with generators or emergency housing.
  • Increased home value: Many buyers view solar panels as an upgrade and are willing to pay more for a home with a solar system than one without.
  • Sell surplus electricity: Most states allow homeowners with surplus electricity generated by solar panels to sell that energy back to the grid.

Before getting solar panels, get quotes from several reputable installers to compare.

How Much Do Solar Panels Cost for Homeowners?

The average upfront cost of a residential solar power system in the U.S. is between $10,000 and $18,000.

Although the price of installation will depend on your home, your location, the size of the system, and other factors, expect to include some or all of these costs:

  • Upfront costs: At the time of installation, you’ll pay not only for the solar energy system itself but also the labor and installation fees, permits, and paperwork necessary to install the system, as well as dealer fees. You may also need to pay for other equipment required to operate the solar system, including metering equipment, inverter, and battery storage.
  • Long-term costs: Most solar panel setups are designed to last for 20 to 30 years without requiring significant updates, but there will likely be some maintenance needed due to regular usage, including occasional cleaning, that might incur additional costs after installation if you decide to outsource.

Potential Return on Investment

Homeowners investing in a solar power system for their homes will expect there to be potential for return on their investment. While there is no guarantee that a solar panel setup will recoup costs, you might expect these systems to return about 10% on average. This means that for every $1,000 you spend, your investment may generate returns of about $100.

Factors To Consider Before Going Solar

If you are thinking of moving toward green energy by investing in a solar power system for your home, you’ll want to be sure you’re factoring in a variety of considerations, including the suitability of your house, the kinds of incentives and rebates that may be available to you to keep costs down, and what you’ll need to do after the installation is complete.

Suitability of Solar Panels for Your Home

Solar panels can work in all climates. However, for a few reasons, your home may not be ideally suited to this type of power. The age, size, and slope of your roof, the amount of shade due to trees close to your home, the amount of sunlight in your location, and the cost of electricity in your area are all important factors. Professional solar installers can offer guidance on how suitable your home is for solar and how much you may stand to save in electricity costs.

For homeowners wondering whether they live in a region well-suited to solar power, the National Renewable Energy Laboratory (NREL) produces maps showing solar radiation levels, and the tools on its website provide detailed solar information for specific locations within the U.S.

Maintenance and Upkeep

Most solar panel systems do not require much regular maintenance or upkeep. For instance, you may opt to wash off the panels if they are obscured by debris. If you prefer to entrust that type of work to a professional, expect to pay several hundred dollars per visit. Perhaps more importantly, as the homeowner, you’ll want to monitor the generation capacity of your panels regularly; if the capacity starts to drop and it is not due to weather events, you may need to consult with a professional.

You can help maximize your panels’ lifespan by ensuring that no one steps or walks on them, that they remain clean and free from debris and dirt, and that any branches or other larger items that fall on them are removed.

Government Incentives and Rebates

Before installing a solar energy system in your home, be sure you are well-versed in all available government incentives and rebates, as these can significantly lower the cost and potentially increase the financial benefits of solar panels.

With the Inflation Reduction Act, the federal tax credit for solar systems installed through 2032 was increased to 30% of the cost of the equipment, installation and labor, balance-of-system equipment, sales taxes, and certain energy storage devices. These tax credits can help reduce the federal income taxes you will owe to the IRS.

Your electric utility company may also provide a subsidy in exchange for installing a solar energy system. Similarly, many state governments offer rebates to reduce the cost of installation and tax credits. More details on incentive programs in the U.S., including programs within each state, can be found on the Database of State Incentives for Renewables & Efficiency (DSIRE) website.

Solar Financing Options

Even with subsidies and tax credits, the cost of installing solar panels may be prohibitive. Fortunately, there are a variety of financing options available. Here are some of the most common:

Cash Option

The simplest and, typically, cheapest option for buying a solar energy system for a home is to make a cash purchase. This approach is suitable for homeowners with the flexibility to spend the money to own their system outright. Avoiding financing through an outside source means you’ll spend less money overall. However, upfront costs can be significant, and homeowners must have a sufficient federal tax liability to take full advantage of tax credits.

HEL and HELOC

Some homeowners may be able to take advantage of home equity loans or home equity lines of credit to self-finance their solar purchase. Banks and credit unions across the country provide these, making them easily accessible. To take advantage of this option, you’ll need sufficient equity in your home and good credit.

Solar PPA or Lease

A solar power purchase agreement (PPA) is an agreement in which a third-party developer designs, permits, finances, and installs a solar system on a home. The homeowner does not own the system and buys electricity from the developer, typically at a reduced rate compared with local utilities. This is an option for customers without the means to buy their solar panel systems outright, although it is not available in every market.

Utility or Government Loans

Some utility companies offer loans to support the installation of residential solar systems. Similarly, state and local governments may also provide loan options. This heavily depends upon your utility company and the area in which you live.

How Much Can Solar Panels Save You?

Once you know how much a solar power system will cost upfront and how much energy it will produce, you can (theoretically) predict how much you can save in energy costs per year. Put simply, your savings with a solar panel system are equal to what you would have paid for utility electricity minus the amount you paid for the installation and maintenance of the system.

In practice, however, this is a tricky calculation because a lot depends on how you pay for electricity at the moment and because you typically pay for the system at once upon installation. Utilities often charge residential consumers a flat rate for electricity, regardless of the time of consumption. This means that instead of offsetting the expensive cost of peak electricity production, homeowners’ solar power systems merely offset the price they are charged for electricity, which is much closer to the average cost of power production.

However, many utility companies in the U.S. have introduced pricing schemes that allow homeowners to be charged at different rates throughout the day to mirror the actual cost of electricity production at different times. This can mean higher rates in the afternoon and lower rates at night. A PV solar array may be beneficial in areas where this time-variable rate is used since the solar power produced would offset the most costly electricity.

Exactly how beneficial this is for a given homeowner depends on the timing and magnitude of the rate changes under such a plan. Similarly, utilities in some locations have pricing schemes that vary over different times of the year due to regular seasonal demand fluctuations. Those with higher rates during the summer make solar power more valuable. Many states provide solar cost calculators that can help you determine how much you’ll save based on your particular situation.

Pros and Cons of Solar Panels for the Home

Once you’ve worked through all of these calculations, you’ll likely end up with a single number—the number of years it will take for a solar system to pay for itself in savings from your energy bills. If you live in a sunny part of the country and have high utility bills, you could be looking at a system that will reach this point in five years. Other homeowners may have to wait 10 or 15 years.

In other words, most homeowners will eventually see a benefit from a solar power system; it might just take decades for this to be realized. Whether it is worth installing such a system, therefore, often comes down to a number of much less technical factors than those we’ve listed above: how long you are going to stay in your home, the subsidies available in your area, and simply whether you want to do your bit for the environment.

Like most things, solar power has its benefits and drawbacks. At the same time, some economic costs may be defrayed by the social benefits to the environment and lowering your carbon footprint, which may be more important to you than a purely monetary evaluation.

Pros

  • Green energy that lowers your carbon footprint

  • Net metering allows you to sell back excess energy produced

  • You may be eligible for certain tax breaks and subsidies

  • Reduced electricity costs

Cons

  • Installation and maintenance costs are still high

  • Solar only works when the sun is out and on certain types of roofs

  • Maintenance may be required

  • Tax breaks will not last forever

How do solar panels work and what is their purpose?

Home solar panels use photovoltaic cells to convert sunshine into electricity. These panels also have equipment used to harness this electricity and make it effective at powering a home. Solar panels are designed to take advantage of the sun’s massive and renewable energy output and represent a more environmentally friendly alternative to fossil fuel sources.

What factors should I consider when deciding if solar panels are worth it?

Most homes will find that the savings from solar panels will outweigh the costs, although it may take anywhere from a few years to decades to achieve. Solar systems are costly to install but require little maintenance over a lifespan of 20-30 years. Homeowners should consider the amount of money they have to spend on solar, whether financing options are available, the benefits they may receive in terms of subsidies or tax credits, and how long they plan to stay in their home. They should also consider how suitable their home is for solar.

What are the environmental benefits of solar panels?

Solar panels provide many environmental benefits, including reduced carbon emissions, an alternative to polluting fuel sources, reliability even during traditional power outages, and more. Oil and gas are finite resources that demand invasive processes for extraction from the earth, while solar energy is plentiful and not in danger of being exhausted.

The Bottom Line

Determining whether to install a PV solar system may seem daunting, but it is important to remember that such a system is a long-term investment. Solar power is a good choice in many locations from a financial perspective.

Solar power often costs a lot upfront at the time of installation, which can be prohibitive for some homeowners. However, with many subsidies, tax credits, and financing options available, it’s worth exploring your options even if you aren’t sure whether you can purchase and install a system outright. Homeowners may wish to install solar power to avoid future potential fluctuations in energy costs or may wish to look beyond their personal financial motivations and use solar for green living.

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