How Much Money Can Solar Panels Save Homeowners in 2024? – MarketWatch

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How Much Are Solar Panels?

Based on our research and analysis of nationwide pricing data, the average cost of home solar systems is $2.85 per watt or $2,850 per kilowatt. The following table summarizes the estimated costs of solar panel systems ranging from 5 kW to 10 kW, along with net costs after subtracting the 30% solar federal tax credit.

Many cities and states promote solar incentives beyond the federal solar tax credit. For example, many states offer a sales tax exemption on solar equipment. In this case, the cost of your solar installation may be even lower than our estimated values.

We also surveyed 2,000 total homeowners who installed 8 kW solar systems to determine the typical prices offered by leading solar companies. The following table summarizes the results:

*Pricing data for Tesla was obtained using the company’s online solar quote tool. Price ranges for all other companies are based on our survey data. The listed prices reflect totals before subtracting the 30% federal tax credit and other incentives.

What Solar Tax Incentives Can You Claim?

There are multiple solar incentives and benefits you can take advantage of to lower the cost of your panels. Solar panel systems in the U.S. qualify for a 30% federal tax credit, officially called the Investment Tax Credit (ITC). Depending on your location, you may also qualify for additional solar tax breaks or benefits from the state government.

Federal Solar Tax Credit

The federal solar credit gives you back 30% of your solar project costs as a tax deduction for the year you install panels. In other words, the ITC provides a tax credit of $300 for every $1,000 you invest in residential solar panels, battery systems and other renewable technologies. So if you spend $30,000 on a 10 kW solar system, the federal tax credit is equivalent to $9,000 tax credits.

Keep in mind that the ITC is a tax deduction, not a refund or rebate. If your tax burden is not high enough to claim the benefit in a single year, you can roll over the unused difference to the following year. You also cannot claim the federal tax credit if you pay for your panels with a solar lease or PPA.

Thanks to the Inflation Reduction Act of 2022, the solar tax credit increased from 26% to 30%. The legislation extended the benefit — which was scheduled to end in 2024 — through 2034.

State and Local Incentives

Depending on your location, you may qualify for additional incentives for going solar that you can combine with the federal tax credit for more cost savings. Many state governments have introduced local tax breaks for solar energy systems, such as:

  • Sales tax exemptions: Exempts you from paying the local sales tax when purchasing a solar power system.
  • Property tax exemptions: Exempts you from paying higher property taxes if installing solar panels increases the value of your home. For example, if you equip a $300,000 home with a $25,000 solar system, your property taxes will be calculated at the initial value of $300,000 (not $325,000).
  • State tax credits: Some states offer local tax credits for solar power systems, similar to the federal tax credit. After going solar, you can deduct part of your project costs from your local taxes.

Some states also offer solar incentives that are not related to taxes. For example, a state may offer cash rebates that reduce your upfront costs, or net metering policies that let you sell surplus solar energy to the local utility company for electricity bill credits.

The Database of State Incentives for Renewables and Efficiency (DSIRE) is a useful resource that allows you to filter incentive programs by state and technology. The DSIRE not only covers solar power, but also other renewables and energy efficiency projects. You can also ask your solar installer for help finding and applying for available incentive programs.

How Much Do Solar Panels Save?

Your energy savings with solar panels depend on three main factors:

  • Local sunshine: Solar panels generate more electricity in sunny states like California, Arizona or Florida, so those residents can meet their energy needs with fewer panels. Panels can still generate enough electricity to power your home in cloudier states like Washington or New York, but you may want to invest in a backup battery to rely on during suboptimal conditions.
  • Local electricity rates: The rate of electricity in your area will determine how much you save by going solar. For example, if you pay 15 cents per kWh for energy usage and your panels generate 1,000 kWh in a month, you can expect to see $150 in power bill savings.
  • Net metering: With net metering programs, you can send excess solar energy your panels generate to the grid in exchange for a power bill credit. Without net metering, unused solar generation is lost unless you store it in a home battery.

You can estimate the annual energy production of your solar panels using the World Bank Global Solar Atlas. Once you know this value, you can estimate your dollar savings based on your local electric tariff. Here is a quick example:

  1. Open the Global Solar Atlas and find your location. You can click on your exact location or input your address to display local solar resources.
  2. The Atlas will display a table. Look for a value called “Specific photovoltaic power output” or “PVOUT.”
  3. If the PVOUT value is 1,500 kWh/kWp, you would get 1,500 kWh annually for every 1 kW of installed solar capacity. Multiply the PVOUT value by your solar system size in kilowatts. In this example, a 5 kW system would generate 7,500 kWh per year.
  4. Find your state’s average electricity cost using the U.S. Energy Information Administration (EIA) database. Then, multiply that rate by your total from step 3. So for someone paying 20 cents per kWh, generating 7,500 kWh of solar energy can save up to $1,500 per year.

Solar panels’ performance gradually decreases over time, meaning their output slightly drops each year. However, high-quality solar panels have an annual degradation rate below 0.5%. But with the cost of electricity rising — the EIA reported a 9% increase in rates between December 2021 and December 2022 — you can still expect energy savings even if your panels become slightly less productive year-over-year. For example, a home solar system saving you $1,500 per year in energy bills can accumulate over $40,000 in savings during a 30-year period.

What Is the Payback Period for Solar Panels?

According to our solar cost survey, you can expect to pay $17,100 for a 6 kW home solar system. You can also claim the federal tax credit equivalent to 30% of your total solar project costs, which would result in an incentive of $5,130. After subtracting the tax credit, the net cost of the 6 kW solar system in our example is $11,970.

On a property with favorable sunshine conditions, a 6 kW solar system generates between 8,000 and 10,000 kWh of energy per year. At an electric rate of 16 cents per kWh, expected annual power bill savings range from $1,280 to $1,600. Considering the upfront cost of $11,970 after incentives, the payback period would range from 7.5 to 9.4 years.

However, if you live in a state with local solar incentives, you can achieve a shorter payback period. The payback period may also be shorter in regions with expensive electricity rates since each kilowatt-hour of electricity generated by your solar panels is worth more in power bill savings.

How To Calculate Your Payback Period

You can estimate the energy savings achieved by solar panels in your location using the PVWatts Calculator, developed by the National Renewable Energy Laboratory (NREL). Input your location and basic information about your solar system, and the calculator will estimate the electricity output in kilowatt-hours per year. To estimate your dollar savings, multiply this value by the rate you currently pay for electricity.

Our guide to solar panel costs outlines typical installation pricing by state. You can divide these costs by your estimated electricity savings to calculate your payback period.

The Bottom Line

A home solar system can have high installation costs, but the long-term savings are much higher — especially if you install high-quality solar panels on a site with abundant sunshine. Even in less sunny locations, solar panels offer an attractive return on investment for homeowners looking to offset high electricity prices.

Local sunshine and electricity prices are equally important when estimating the potential savings offered by solar panels. For example:

  • For a homeowner who typically pays an electricity rate of 16 cents per kWh, a solar system generating 10,000 kWh per year will save $1,600.
  • However, a system of the same size generating 8,000 kWh per year due to a less sunny location could save $1,600 if the electric tariff is higher, say 20 cents per kWh.

Other than potential savings, you should also consider local incentive programs for solar power, like the federal solar tax credit. These incentives reduce your out-of-pocket cost, shortening your panel payback period and increasing your savings over time.

In addition to cost savings, solar panels reduce your home’s carbon footprint by producing clean energy and lowering your dependency on the grid, which is notable considering the U.S. still generates 60% of its electric power from fossil fuels.

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