Assuming a sunny location and low maintenance, a typical American family could expect to save around $1,500 on electricity every year by installing solar panels at home. Factor in any available tax credits and renewable energy credits, and this could amount to several thousand dollars in savings every year by going solar.
Table of Contents
- Does installing solar panels at home save money on electricity bills?
- Projected solar savings by state
- When will you start saving money with solar panels?
- Other ways you can save money with rooftop solar panels
- Other things to consider when calculating cost savings with solar
- Final thoughts on how going solar can save you money
Most households that install solar stand to save money every month. The amount of money saved depends on a variety of factors, including how much you currently pay for electricity and how many days of sunshine your home gets each year.
Let’s dive into the math to help homeowners understand how solar savings can work in your location and with your electricity bill.
Does installing solar panels at home save money on electricity bills?
To start calculating your potential savings with a rooftop solar system, you’ll need to know how much you currently spend on electricity.
You can get this figure from your utility bill. Look for something that says cents per kilowatt-hour or, for example, $0.24/kWh. For our purposes, let’s go with the average cost of electricity in the U.S. for 2021: $13.83 cents per kilowatt-hour.
Next, you need to know how much electricity you use each month. It’s best to take an average rather than just using your current monthly total. This is because your usage will vary based on the season, whether you have guests staying, if you’re away, and so forth.
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Again, you should be able to work out your average monthly electricity usage from your utility bills. Either add up the monthly usage for the last year or use your utility’s online billing portal to get a total for the previous year. Divide this figure by 12 to get your average electricity usage per month.
For our calculations, we’ll take the average U.S. household’s monthly electricity usage, which amounts to around 900 kWh (893 kWh according to the EIA).
With that figure in hand, our average household’s monthly electricity bill would be:
Monthly electric bill: 893 kWh x $0.1383 = $123.50 per month
Annual electric bill: $123.50 x 12 = $1,482
Now, let’s assume you install a home solar array designed to meet 100% of your home electricity needs. This would mean your electricity bill would be cut to almost nothing as soon as your system goes into operation. You may still have to pay some service charges for being connected to the grid, but in most states, utility providers are now required by law to credit customers for the solar energy they feed into the grid. This could be either as payments for electricity produced or as credits to offset the cost of customers’ bills.
Projected solar savings by state
The amount of money you’ll save by going solar will vary depending on where you live and the size of your array, as well as by how many hours of sunshine you get annually, any shade on your array, and so forth. The biggest driver of how much you’ll save, though, is how much you already spend on electricity.
As mentioned, the average cost of electricity in the U.S. is 13.83 cents per kWh. The range is remarkable, though, with costs rising to over 38 cents per kWh in Hawaii and dropping to less than 10 cents elsewhere.
The calculations below rely on certain assumptions, namely:
- Household electricity use: 10,715 kWh per year (the national average in 2021)
- Annual inflation rate for electricity costs: 1.2% (based on EIA data from 2010 to 2020)
- Percentage of energy needs met by your panels’ output: 90%
I’ve also assumed that household electricity use will remain consistent throughout the 25-year guaranteed lifespan of most solar panels.
Given all these assumptions, these are the likely savings from going solar at home in each state over 5, 10, 15, and 25 years.
|Census Division and State||5-year total||10-year total||15-year total||25-year total|
|East North Central||$6,998.74||$14,427.60||$22,313.03||$43,272.34|
|West North Central||$5,512.06||$11,362.88||$17,573.28||$34,080.40|
|District of Columbia||$6,613.49||$13,633.42||$21,084.79||$40,890.37|
|East South Central||$5,768.90||$11,892.34||$18,392.11||$35,668.38|
|West South Central||$5,749.14||$11,851.61||$18,329.12||$35,546.22|
As you can see, there is a huge variation in how much you can save by going solar at home, depending on where you live. For residential solar customers in Hawaii and Alaska, the savings are very clear, and the same is true for California, Connecticut, Maine, Massachusetts, New Hampshire, Rhode Island, and Vermont.
Even assuming a relatively high installation cost of $20,000 for a 6 kW system, the average household in Hawaii stands to save more than $95,000 over the 25-year lifespan of their solar panels. And many solar panels continue working for 30 or more years, adding to the savings.
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If we tweak these figures even slightly to account for a higher inflation rate, the savings skyrocket. At the current rate of inflation in the U.S. (8.4% in July 2022), Hawaiian solar customers could save themselves more than $300,000 in future electricity costs. A 4% inflation rate seems more likely though, and this would amount to savings of more than $173,000 in Hawaii.
At the other end of the spectrum, we have North Dakota, where energy is very cheap. Assuming the same relatively high cost of installation ($20,000), the average household here still stands to save more than $9,000 over the course of the panels’ lifespan. At a 4% inflation rate, the same household could save more than $23,000 in North Dakota over 25 years.
When will you start saving money with solar panels?
The upfront costs of solar depend on where you live, the size of your array, the type of solar panels, and whether you have a simple installation or, for example, a complicated roof in a remote area. The average payback period for a home solar installation is around 8 years, though, after which you could have another 20 or so years of free electricity.
While you start saving money on your electricity bills right away with solar, it can take a little while to break even. If you take out a loan to install solar, you might not see any savings for a few years, but they will come, eventually.
Conversely, you might live somewhere with a high cost of electricity, generous tax incentives and rebates, and net metering. This could mean you break even within a couple of years and actually start making money from your home solar system. By my calculations, someone living in Honolulu could have a payback period of less than two years, after which they could save more than $4,000 every year on electricity!
Other ways you can save money with rooftop solar panels
Offsetting your electricity bill is the main way to save money with solar. It’s not the only way, though.
Property tax increase exemptions. Some states, including Hawaii and Arizona, have a property tax increase exemption to help incentivize residential solar. This incentive means that homeowners don’t have to pay property taxes associated with an increase in property value based on their home solar array. Given that homes with a solar array tend to sell for 4% more than homes without, this exemption could save several thousand dollars, helping to reduce the solar payback period.
Tax credits. Home solar installations also attract generous tax credits in some states. For instance, Hawaii offers a 35% tax credit that could reduce your tax burden by $5,000 in the year you install an array.
There are also annual incentives such as solar renewable energy certificates (SRECs) or solar renewable energy credits that give you a per kWh credit for the electricity your panels produce. The cost of SRECs varies enormously between states, with SRECs priced as of May 2022 at under $6 in Ohio and over $340 in Washington, D.C.
Other things to consider when calculating cost savings with solar
Even if you’re meticulous in your calculations when sizing a new home solar array, it’s not possible to accurately predict how much electricity you’ll use in years to come.
Your family may grow, children might leave home (or return!), and you may add more or larger appliances. You might switch to a heat pump instead of a natural gas furnace for heating, or maybe you’ll install a charger for an electric vehicle. All of these can increase your electricity consumption above your current usage, which might mean your array no longer meets all your energy needs.
If your family’s electricity use does increase significantly, you could consider adding panels to your existing array. Be sure to check if any additional rebates and incentives are available at this time.
In some places, regulators and utilities incentivize homeowners to only install residential solar arrays that meet current household electricity needs. This is to prevent people from creating ad hoc, unregulated solar farms, and from making a profit from utilities. A typical cap when claiming rebates or offsets is 110% of the previous household electricity bill. Anything over this is usually not eligible for tax incentives or bill credits.
If you have a strong case for why your future electricity needs will exceed your current consumption, talk to your utility provider and state regulator. Where relevant, they may offer an exemption to limits on the size of your rooftop array, allowing you to future-proof your installation.
Capacity factors and energy losses
There’s a lot to consider when trying to calculate the likely output of a home solar array. To help you estimate the energy production and cost of energy of a grid-connected photovoltaic (PV) system, the National Renewable Energy Laboratory (NREL) offers its PVWatts® Calculator.
This calculator is set up with standard or common inputs to reflect the size of a home solar array, typical energy losses, module type, and even tilt. You can modify all of these if you are planning a different set-up for your home solar array. The calculator also accounts for the average degradation rate of about 0.5% per year for solar panels, meaning the panels produce a little less electricity every year as they age. The degradation rate could be higher in hotter climates, however, and for rooftop systems (as opposed to utility-scale systems).
The capacity factor is a measure of how many useful hours of sunlight are available during which a solar array can produce electricity. On average, across the US, the capacity factor of solar is 24.5%, which means the average solar array would generate 24.5% of its potential output every day. For a 6 kW array in Arizona, which has a capacity factor of around 19%, that means an annual energy output of just over 10,000 kWh. This would meet the needs of most households.
As an illustration of how these factors come into play, here are my calculations for my household and for a more typical American family.
Where I live (southern BC, Canada), the capacity factor is just 11.9%, meaning that any array I install will likely only generate electricity around 11.9% of the time. Still, with a 7 kW setup, this could amount to 7,304 kWh per year.
My household electricity use is around 3,500 kWh annually, meaning I could meet our needs twice over with a small rooftop array. Even a 4 kW array would provide more than enough power for our family, pumping out an estimated 4,174 kWh per year.
Now, bear in mind that we don’t use electricity for heating (currently) and are a very low energy consumption household. We don’t have an EV charger (yet!), nor do we run big appliances, TVs, gaming computers, or similar. In fact, my hydroelectric provider notes that the average household it services uses approximately 10,000 kWh per year.
In BC, a typical residential rooftop solar installation is 7 kW with 16 solar panels. This kind of array typically generates 7,700 kWh of electricity annually, which would clearly fall short of most households’ energy needs but would easily cover mine.
Does this mean I could actually make money with solar through net metering? Not quite. But it does mean I’d start saving money on my electricity bills right away. And, if I wanted, I could install a smaller array, have lower upfront costs, and reduce my payback period substantially.
Final thoughts on how going solar can save you money
How can you decide if it makes financial sense to pay for a rooftop solar installation where you live? To figure that out, you need to know:
- The cost of electricity
- The cost of installation
- Any available rebates and grants
- The availability of net metering and how that works with your utility provider
- The expected lifespan of your panels
- The degradation rate of your solar panels.
Because the degradation rate for most panels is very low, at just 0.5% annually, you’d be forgiven for omitting this from any calculations. The PV Watts calculator does include this, however, and you can use compound interest calculators online to make the math a bit easier if you’re doing the math yourself.
To conclude, let’s look at one final scenario: a typical American family considering going solar at home.
The average American family uses around 10,000 kWh of electricity annually. To meet these needs, the family would need a 7 kW array in a location with a 19% capacity factor. If the capacity factor were lower, a larger array would be necessary to meet all electricity needs. If you’re blessed with a lot of sunshine and have a higher capacity factor, you may be just fine with a 5 or 6 kW array.
With those things in mind, assuming no ongoing costs associated with a solar loan, maintenance, or so on, this family could expect to save around $1,500 on electricity every year. Factor in any available tax credits and renewable energy credits, and this could amount to several thousand dollars in savings every year by going solar.