Do Solar Panels Save Money and How Much Do They Save? Financial Insights

Solar power has gained immense popularity over recent years as more homeowners seek ways to reduce their carbon footprint and energy bills. However, it's no secret that solar panel systems come with a hefty upfront cost, so if you're thinking about making the switch, you're probably wondering, 'do you really save money with solar panels?'

The truth is yes—most people do save money with solar. The real question, though, is how much can you save, and how long will it take for the panels to pay for themselves? To answer all these questions, we'll break down exactly how do solar panels save money, their costs, and the factors affecting your savings. Read on to make an informed decision about whether solar power is the right investment for you.

Average Solar Panel and Installation Costs

Understanding the cost of solar panels and their installation is a critical first step in determining whether solar power is a viable option for your home. The overall cost of installing a solar system in 2024 ranges between $15,000 and $30,000 in the U.S. before applying any incentives or tax credits.

However, with the federal Investment Tax Credit (ITC), you can get a tax credit for up to 30% of the total cost of your solar panels, which goes toward reducing what you owe on your federal income taxes. After applying the federal tax credit, the average price drops to around $10,500 to $21,000, offering you a more affordable entry point into solar energy

To break it down, this cost can vary depending on several factors, including the system size, the specific equipment used, the complexity of the installation, and where you live. The overall price mostly comes down to the size of the system, which is based on how much electricity you use.

To estimate, you can simply multiply the system size (in watts) by the average cost per watt in your area:

Estimated Solar System Cost ($) = System Size (kW) × Average Cost ($/W) × 1000

Solar System Size

When considering solar energy, it's essential to assess your household's energy consumption to estimate the right system size. According to the U.S. Energy Information Administration (EIA), the average home uses approximately 10,791 kilowatt-hours (kWh) of electricity per year, translating to about 899 kWh per month or roughly 30 kWh per day.

Given that most U.S. locations receive between 3 to 5 peak sunlight hours per day, a formula for estimating daily solar energy output is:

Daily Solar Energy Output (kWh) = Rated System Size (kW) × Peak Sunlight Hours

So, to meet the energy demand of 30 kWh per day, a solar system size of 6 to 10 kW is typically sufficient for most households. However, you may need a larger or smaller system based on your home's specific energy needs.

Average Solar System Cost Per Watt

On average, a solar panel system costs around $2.5 to $3 per watt across the U.S. This can fluctuate based on your state and location. For example, in states like Arizona, solar costs are on the lower end at around $2.09 per watt, while in states like Massachusetts, the cost can be as high as $3.37 per watt.

For a typical 6 kW system, this translates to a total cost of approximately $15,000 to $18,000 before any incentives or tax credits. After applying the 30% federal tax credit, the average cost drops to around $10,500 to $12,600.

Here's a table to give you a more detailed overview:

How Much Can You Save on Electric Bills with Solar?

Now that you understand the average cost, let's delve into how much money do you save with solar panels. For most households, solar panels can significantly reduce or even eliminate monthly electricity bills. This means immediate savings as soon as your system is operational. Over time, these savings add up, especially as electricity rates continue to rise.

To estimate how much money do solar panels save per month, you can simply multiply the monthly output of your solar system by your local electricity rate. As we've explored, a solar system size of 6 to 10 kW is enough for most households, and your home typically receives between 3 to 5 peak sunlight hours per day. This means you can expect your system to produce around 900 kWh per month.

As of May 2024, the national average electricity rate is $0.16 per kWh. Therefore, if your solar system generates 900 kWh per month, your potential savings would be $144 per month (900 kWh x $0.16 per kWh). Over the course of a year, this amounts to approximately $1,728 in savings on your electric bills.

Here's a further breakdown, assuming an average 900 kWh of energy produced per month across all states and an annual electricity price increase of 2.8% based on the 10-year average inflation rate:

Factors Affecting Solar Panel Savings

While the figures above give you a general idea, your actual savings can vary based on factors like the size of your solar system, your location's sunlight hours, local electricity rates, and more. Let's take a closer look:

Size and Type of Solar Panel System

The size of your solar system directly impacts how much electricity it can produce, which in turn affects your savings. Larger systems generate more electricity, leading to greater reductions in your energy bills. 

Additionally, the type of panels you choose—such as monocrystalline or polycrystalline—can influence efficiency and output, which also affects your overall savings. Monocrystalline solar panels, like the Anker SOLIX 405W Rigid Solar Panel, though more expensive, are more efficient and can produce more energy in smaller spaces or cloudy days.

Geographic Location

Your location plays a significant role in determining how much sunlight your solar panels will receive, which is crucial for energy production. Homes in sunnier states like Arizona or California will naturally generate more electricity than homes in northern states like Maine. The more sunlight your panels receive, the greater your potential savings.

Regional differences in electricity rates also come into play—states with higher electricity costs offer more potential for savings by going solar. In states with high electricity costs, such as New York or California, the financial benefits of solar power are even more pronounced. Conversely, in states with lower electricity prices, the payback period for solar might be longer, though long-term savings are still achievable.

Net Metering Policies

Net metering allows you to sell excess electricity produced by your solar panels back to the grid, which can significantly boost your savings. In states with favorable net metering policies, you can offset your electricity consumption even further, reducing your bill to near zero in some cases. However, not all states have equally favorable net metering programs, so it's essential to understand your state's regulations to maximize savings.

Government Incentives and Tax Credits

Federal, state, and local incentives can dramatically lower the initial cost of your solar panel installation, which in turn increases your overall savings. The federal Investment Tax Credit (ITC), as we've learned, currently allows you to deduct 30% of the cost of your solar system from your federal taxes, and many states offer additional rebates and incentives. These financial incentives reduce the payback period and increase the total amount of money saved over the life of the system.

How Long Does It Take for Solar Panels to Pay for Themselves?

Now you may want to ask, how long does it take for the system to pay for itself and start saving you money? Well, the time it takes for solar panels to pay for themselves—commonly known as the "solar payback period"—depends on a variety of factors, including your initial investment, local electricity rates, energy consumption, and available incentives.

On average, most homeowners can expect their solar panels to pay for themselves within 6 to 12 years. To estimate your payback period, divide the total net cost of your solar system (after applying tax credits and incentives) by your annual energy savings.

For example, if your solar system costs $15,000 after incentives and you save $1,500 per year on your electricity bill, your payback period would be approximately 10 years. And since electricity prices are likely to go up, you could see an even quicker payback.

After your system has paid for itself, you’ll continue to enjoy free or significantly reduced electricity for the remainder of the system’s lifespan, which can last 25 to 30 years or more. This means that after the payback period, every additional year of solar energy equates to pure savings.

Conclusion

In conclusion, the question of 'Do solar panels save money' can be answered with a resounding yes. As we've learned, for a typical solar system that generates around 900 kWh per month, you could save approximately $144 on your monthly electricity bills. Factors such as the size of your system, your geographic location, and net metering policies all play a crucial role in determining how much you'll save and how quickly your solar panels will pay for themselves. For most homeowners, the solar payback period falls between 6 to 12 years, after which you'll enjoy decades of free or reduced-cost energy. Ultimately, solar power is a smart, long-term investment for both your wallet and the planet.

FAQs

Can solar panels completely eliminate my power bills?

Solar panels can significantly reduce your power bills but eliminating them entirely depends on several factors. The size of your solar system, your energy consumption, and local sunlight conditions play crucial roles. In many cases, a well-designed system can cover most of your electricity needs but may not entirely eliminate the cost due to factors like energy storage or grid usage.

Do solar panels require maintenance?

Solar panels generally require minimal maintenance, which is one of their advantages. Regular cleaning and periodic inspections are usually sufficient to keep them operating efficiently. It's important to ensure that no debris or dirt is obstructing the panels, and professional checks can help address any potential issues early on.

Why are my solar panels not saving me money?

If your solar panels aren't saving you money as expected, there could be several reasons. Possible issues include an undersized system, shading from trees or buildings, or inefficiencies in the installation. Reviewing your system's performance and consulting with a professional can help identify and resolve any problems affecting your savings.