Are Solar Panels really worth it?

This is Part 2 of our series to help Home Owners go Solar. Click here to read Part 3, Part 4 or here for Part 1.

Is Solar really worth it?  What are the savings from Solar Panels? And will you actually save money?

Assuming, a) your home is suitable for solar (read Part 1 if you don't know), b) your utility charges 12 cents per kwh or more for electricity and c) you have room for the required number of solar panels then :

Solar will reduce your Electric bill by 90%.  Also, you will save 30% of the cost of the Solar system as a Federal tax break. Furthermore, in many states you will earn additional dollars from Solar incentives. Solar is an excellent investment.

Your Savings will also depend on the type of Solar Program you choose viz Solar Purchase, Solar Financing, Solar Lease or Solar PPA. We cover those in detail in Part 3 of this series.  

The new fixed price Solar PPA is  an exciting new way to go solar without spending anything out of pocket and saving big. Check out the video below :

Do not rely on the many Solar Savings Calculators you see. They make a generic calculation for savings and are usually way off the mark. Solar Calculators are best left alone.

Read on to learn how to actually calculate you savings yourself.

1. Savings after going Solar

These are the 3 main Savings / Earnings for a Home Owner going Solar : 

2. Electricity Savings after going Solar

A well designed Solar System will produce enough power to reduce your monthly Electric Bill by at-least 90% or more. Most Homes will have an average Electric bill of $10 or less per month after going solar.

To calculate your Electric Savings, grab your last 12 months of electric bills.  And be careful as many utilities give you a combined Gas and Electric Bill. 

You want to focus on the Electric section. You should be seeing a lot of "Kwh" sprinkled about. If you are seeing "Therms or BTU's", you are looking at the Gas bill.

Add the $ amounts you paid each month for the last 12 months. This is your Annual Electric Bill in $. ( If you don't have the bills, call your utility company for a 12 months usage statement)

Multiply the total dollars you spent on electricity last year and multiply that by 0.9.  Your new electric bill after going solar will reduce by that amount **.

**   The 90% savings will happen if you install the required number of solar panels. Sometimes, you might not have enough room for all the panels. In those cases, your savings will be lower.

Be very careful to add up the dollar values for ALL Electric Charges.  Add up Electric Charges for Delivery, Transmission, Supply, Third Party, Taxes etc.

Most Electric bills will show the total Electric charges for the month. Add up the charges for 12 months.

Multiply that by 0.9 and you will have a good estimate of your Savings on Electricity after going Solar.

Your solar system will produce a 100% of the electricity you consume, not your utility company. Since the utility company is no longer supplying your power, all  charges associated with your consumed power in kwh goes away after going solar. 

Transmission, Delivery, Supply .... all those charges will go away after solar. All of them are linked to your consumption in kwh. 

Some electric bills may have small amounts in fixed charges every month - Service charge or similar that are not linked to usage. Those will not be affected by solar and will continue to show up on your bill post solar. That, is why your savings are around 90% and not a 100%.

Electric Savings on Commercial Electric Buildings will be between 60 to 75% and not 90% or more.   

Commercial Electric Bills have certain charges like Demand which are not usage (kwh) related.  Therefore, they are not entirely offset by Solar Panels.  And that is why savings at commercial solar installs are a little lower than residential solar savings.

2a. Calculating your Electric Usage or Consumption

It's very important to know your Annual Electric Usage in kwh. Your usages in kwh is critical to correctly size your Solar System.  Usage is also linked in many States to local Solar Incentives.

Fortunately, most Electric Bills will have graphs that will show your annual usage. Some even have it written up in bold.

Annual Household usage ranges from 4,000 kwh to 30,000 kwh depending on the size of your home, no. of people, quality of insulation and personal habits.  

Some electric bill might show your monthly consumption in kwh and you will have to use that to calculate your annual usage. 

Some show Average Daily consumption in kwh and you will have to multiply that by 365 to get your Annual Usage.

Calling your utility company to get an Annual usage statement might be the easiest way to get those numbers. Once you have your electric usage in kwh, you can calculate your Utility's electric rate.

Divide the Annual $ amount you paid for electricity by your Annual usage in kwh. And that is the Electric Rate charged by your utility.

Electric Rates could range from as low at 7 cents or $ 0.07 to 35 cents ($ 0.35). The higher your Electric rate, the higher your savings on Electric costs after going solar.

ALERT :  If you are on an equal payment monthly plan you will learn very little from you bill. You will have to call your utility and ask them for a detailed annual electric usage and charges statement for the last 12 months. 

Here are some Electric Bills showing Usage / Consumption in kwh. 

3. Tax Credit Savings from Solar Panels

Customers who purchase their Solar Panels are eligible to claim 30% of the cost of the Solar Installation as a ONE TIME Federal Tax Credit.

Solar PPA and Solar Lease Customer are not eligible for the Tax Credit.

It works very simply. For example if your Solar System cost you $ 20,000. You have a tax credit of 0.3 x 20,000 = $6,000

You can claim a Tax Refund on your Federal Taxes of $ 6,000. The tax credit is only available if you pay Federal Income Taxes. If you don't pay Federal Taxes, this tax credit incentive is not available for you.

For those who pay less than $6,000 in Federal Income Taxes each year, the tax credit can be taken over the next 2 or 3 years by breaking it into smaller amounts.

Say $ 2,000 in the first year and $2,000 in year 2 and $ 2,000 in year 3.  Total cannot exceed the 30% ($ 6,000 for this example) of the system cost.

There is a very simple IRS Form 5695 to claim the credit. Here is the link to the form.

4. State Incentives and Savings from Solar Panels

Many States offer additional Incentives for Solar. Solar Incentives change often, so it is a good idea to verify the incentives with your local Installer. 

State Solar Incentives are usually in the form of SREC's, State Tax Credits, Rebates and Property and Sales Tax abatements.

4a. SREC's 

An SREC or a  Solar Renewable Energy Credit is an incentive available in the following States - New Jersey, Pennsylvania, District of Columbia, Delaware, Illinois, Maryland, Massachusetts and Ohio.

Every 1,000 kwh of Energy produced by a Solar System in these states earns the Home Owner 1 SREC.  Thus, if a Solar System makes 10,000 kwh of energy every year - the home owner gets 10 SREC's.

SREC's are sold like Stocks in SREC marketplaces. Homeowners set up an account very similar to a stock trading account.

SREC prices are different for each State. For example each SREC is worth about  $92 in New Jersey.  An average sized solar system will generate 12 SREC's a year and  earns the NJ home owner $ 1,004 of additional income every year.  SREC income is like icing on the cake. Your electric savings are the biggest benefit of solar followed by the tax credit and then income from SREC's. A bonanza for homeowners.

Pennsylvania SREC prices are around $ 40 each.  Search websites like SREC Trade for the current prices of SREC's in your Home State.

SREC's are available in the following states DC , MA, MD, NJ, OH and PA.

4b. State Tax Credits for Solar 

New York offers a State Income Tax Credit Rebate of 25% of the cost of the Solar System.  The maximum allowed amount for this State Tax credit is $5,000.  

Arizona also has the same 25% State Tax Credit, but it is capped at a maximum amount of just $1,000.

South Carolina has a very generous 25% State Tax credit as well with no cap.

4c. State Rebates for Solar 

Many States offer a monetary rebate to reduce the price of Solar. They are usually in the form of a Dollar per watt Incentive.

For example, Duke Energy customers in North Carolina are given a one time rebate of $0.60 per watt for homeowners going Solar.

A typical 10-kW system at an average cost of $3.0 per watt would cost $30,000 (10,000 watts x $3.0  per watt).  

After applying the $ 0.60 rebate, the price per watt reduces to $2.40 and the final cost would reduce to  $24,000 (10,000 watts x $2.4  per watt) .  

Certain utility companies in California offer similar rebates ranging from $0.20 to $1.25 per watt.

Connecticut has a rebate of up to $0.46 per watt (depending on system size).

Massachusetts has a rebate of up to $1,000 towards the cost of the Solar System in addition to their SREC program.

4d. Property and Sales Tax Abatements

Many States offer reduction in Property Taxes and exemption from Sales Taxes for new Solar Panel installations.

New York has a 20% Property Tax abatement for Solar. 

Arizona and Connecticut have Sales Tax exemption as well as Property Tax exemption on added home value from the Solar System.

PLEASE consult a local Solar Installer to understand all your State's Solar Incentives. The information provided here is accurate as on date, but incentives tend to change often.

5. Conclusion : Are Solar Panels really worth it

Yes you will save money. Savings are dependent on which option you choose for going Solar.

Overall there are three ways of going Solar and the typical savings associated with them are ( the next post looks at savings in much greater detail for the different solar options)  :

Purchase your Home Solar System by paying upfront : You recover your investment through electric savings, tax credits and state based financial incentives.  

Payback is between 5 to 15 years depending on your home State and their incentives.

Thereafter, you continue to save on electricity and any incentive for another 20 to 25 years.

Purchase the Solar Panels using Bank Financing and thus Zero out of Pocket : Your monthly electric costs are likely to be 40 to 60% lower than your current electric bill.

There is no up front cost, but you will have monthly loan payments for 5 to 10 years. Once your Finance payments are done, you will continue to save on electricity and other incentives.

Rent the Solar System by paying a monthly rental for the next 15 to 20 years : Your rentals will be 20 to 30% lower than your current electric costs.

Common names for the Rental Option are the Solar Lease and Solar PPA.

Part 3 of the series looks in detail at the three types of Solar Options - Purchase, Financing and Rentals and their pricing. You will also see some real numbers for actual savings and incentives.