Do Solar Panels Save Money? A Look at Home Energy Costs

Do Solar Panels Save Money? A Look at Home Energy Costs
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Whether you want to go greener to reduce your carbon footprint, or you would simply like to realize some savings on your electricity bill, the real question is do solar panels save money? Determining where to start, what sort of tax credits or incentives are available to you and finding the right professionals to complete the installation can be a little overwhelming. However, depending on your location and personal energy consumption, installing solar panels can save you money in the long run and could even increase your home’s value. The average American household typically spends a little more than $1,400 a year on electricity, and the only way to decide if solar panels are right for you is to first take some key points into consideration.

Your Electricity Bill

When deciding if you should go solar to save money on your energy costs, you need to first take a good look at your energy bill. Although energy costs fluctuate, according to the U.S Energy Information Administration, in 2019 the national average was about 13 cents per kilowatt-hour. How much you can expect to save with solar panels very much depends on the price you generally pay for electricity. If you live in an area where you routinely pay high electricity rates, then you will likely see more savings once you install the solar panels than if you lived somewhere that has lower utility rates.

If you used a real estate agent to help you purchase your home, chances are you’ve heard the mantra, “location, location, location” once or twice. But, it isn't just an overused phrase, it turns out your home's location is important for your solar panels as well. You will only save as much money as your solar panels can create energy. The type of rooftop your home has, how it is oriented towards the sun and how much sunlight your roof gets all play a factor in your solar system's energy output.

It’s worth noting that as long as you are still connected to the utility company’s grid, you will continue to receive an electricity bill, even if your solar system is producing enough energy to cover all of your energy consumption needs. However, the bill may show that you don’t actually owe anything. In the event that you produce more energy than you pull from the grid, your excess credits should carry over to your next billing cycle.

Solar Panel Installation Costs

Probably the most prohibitive aspect of adopting solar energy is actually installing and purchasing the panels. According to solar energy marketplace, EnergySage, the average homeowner can save between $10,000 to $30,000 over the life of the system. But the average 5kW residential system costs between $3 and $5 per watt, resulting in an approximate total cost of $15,000 to $25,000 for a solar energy system. Energy.gov's website also states that solar energy costs have dropped every year since 2008, and fortunately there are tax credits and other incentives to help homeowners shoulder some of these initial upfront costs.

Solar Panel Tax Credits and Incentives

To help offset some of the costs of purchasing and installing solar panels, you can look for federal and local incentives or tax credits. The U.S. Department of Energy directs homeowners interested in solar or renewable energy incentives to pay a visit to the Database of State Incentives for Renewables & Efficiency, or DSIRE, website. DSIRE states that it is, "the most comprehensive source of information on incentives and policies that support renewables and energy efficiency in the United States." From this site you can enter your zip code and the search feature will pull up any incentives or tax credits that you’re eligible for.

The EPA (Environmental Protection Agency) and the Department of Energy offer tax credits to homeowners who install solar-powered systems. You are able to claim 26 percent of the installation costs associated with a solar system placed in service after 12/31/2019 and before 01/01/2021. This figure decreases somewhat to 22 percent for systems placed in service after 12/31/2020 and before 01/01/2022. This tax credit is non-refundable, meaning you cannot receive a portion of this credit back as a refund. However, by 12/31/2021, the credit entirely expires.

Claiming the Tax Credit

In order to take advantage of the renewable energy tax credit, first the property and type of solar system need to meet certain criteria. Once you determine that your property and system qualify, you will have to file IRS Form 5695 when you go to complete your tax return. After you calculate the credit on Form 5695, you will then enter your result on your 1040.