Let’s Talk about The ROI on Solar …
August 7, 2022
If you’re considering installing solar panels on your home, you’ll likely have a lot of questions like I did. Many potential buyers wonder if solar is worth it or will solar panels eventually pay for themselves. The answer to both questions looks to be yes. However, there are many variables, especially regarding your specific house.
I had the great pleasure of catching up over lunch with an old friend, John, while I was traveling this past week. Our conversation eventually led to him asking about our smart home project. After I lamented about supply chain, rise in cost of materials and labor and interest rates going up (again) he asked if I had looked into solar. After all, Debbie and I live in sunny Texas. I told him that I had, especially considering my plans for a SPAN smart electrical box and possible whole home battery backup. While I spoke with him it dawned on me to write about smart home solar this week. I’ve covered SPAN and smart home battery solutions in my previous posts ‘Smart Home, Power and Sustainability’ and ‘Smart Home Tech and our Outdated Grid.’
I shared that the idea of installing solar panels on our roof was an interest of mine, specifically where the rear of the house faces west. Debbie’s not the biggest fan of it however, mainly due to the look. And I have to admit I don’t exactly love the look either. But as they’ll be on the back of the house they won’t be visible from the street out front.
Like everyone else, all the advertising I’d see promised low monthly electric bills, tons of savings in the long run and added value to our home. What’s not in the ads is there’s also a significant investment that’ll take years to develop fully. In our case I’m actually more interested in the sustainability of solar or power in general due to the power grid. We’re not seeing solar necessarily as an investment in the home as our plan is for this to be our last stop. But, the ability to reduce our energy costs in our retirement is also high on the list.
So, how long does it take for solar panels to pay for themselves? Well, it’s complicated, but in my investigation, on average, it’ll likely take anywhere between 6–12 years for US homeowners to recoup the costs.
Once you start researching home solar panels, you’ll see the term “solar payback.” This refers to the payback period. It’s basically a combination of the cost of solar panels, federal tax credits, and your energy usage. Solar panel payback calculators will give you a rough idea of what to expect.
The “solar payback period” is the time it’ll take for the savings on your energy bill to pay for the entire solar panel system. Basically, after you’ve saved money on your power bill for several years, you’ll break even, the solar system paid for itself, and everything else moving forward is pure savings.
Of course, how long it takes depends on how much money you spend on solar to start. The average price to outfit a home with solar in the US is around $16,000. Some spend more, while others pay less.
An important aspect of paying off your solar panels is the federal tax credit and other state incentives to use renewable energy. The federal tax credit for solar started in 2006, and unless Congress extends it, it’ll expire in 2024. This could be a strike against our seriously considering solar in our new home but I doubt the solar tax credit won’t be extended. It’s one of the biggest incentives to install in the first place.
In December 2020, Congress extended the credit through 2023, giving those in the US up to a 26% tax credit for systems installed in 2020–2022. But that rate drops to 22% in 2023. So if you’re on the fence like we are, you’ll want to decide sooner than later.
Those who take advantage of the federal solar tax credit can write off the cost of solar on taxes. This includes the cost of panels, labor costs, mounting equipment, assembly, and energy storage devices like a battery. You’ll get a $1 for $1 tax reduction of up to 26%. However, this only applies if you bought or financed the purchase. Those leasing a solar setup are not eligible for the credit.
Now that you have a few more details, let’s go over the average time it’ll take for your solar panel system to pay for itself. Again, this varies based on the cost of panels, incentives, energy prices in your region, and how much electricity you use throughout the year.
According to most sites and calculators, the average US homeowner can expect to pay off their solar panel system and get a return on their investment within 6–12 years. This can vary wildly depending on where you live and how much you spend. For example, many parts of California get much more sun than other states. Plus, California has expensive energy prices compared to the national average, so technically, you could pay it off faster as energy costs more in the state.
Some states, like Louisiana and Nebraska, have very affordable energy prices, around 7.5 cents per kWh, and it’ll likely take far longer to spend $16,000 on your energy bill to pay off your solar panels.
As I shared earlier, many websites and solar companies have solar return on investment calculator tools to help you understand things. Make sure you know how much you plan on spending for a solar panel array on your roof, your average monthly energy usage, and any tax or state incentives available. Then, enter all that information into a solar calculator.
For example, here in Texas, the average monthly electricity bill for residential consumers is $174/month — calculated by multiplying the average monthly consumption by the average rate for electricity — 1,464 kWh * 12 cents per kWh. By these numbers and an average cost of a solar system at $16,000, this means it could take me roughly seven and half years to save enough on electricity to pay off the entire solar panel system. This also assumes my system is scaled to power the entire house. That aligns with the national average, but of course, your situation may differ.
You’ll also want to consider the equipment you use, like how efficient the panels are, the angle and location of your roof, and if you finance the solar panel system. Not everyone can afford to spend an average $16,000 on solar, and many homeowners end up financing the setup. However, you’ll now need to factor in any fees or interest on that loan.
So, again, can solar panels pay for themselves? It looks likely. If you live in some specific states, you could quickly pay off an entire home solar panel system under the national average. Or, in other regions, spend upwards of 12+ years before the system pays for itself. But once it does, everything else from that day on is nothing but savings. One positive of our current economic state, energy prices have been increasing, which may help you pay off your panels quicker down the road.
And even if you don’t live in the home long enough for that to happen, a solar panel system can still be a good investment as it adds value to your home — as long as it’s not a lease. And not every homebuyer may want to take over your lease.
Another question that John asked was what happens to any extra electricity your solar generates that your batteries can’t hold. This was a stumper for me as I had never thought about that. I told him I believed it used to be mandatory for local power companies to buy back any excess energy you collected but that has changed. That is called ‘solar buyback.’
A solar buyback plan gives homeowners a way to sell excess power being generated from their solar panels to the power companies. Texas customers living in a competitive electricity market, with residential rooftop solar arrays less than 20 kW in capacity, are eligible for this solar buyback plan. In other words there are a LOT of requirements you need to meet before any buyback happens.
Your energy charge rate is generally locked in for a 12 month term. There can also be monthly base charges for these plans.
The energy companies will look at how much electricity you used and then deduct the credit for surplus generation (electricity for which the power company credits you, the customer) up to the monthly consumption in that billing period. Rooftop Solar Buyback plan credits usually have no cash value and can only be redeemed for energy company bill credits in that billing cycle. Bills can only be used for Energy Charges for the meter that they were received on.
You’d have to look it up for your specific state but here in Texas, the buyback isn’t that great — mostly credits or and there’s usually a monthly ‘administrative’ fee. Understandable for a state that lives on oil and gas they don’t make it easy or attractive.
I also want to address how long solar panels last. I was curious about this as I certainly would want my solar panels to outlive their payoff or what’s the point. If you wait 10+ years before the savings on your energy bill pay for them, is it worth it? Well, that depends on your situation and how long you plan to stay in the home. In our case, our expectation is this is the last stop. So that concern is off the board.
According to Energy.gov, most rooftop solar panels can easily last 25–35 years. The most common type, photovoltaic (PV panels), is very reliable and built to last. Many homes that added solar in the 1980s and 90s are still in operation.
But what about Texas hail storms? Solar panel insurance coverage is included in most homeowners insurance policies, which means no separate solar panel insurance is needed. Solar energy systems and the rooftop panels or tiles are largely considered a permanent attachment to your property, similar to a patio or a security system. It’s important to note that some policies may exclude damage to these attachments when it’s caused by a particular threat — often called perils — such as wind. Now, if you’ve read many of my Smart Home posts, I have referenced a few times how Amarillo is statistically the windiest place in the US. So, here’s another factor (weather, acts of God, etc.) to look into if you’re thinking about installing solar in your home.
Another consideration is energy production of your panels could decrease over time, especially without proper maintenance throughout the years. I’m going to have to do some research on exactly what ‘proper maintenance’ is. I don’t know how excited I might be about climbing up on my roof (in the wind) to do regular maintenance. That may be a service cost I have to role into my ROI calculations at some point.
One final thing I was concerned about was the panels actually installed on the roof. Obviously they need to be secured which means somebody would be punching holes in my brand new roof. I really hate that idea but it’s part of the deal. My research on that has simply revealed that the best course of action is to hire a reputable company that has done a LOT of installations. Do your homework and read up on the reviews and reports from the Better Business Bureau. The last thing I want with a brand new house is leaks because of the solar panels. That would certainly ruin any ROI in my book.
For those of you who have made the switch to an electric vehicle (EV), another way your solar panels can pay for themselves is by charging that vehicle. Charging an EV from home with solar will save you from the gas pump, and you may rarely need to use an EV charging station. But does help pay off your solar even quicker? Not so fast. If this is part of your solar power system plan, there are other considerations that those of you with EVs may already be aware. There are other costs that come along with home charging that could affect your solar ROI as well. You can find more information on the costs associated with home EV charging in my recent post ‘The Hidden Smart Home Costs of EV Ownership.’
At the end of the day, you will have to decide if solar is right for you by weighing the pros and cons, determining how long you’ll own your home, and deciding on the optimal setup for your family. For Debbie and I we haven’t made a final decision. We still need to do more number crunching of our own. But as I’ve stated already, I do plan to install a smart electrical box, possibly whole home batteries and electrical wiring to support EV charging. My friend Mike calls this ‘Future Flexible’ which I think is the best approach.
I’m curious who out there may have already made the jump to solar at home. How is the ROI panning out in real life? Is it matching expectations? Have there been unexpected benefits or issues with the solution? How much of your home electrical use have you realized with solar? Did your roof leak?
Let Debbie and I know in the comments, DMs and emails as we really enjoy hearing from you. Thanks again to all those following Debbie and I through our home building journey. It’s great to hear your success stories and suggestions as we move through the process. And if you like the content I’m posting each week, don’t forget to ‘Like’ and ‘Follow.’ Until next week …
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