How Much Money Do Solar Panels Save on Energy Bills?

If you want to work out how much you'll save with solar, the first step is to identify how much you currently pay for power. That's easy because your past bills will tell you that whole sad story. A quick glance through the last year of bills — or multiple years, if you have them — will tell you how much electricity you currently use in your home, and what your local utility charges per kilowatt-hour. The higher your usage, and the higher your rate per kilowatt-hour, the more you stand to save with solar. If you're in a hurry and want to do a quick back-of-the-envelope calculation, you can find average energy use and costs per kilowatt-hour for all 50 states at the U.S. Energy Information Administration's website.

The second major factor in working out your potential savings is calculating how much solar you'll need to offset your power usage. To arrive at that number, you'll have to know how many kilowatt-hours — usually abbreviated as kW/h — of electricity you use per day, and divide it by how many hours of sun you can expect to average. If you use 30 kW/h per day, for example, and get 5 hours of sun, you'd divide 30 by 5 and arrive at 6 kilowatts, or 6,000 watts, of solar capacity. That's about average, but of course, the amount of sun you get makes a big difference. If you're on the wrong side of a hill and only get a few hours of direct sun each day, you'll need more. If you live in an open area of a Sun Belt state, you'll need less.

The size, shape and position of your home can sometimes put a damper on your solar plans. If your home is shaded, if you're in a low-sun area, if your home isn't oriented toward the sun or if your roof is full of gables and awkward angles, you might not be able to physically fit as much solar as you need to maximize your savings. Skilled installers can sometimes find creative ways to add panels to your property, but that'll likely cost more than a conventional installation. If you're unsure how suitable your home is for solar, you can use a calculator such as Google's Project Sunroof to get a feel for its potential.

Stacking up additional panels to compensate for shorter daylight hours brings you to the next factor you'll have to consider: How much solar you can afford to buy and install? The cost of solar has been on a strong downward trend for decades, and currently, you're looking at an average of $3 to $4 per kW/h. The actual cost will depend on the installers in your area, the brand of panels you buy, the cost of labor in your vicinity and more. There's a lot of roofing and electrical work involved, aside from the panels themselves, and you'll have to budget for all that. Most installations come in at around $15,000 to $18,000, but you'll need to get several quotes to arrive at a realistic price for your own system.

That doesn't mean you'll have to foot the whole bill yourself. The federal Investment Tax Credit for solar installations can cut your costs substantially, and many states offer additional incentives that can reduce your up-front investment even further. You can see what assistance is available in your own state by checking the online Database of State Incentives for Renewables and Efficiency. Most states also allow "net metering," which means any excess electricity you generate flows into the grid and is deducted from your power bill. The news isn't all good, though: Some states allow utilities to charge you more per kW/h as your usage drops, so the cost of any power you don't generate yourself will rise.

Working out your own potential savings requires a bit of time and effort, but once you have some real-world numbers to work with, it's fairly straightforward math. Take the up-front costs of installation, add a bit extra to allow for surprises and subtract the value of any incentives or rebates. That's your initial investment. Next, work out how much you'll save from reduced energy use or earn from net metering. That's what will pay down your investment. Solar marketplace EnergySage did the math and concluded that the national average should be about $1,430 in savings for a residential installation. On a state-by-state basis, your 20-year savings could range from just over $10,000 in rainy Washington to over $30,000 in heavily subsidized Massachusetts. The National Council for Solar Growth estimates that your system can often pay for itself in as little as five years. Everything after that is pure profit.

If you like the idea of solar on environmental or cost-saving grounds, but don't want to — or can't — make the big up-front investment, you do have a couple of alternatives. One is community solar, a sort of co-op approach that provides power to subscribers on a local basis from a central solar installation. Essentially, it's a mini-utility that piggybacks on the main grid. You can also choose to lease a solar installation, with a third party installing and maintaining the system and providing you power at an attractive rate. Your savings will be lower in that instance, but the original installation cost won't come from your own pocket.