Are you considering switching your home to solar power but unsure if solar panels are worth the hype — or investment? Solar panels make your home more environmentally friendly, but many homeowners go solar because of the promise of monthly savings. Learn how much money solar panels could save you each month and over the life of a solar panel system.
Key takeaways:
Solar panels will save you money, but the amount depends on how much energy you produce, the cost of your panels and your energy usage.
The average solar homeowner saves $1,644 annually.
Climate, sun exposure, solar incentives, type of solar panel and initial investment all impact how much money you’ll save with solar panels.
Can solar panels save you money?
The short answer to whether solar panels can save you money is yes, but the extent of your energy savings is the real — and complicated — question. The average homeowner should save about $1,644 each year.
“For the vast majority of people, solar will save them money,” said Dr. Joshua Pierce, an electrical and computer engineering professor at Western University in Canada. Pierce’s research lab conducted a study in Michigan and found that everyone who transitioned their households to solar power discovered monthly savings.
When your solar panels harness the sun’s energy and transform it into usable power for your home, they save you money. But if you factor in the amount you paid for your solar panels and the amount you pay for their upkeep, you may save less than you thought.
The upfront cost of solar panels averages between $13,620 and $26,686, depending on where you live. How much you pay to install your solar panels helps determine how much you’ll save in the long run. If you buy a cheaper solar system or live in a state with lower solar costs, you may see a quicker return on your investment and more lifetime savings.
Yet this only applies to some because the environment significantly influences how much sunlight your panels get. The more sunshine, the more available energy to harness, and the better chance you have of offsetting your energy costs. So, if you pay for a cheaper solar system but only have consistent sunlight half the year, you may not see a return on your investment for nearly a decade.
Average solar panel and installation costs
We looked at the average cost of solar panels in every state and found that homeowners will pay between $13,620 and $26,686 for a 6-kilowatt (kW) solar system. This price includes the cost of the solar panels and installation before any solar tax incentives are applied.
Although a 6kW system is enough for the average U.S. household, you may need a larger or smaller system based on your home’s energy consumption. The table below estimates what you can expect to pay for solar systems from 5kW to 10kW based on the average cost per watt of $2.82.
|
Average cost of solar panels*
|
Average cost after 30% federal tax credit
|
|
|---|---|---|
| 5kW | $14,100 |
$9,870 |
| 6kW | $16,920 |
$11,844 |
| 7kW | $19,740 |
$13,818 |
| 8kW | $22,560 |
$15,792 |
| 9kW | $25,380 |
$17,766 |
| 10kW | $28,200 |
$19,740 |
*Data based on an average cost of $2.82 per watt. Costs differ by location.
Tax incentives
There’s no hiding the high upfront cost of solar panels, but there are programs in place that help to alleviate this cost. The federal solar tax credit can take up to 30% off the price of your solar system, and other tax credits and exemptions can further lower it. The range of incentives is:
- Federal solar tax credit (ITC): With the federal ITC, you can get up to 30% of the total cost of your solar panels credited toward what you owe on your federal income taxes.
- State tax incentive: At last count, 20 states offer solar tax credits that reduce the amount you owe on state income taxes.
- Property tax exemption: Solar panels are considered a permanent addition to your home and can increase the value of your property. This increase in value usually increases property tax, but 35 states have a property tax exemption for solar panels, so you don’t have to pay property tax on this increase in value.
- Sales tax exemption: With a sales tax exemption, you won’t have to pay sales tax when you buy a solar energy system. Twenty-five states, including Arizona and Colorado, have sales tax exemptions.
Factors that affect solar savings
Solar panels may be an environmentally friendly way to produce energy, but many homeowners also turn to solar for monthly electricity bill savings. Several factors influence how much you’ll save with solar panels.
Energy costs and household use
The average homeowner pays about $137 per month (or $1,644 per year) on energy, so if your solar panels offset your energy costs entirely, you save that amount or more every month and year. If you live in a state with high energy costs — such as New York or California — you could save even because your electric rates are higher.
Initial investment
With a $13,620 to $26,686 average initial investment before any rebates, your solar panels will have to generate a lot of energy to pay for themselves. The average homeowner should save about $1,644 each year, so even if you meet this number, it will take several years for the panels to generate a break-even return on investment (ROI).
Installing a smaller solar panel system doesn’t mean you see a faster ROI. Smaller solar energy systems produce less energy than larger ones, so you may not completely offset all your energy costs.
The efficiency of your panels also affects your initial investment. Cheaper, less-efficient solar panels may suit your wallet, but they can take longer to pay for themselves because they produce less energy. More efficient monocrystalline panels cost more and produce more energy, but their higher price point means they must also produce more energy over time to be a worthwhile investment.
Net metering
If you have access to a net metering program in your state, you will save more money faster and pay for your solar system sooner. You can either get credit for extra energy for later use or sell your energy back to the grid.
You can use your excess energy during hours of low sunlight or at night, and it also allows you to make more money each month. As of the start of 2024, 38 states and Washington, D.C., had net metering programs in place. Check your state to see what’s available.
Size, efficiency and type of solar panel system
Not all solar panels are created equal. The more efficient the panels, the more energy they produce — but they also cost more. Monocrystalline solar panels cost more than their less efficient polycrystalline counterparts, but they’re worth it if you live in an area with less daily sunlight.
If your goal is to offset your energy costs completely, you will need a more efficient solar panel and a system large enough to generate the right amount of energy. Your upfront cost will be higher but will likely save you more money in the long run.
Sun exposure and climate
Solar panels need sunlight to produce energy, so where you live is crucial to how much money your solar panels save. With more hours of daily sunshine, your solar panels produce energy more reliably and at their highest efficiency. Solar panels in sunnier states, such as Arizona, California, Texas and Florida, naturally produce more energy — and save you more money — than in locations that only get consistent sunlight half the year.
Tax incentives
One of the best ways to drive the cost of your solar panels down is to take advantage of every tax incentive you can. The federal solar tax credit removes 30% off the total cost, although months after the fact. If you’re lucky enough to live in a state that doesn’t have sales tax or property tax on solar panels, you’ll also save thousands of dollars more.
What’s the average payback period for solar panels?
Most homeowners see a return on their solar investment within six to 12 years of their installation. The time it takes to pay off your solar panels depends on the above factors, but you can estimate your payback period with a simple calculation.
To calculate the payback period for your solar panels, start with the actual cost of your solar panel system and then subtract all rebates and incentives to find out what the actual cost of your solar panels is. Next, find your estimated annual savings by looking up the cost of one kilowatt (kW) and multiplying it by the expected annual output of your solar panels. Finally, divide the total cost by the annual savings:
- Find the actual cost of your solar system: Upfront cost of your solar system (–) solar tax incentives
- Calculate annual savings: Cost of kW * annual output of your solar system
- Cost of solar system (1) / annual savings (2) = estimated payback period
How can I estimate my long-term solar savings?
Because most solar panels are warranted to last 25 years or more, you should enjoy 10 to 15 years of solar savings after the panels have paid for themselves.
To calculate your long-term solar savings, multiply the cost of 1 kilowatt by the expected annual output of your solar panels. Once you have that number, multiply it by the number of years you expect your solar panels to last, which would be 25 years minus your payback period.
For example, suppose the energy cost in your area is 15 cents per kW and your 6kW solar system produces between 8,000 kW and 10,000 kW each year. In this case, that’s between $1,200 and $1,500 a year that you won’t have to pay to your power company.
Now let’s say your payback period was 10 years and your solar panels functioned well for 25 years. That gives you 15 years of solar energy with no power payments. So, your total lifetime savings would be between $18,000 and $22,500.
Bottom line
One thing is for sure: Energy costs are on the rise. We’ve seen a 7% increase in the cost of energy in the past year alone, and there is no indication that these costs will fall.
Solar panels can save you money, but the amount depends on many factors, namely where you live, the efficiency of your panels, the cost of energy in your state and the initial cost of your solar system.
Although it can take a decade or more for your solar panels to pay for themselves, once they are paid off, you could save thousands of dollars in energy costs.
