Solar panels are expensive. Are they worth it for you?
How long does it take for your solar panels to pay off?
According to IHS Markit, solar panel installations are expected to increase by 30% in 2021. Before deciding to invest in solar for your home, however, it is important to know how long it will take for the initial cost to pay for itself.
Home solar systems cost an average of $ 20,000, including the modules, other associated hardware, manpower, and more. However, this number can vary dramatically depending on the location and the number of modules installed. So how long does it take to break even on this initial investment before you can start saving real money? We’ll show you how to estimate the payback period for solar modules.
Are Solar Panels Worth It?
A payback period is the time it takes to get your original investment back. Solar panels can save you enough money on your energy bills over time to offset the up-front costs. How much you save per month depends on the size of your solar system, the energy consumption of your home, and other factors.
The calculation of the payback period is unique to your circumstances due to the variability of the upfront costs and the difference in energy costs depending on the location. Here are some guidelines that you can use to gauge when you will break even.
Find out your upfront cost
First of all, you need to estimate what your initial investment will be. Along with system costs, you should factor potential installation costs and other charges into setting up your service. Check the estimates in your area and go from there.
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Tax incentives can make a huge difference
Homeowners can get a one-time paymentof 26% on the purchase price of a solar system. If the initial investment in a solar panel in your area is typically around $ 20,000, the tax credit would make you $ 5,200 next time .
In addition, some utility companies offer incentives and discounts for installing solar energy. Check with your local utility company to see if they offer incentives.
You need to know how much you are paying on your electric bill
This estimate assumes that you get all of your electricity from solar energy. While some households will be able to get 100% of their electricity from solar energy or even return excess energy back to the grid, others will still have an electricity bill to supplement the usage. This varies greatly from house to house, depending on the number of solar panels installed, normal energy consumption and much more. Get more tools here to help you calculate your home’s potential savings.
Now that you know how much energy you are saving, sign up with your electricity company and average your recent utility bills. If possible, go back at least six months to allow for seasonal temperature changes and other fluctuations in costs. Let’s say you get 100% of your usage from the panels and you currently pay an average of $ 125 per month in utility bills, or $ 1,500 per year. Now you have the information you need to estimate the payback time for solar panels.
Estimate how long it will take for your solar panels to pay off
First, multiply the cost of your solar panel by 0.26. This is the tax credit you will receive for installing your system. If you initially spend $ 20,000 on this, your tax credit will be $ 5,200. That reduces your initial investment to $ 14,800.
Now let’s consider the energy savings. Divide your initial investment by the $ 1,500 you would typically pay the electricity company per year. This is how long it takes for your savings to match the amount you spend. Using the example above, you would divide your initial investment of $ 14,800 by $ 1,500: The result is a payback period of just under 10 years.
This may seem like a long time on the surface, but solar panels can easily last 25 years.
You can further reduce your payback time by selling renewable energy certificates or RECs. These are measured in megawatt hours of electricity that comes from renewable sources. Electricity companies have to get some of their electricity from renewable sources, which means you can save even more money by selling some of the energy your solar panels produce.
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One more important thing to know
Certain factors can extend your payback period. Before installing solar panels, you need to check the condition of your roof. Panels can have a lifespan of 25 years. So if your roof is not in tip-top shape, you may need to make improvements before installing solar panels. If this applies to you, make sure to add these costs to your original investment.
Overall, solar power can be an expensive endeavor, especially with up-front costs. However, the long-term efficiencies they offer can more than make up for the initial investment and result in savings for years to come.