The solar industry has experienced rapid growth in recent years. In 2009, less than 20GW of solar capacity was installed worldwide. In 2020, that number has skyrocketed above 480GW—a rate of 24x growth in just over a decade.
That growth has been made possible by rapid technological advancements. In the same timeframe, the cost of a fully -installed system dropped from $7.14/watt in 2010 down to around $2.50/watt in 2020. That means you can go solar today for about one-third of what it would have cost ten years ago.
With the rapid growth in solar technology and the decrease in pricing, is solar still worth it for the typical homeowner in 2020? That’s the question we’ll set out to answer in this article. (Here’s a quick summary, though: if you own your home and connect to the grid, the answer is most likely “yes.”)
Comparing the Costs of Solar
If solar is getting cheaper, and the technology is improving all the time, does that make it a better investment than other options? To answer that, it’s not enough to compare the cost of solar against historical benchmarks. We have to look at how solar stacks up against alternative methods of delivering power to your home, because solar panels are really only worth the investment if it can outperform the other options on the market.
For grid-tied systems, the math is pretty simple: you compare the cost of solar against the cost of buying power from the utility company to estimate the grid-tied payback period. (Don’t worry—we’ve written this article to walk you through the math.)
These calculations can also be applied to evaluate off-grid systems. instead of utility power, though, you’ll need to compare solar to the costs of running a power line to your property (if possible) or look at alternative power sources, like wind, hydro, or a trusty generator. Sometimes a combination of methods (like solar + a backup generator) may be the smartest option.
How Solar Pays For Itself
Grid-tied homeowners buy electricity from the local utility company at a set rate. The national average in the US is around 13 cents/kWh.
When you go solar and connect to the grid, that bill is reduced (or completely eliminated) because you are generating your own power instead of buying it from the utility.
To figure out whether solar panels are worth the investment, simply compare the lifetime cost of utility power against the lifetime cost of going solar.
We use a 25-year timeframe to measure “lifetime” ownership, because that’s the standard length of a solar panel warranty.
Let’s break out the calculator and do some math. We use national averages for these examples, but make sure to plug in your own figures to see if solar panels are worth it for you.
Step 1: Find your local utility rate.
To figure out the lifetime cost of utility power, you’ll need to determine your current utility costs and average energy usage over twelve months:
1. Determine how much you currently pay for utility power. The rate is typically printed on your electric bill. If you can’t find it, you can also Google “cost of electricity in (your location).”
Example: The national average cost of electricity is around 13 cents/kWh.
2. Find your average energy usage over 12 months. Figure out how many kilowatt-hours of electricity you use each month. Your usage will be higher in months where you have to run heat or A/C, so it’s smart to get an average for the whole year.
3. Calculate the lifetime cost of utility power. Multiply your results from the previous two steps to get your average monthly electric bill. Then multiply by 12 months (for a yearly bill) and again by 25 years (to arrive at the lifetime cost of utility power).
Example: 867 * $0.13 * 12 * 25 = $33,813.
$33,813 is the cost of buying power from the utility over 25 years. Keep this figure handy. In the end, we’ll compare it to the cost of owning solar over the same time period so you can determine if solar panels are worth it in the long run.
Step 2: Estimate solar system size and installation costs.
Next, you’ll need to determine what size solar system you need and the estimated amount it will cost for installation:
1. Estimate the size of your solar system. Use our solar panel cost calculator to estimate determine what size system you would need to cover your usage. You just need the 2 two figures above, along with your ZIP code (so we can look up how much sun you get in your location).
The calculator returns a system size and cost estimate to use for our purposes here. You can also compare the system size recommendation to our pre-packaged systems to hone in on an exact cost for solar financing. (Don’t forget to add tax to the published prices.)
Example: This 6.3 kW system produces about 870 kWh/month, perfect to offset our usage of 867 kWh/month from step 2. The system costs $9,669 at the time of publication. We’ll add another $1,500 as a rough estimate for taxes, shipping, and permitting fees. Total cost estimate: $11,169.
2. Add installation costs. Local solar installers charge around $1/watt to install a system, which would amount to $6,300 for the 6.3 kW (6300-watt) system linked above.
Many of our customers choose to install their own system to save this chunk of cash, which dramatically changes the payback calculations. If you choose decide to hire an installer, add that fee to the total cost of going solar.
Example: $6,300 if installed by a contractor / $0 if you DIY install
Step 3: Account for tax credits and incentives.
The government offers solar panel incentives by state for going solar. Most people are eligible for the federal solar tax credit, which currently returns 26% of your total installation costs as a credit toward your federal taxes. There may be local incentive programs that stack with the federal credit for even more savings to help ensure your solar panels are worth the investment.
The credit applies to your entire project costs, not just the equipment. Shipping, permitting, and contractor fees can all be claimed (but your own labor cannot be claimed if you install yourself).
1. Subtract the total value of incentives you can claim from the costs you calculated in steps 2 and 3. That money is paid upfront, but returns to your pocket in the form of a credit come tax season.
Example: ($11,169 + $6,300) * 0.74 = $12,927.06. Once tax credits have been taken into account, you will have spent about $12,927 to install your system, assuming you hired an installer.
Step 4: Account for solar system part replacements.
You also need to take into consideration the added expenses for solar part replacements. To estimate the costs:
1. Look up the warranty on other components, especially the inverter. Budget for inverter replacements over the life of the system if necessary.
Panels are warrantied for 25 years, but some parts have shorter warranties. For example, the SMA warranty is 10 years, and SolarEdge is 12 years. However, Enphase micro-inverters also have a 25-year warranty, so you don’t need to factor in replacement costs on those.
2. Calculate the costs after deducting the value of the tax credits. Those replacements will happen in the future, after the federal tax credit has expired.
In our example, we’ll assume 2 SolarEdge inverter replacements at their current cost of $1,595 each.
Example: $12,927 + ($1,595 * 2) = $16,117.
This is our lifetime cost of solar ownership. It includes equipment, installation, and replacement over the 25-year life of the system.
Step 5: Determine your return on investment (ROI).
Are your solar panels worth it? It’s time for the big payoff. To figure out how your solar investment compares against the cost of buying power from the utility, you’ll want to estimate your return on investment (ROI):
1. Subtract the lifetime cost of solar (step 7) from the lifetime cost of utility power (step 2). The result is your return on investment—the total amount you’d save on energy bills over 25 years.
Example: $33,813 – $16,117 = $17,696.
In this scenario, going solar would save you an estimated $17,696 over a 25-year period. Not too shabby!
Though solar is a significant investment upfront, it proves to be that solar is worth it in the long run. Over 25 years, going solar costs less than half what you’d pay the utility to produce the same amount of energy.
Remember, this breakdown assumes that you hire an installer to complete your project. Many of our customers DIY their project, which rapidly accelerates their payback period and makes solar panels an even better investment.
If you want to get the most bang for your buck, consider a DIY installation to put the maximum savings in your pocket. Use our solar ROI calculator to help you estimate your return.
Factors That Impact Solar Payback Period
The example laid out above is based on national averages, but you may be working under different circumstances that can significantly alter the math. That’s why we encourage people to punch in their own figures and decide for themselves.
The #1 factor that moves the needle is the cost of installation. As we’ve mentioned, taking on a DIY install can save several thousands of dollars and dramatically change the payback math.
Even if you choose to hire an installer, rates can fluctuate wildly, from 75 cents/watt to $1.50/watt or more for the labor alone. If you go this route, try to compare quotes from multiple installers to shop for the most competitive rate.
Value of Incentives
We’ve run the numbers to include the Federal Solar Tax Credit, since most people are eligible for it. But you may be able to add on state or local incentives as well, and some of those can be quite significant. Check our local solar incentives database to make sure you claim everything available to you.
These calculations assume you own your home and plan to live there over the full 25 years of ownership. Obviously, that isn’t always realistic. If you move during that time period, you’ll be happy to know that solar increases the value of your home, so you can recoup some of your investment if you decide to list it on the market.
As you decide whether solar is worth it, think about whether you’ll be living in your home long enough for the investment to pay off.
In this article, we’ve assumed the system is being purchased outright. Committing to a solar lease or PPA (power purchasing agreement) puts a significant dent in the value of solar, reducing your total ROI.
Under these schemes, you are not allowed to claim any credits or incentives—they are claimed by the installer, who owns the system. In addition, these contracts contain escalating interest rates that eat into your energy bill savings over time. Entering into a lease or PPA can reduce or completely negate your savings, depending on the terms of the contract.
Some areas receive more sun exposure than others, which means more time for the system to operate at peak production each day. Systems in sunny areas will produce more power each day, making them more valuable.
That said, solar is still financially viable in cold and cloudy climates—the ROI is less dramatic, but still positive for grid-tied systems.
So…is solar worth the investment?
For grid-tied homeowners, the math is clear: solar costs less than buying power from the utility company in the long run.
The payback period is around 8-9 years if you hire someone to install your system. When you measure that against the 25-year warranty on your panels, you’re looking at serious energy bill savings over the life of ownership. And if you decide to install it yourself, that payback period accelerates to 5-6 years with the money saved on installation costs.