Compared to a brand new bathroom or a kitchen remodel, installing solar panels on your roof is about as thrilling as insulating the attic. But, much like adding insulation, going solar can be a home improvement that keeps on giving—possibly paying for itself and then some. Here’s how to find out if it’s a good investment for you.
Why solar is still worth considering
Most of us already probably think of solar power as a sound idea: Capture abundant and free sunlight and turn it into energy. You’ll save on our electric bills and waste fewer natural resources at the same time. Everyone wins.
However, for a while, solar power was just too expensive unless you were a modern Daddy Warbucks. Other home improvement projects tended to be higher on homeowners’ wish lists. This has all changed in the past several years, although the benefits are not as obvious for some as they may have been previously.
Between 2011 and 2014, the cost of solar modules from leading Chinese solar manufacturers dropped about 60 percent (from around $1.31 per watt in 2011 to around $0.50 per watt in 2014). But today, you’re more likely to pay between $2.57 and $4.35 per watt, according to EnergySage—and that’s after taking into account a federal tax credit you can get for installing solar.
If that difference seems like a lot, consider the cost of installing an average-size system in 2010—$40,000, according to the Solar Energy Industries Association—to about $18,000 today. Even with the cost increase in the past several years, that’s still drastically lower than when the interest in home solar systems first started to spike.
Federal subsidies still exist—for now
The US federal renewable-energy tax credit previously offered a credit for 30% of the cost of installing a home alternative energy system. That expired at the end of 2019. For systems installed after then, the tax credit is 26% for 2020, 22% for 2021, then zero after that.
If you installed a solar system in 2020 for a cost of $18,000 and took the 26% tax credit, it would be like saving about $4700 on your taxes. The credit can even be carried into later years if you can’t use it all in one year, Consumer Reports points out.
But there’s still potential for the tax credit to get extended, or for a new one to take its place. The original 30% tax credit was supposed to expire at the end of 2016, before being extended for another three years.
How much you can save with solar power
In general, the higher your electricity bill is now, the more you can save by going solar.
In some cases, solar power could eradicate your electric bill entirely after you recoup the installation, system, and maintenance costs. In other cases the solar panels will simply cut your utility bill by between 10% and 50%.
How you pay for the system and how your home is set up will factor into how much you can save. EnergySage estimates that a solar system used for 20 years can save the average home between $10,000 and $30,000.
But that’s a pretty big range. The amount of money you can save by harnessing the power of the sun depends on where you live, your current energy usage, how you finance the system, and how long you plan on staying in the home.
How to estimate your solar savings
As much as solar power might sound like a no-brainer, not everyone will benefit from it, and taking on debt for it might not ultimately pay off.
Get a glance at your home’s potential for solar power through Google’s Project Sunroof. All you do is enter your street address as you would in Google Maps. You’ll instantly get information about how many hours of sunlight hit your roof per year, how much space there is for placing solar panels, and your estimated savings over 20 years. You can also adjust your monthly electricity bill estimate to fine-tune your savings further.
In addition, Project Sunroof will show you your savings (or costs) for if you buy, finance, or lease your solar system.
You might be surprised at the results. For example, my house gets plenty of sunlight each year (1,706 hours, to be precise), but due to the placement of my house and the trees in my neighborhood—and my already low electricity bill—my savings over 20 years would be just $1,000 after all solar-related costs.
To get a more precise estimate, however, you’ll need to get a solar installer to come to your home and check out your roof personally.
How to pay for solar panels
If you decide to go forward, you’ll get the most return on investment if you pay for the system with cash and plan to stay in your home for a while. But there are other financing options, too. Here’s a quick overview of them:
Buy the system outright or with a loan
You’ll see 100% of the utility savings as soon as you recoup the cost of the investment. If you use a loan to purchase the system, it’ll take longer to recoup the investment than paying for it up front. Compared to leasing or a purchase agreement, you’ll save more on your utility bills every year and also likely increase your home’s property value. However, keep in mind you’ll also have maintenance costs.
Analysis by Zillow found that homes with solar panels sold for an average 4.1% more that comparable homes that didn’t, which could eventually make up for your initial costs.
Lease the system
You pay a fixed monthly amount for using the system and get a guaranteed amount of electricity in return, at about 10% to 20% lower than your current utility costs. Most leases include maintenance of the system, but you won’t be able to get any tax breaks or rebates with this method, since you don’t own the system.
Do a power purchase agreement (PPA)
A PPA is similar to a lease in that you don’t have up-front costs and you don’t own the system. You pay for the amount of electricity you use, much like you do already—but usually at fixed, predictable rates that are lower than your utility company. It’s also possible to transfer your PPA to the new owner if you decide to sell your home.
In all three cases, the solar power system works like this: The solar panels capture sunlight, an inverter converts it into current that can be used in your home, and the electric panel in your home (which might need to be upgraded) feeds the energy from the inverter to your home’s circuits. The electric meter monitors your energy usage, so if your panels generate excess power, that gets sent to the utility company, which will give you a credit for the energy. You are now powering the grid!
As with any other home improvement project, shop around and get several quotes from installers before committing. Ask about the warrantees and maintenance on the system, look for certified installers (“certified photovoltaic installation professionals” to be precise), and ask for referrals or recommendations from people you know.
This post was originally published in 2015 and was updated in February 2020 to provide updated information.