The most common initial solar interest we hear is usually about saving money on utility bills. How much does solar save on these bills? In this article we’ll discuss what factors impact solar savings.
Solar panel systems are rated by their kilowatt-hour (kWh) production. A standard size for residential solar install is between 3-4 kilowatts (kW), which will, on average, produce 350-850 kWh per month. An average home uses approximately 909 kWh of energy per month. As such, a typical solar setup would save an average home 70-90% on monthly power bills in the first year.
One great thing about solar is that it continues to produce electricity for as long as it’s in working order–and that’s a really long time. Solar panels have an average lifespan of 25-30 years. So once you’ve made the investment in a PV system, you can enjoy reduced electricity costs for decades to come. And as utility rates continue to rise, your savings will only go up.
Do keep in mind, your situation is unique! We don’t design systems for “the average home”. We design them for your home.
Though these solar savings are very normal, there are a few factors that we have to consider when taking an in depth look at how much solar panels save: the purchase method, applicable tax incentives, and utility offset.
Factors That Affect Your Savings:
Purchase method
The very first factor to consider is a big one–who owns the power production? There are three typical solar ownership options available. 1) Power Purchase Agreements (PPAs) 2) Solar Leasing, and 3) Solar Purchase.
Power Purchase Agreements (PPAs)
A Power Purchase Agreement (PPA) is a contract between you and the installer of the solar system. In this agreement, you agree to purchase the power generated by the installed solar system over an agreed period of time at a predetermined rate. With a PPA agreement, you don’t need to pay any upfront costs for installing the system; however, you will often be responsible for any maintenance fees. PPAs are often offered through third-party companies that specialize in solar energy installations.
In this setup it’s easiest to think of the solar installer as your new utility company. The installer is responsible for the infrastructure. And you’re paying them for whatever power you use.
Solar Leasing
Solar leasing is similar to a PPA in that it allows you to make payments for the electricity produced by your installed solar system without having to pay any upfront costs. However, unlike a PPA agreement which charges only for electricity used from the installed system, with a lease agreement you will also be responsible for paying lease payments each month regardless of how much power is produced from the solar system. Lease agreements are typically offered by third-party companies that specialize in leasing and financing of solar systems.
Solar leasing is similar to a PPA in that you don’t own the panels. Leasing differs from a PPA in that you’re paying to use the panels, instead of paying for the power that the panels produce. Consider it like “renting” the solar panels.
Solar Purchase
Buying your own solar panel array outright provides complete ownership of your solar power setup and allows you full control over how much power is produced from it. As such, you’re also the one eligible for federal and state tax incentives.
You can purchase solar in two ways: a single payment or a loan.
Single Payment Option
The first option for buying solar panels outright is to make one single payment for all the equipment upfront. This method has several advantages, no interest fees, and potentially lower system installation costs. With no monthly payments or finance charges, you’ll be saving outright on your utility bills from month one. Additionally, paying in cash could mean additional savings from special offers and discounts that certain manufacturers may offer customers who pay upfront.
Loan Option
The second option is to buy your solar panel array through a loan. This allows you to spread the cost of purchasing your setup over time and avoid having to pay large sums of money up front. Additionally, loan options usually come with fixed interest rates so you can plan ahead and know exactly how much you will be paying each month as part of your repayment plan. It also means that even if the price of solar panels goes up in the future, you will still benefit from the same rate that was quoted when the loan was initially taken out. This can help alleviate some stress associated with unpredictable market forces affecting prices in the future.
Ultimately, making an informed decision about which purchasing option route works best for you will ensure that you get maximum value out of investing in a solar power setup while minimizing any potential risks associated with such an investment.
Tax Incentives
The second element of solar savings is tax incentives. By most statutes, if you do not own your system, you lose out on the savings entirely. Your developer or power provider gets to turn around and apply it to their own costs instead.
The most common type of tax savings for solar power users is a federal tax credit. If eligible, this credit allows you to receive a percentage of your costs back in the form of a tax credit. Federal tax credits are only available for those who own their systems – if you lease or use a power purchase agreement (PPA), then you do not qualify for this type of deduction.
In addition to federal credits, some states offer additional incentives such as state tax credits or rebates. The amount varies by state so it’s important to do research on what’s available in your area before making any decisions about which type of system is right for you. It’s important to note that some states also impose sales taxes on newly installed solar systems so make sure to look into what’s applicable in your area before making any decisions about investing in solar energy. We always recommend working with a solar and tax expert to sort out your unique situation.
Finally, many utility companies offer special programs designed specifically for solar customers that can provide additional savings. These programs vary widely by location but generally include discounts on monthly bills or other incentives such as free installation or maintenance services offered at discounted rates. Do some research online or contact your utility provider directly to find out what types of programs are available in your area and how they could benefit you financially when investing in solar energy technology.
To get started with finding these incentives quickly and easily use SEIA's Database Of State Incentives For Renewables & Efficiency (DSIRE).
Utility Offset
Your total solar savings is the amount of money you're saving by having solar panels installed on your home or business. This includes the solar offset—the difference between what you would've paid for energy from the utility company and what you actually pay after having solar installed—as well as any tax incentives or rebates you receive. The cost of purchase and installation should also be considered when determining your total solar savings.
As we discussed at the beginning of this article, most residential solar setups are between 3-4 kilowatts (kW) and will produce 350-850 kWh per month, on average. The average home uses approximately 909 kWh of energy per month, which, again, translates to 70-90% savings on your monthly electric bills. Though it is important to note that this is affected by a number of factors, including the size of the system, the angle at which the panels are installed, and the amount of sunlight that hits the panels each day.
To truly determine how much you’re saving with solar, the utility savings generated by solar should be considered simultaneously with the costs of purchase and the tax incentives available to you, as well as the costs of additional solar services. Things like maintenance, batteries, main panel upgrades, roof work, and structure upgrades are all expenses that may be required for solar, but don’t directly contribute to your solar offset.
To get a true picture of how much money you're saving, you need to consider all of these factors together. By doing so, you can get a better understanding of whether or not solar is right for you.
Other benefits of installing solar
Taking the leap and investing in solar energy can be a daunting decision, and after considering the cost versus savings of using solar, you can also find two big benefits that make it even more worth it. Installing solar can increase the value of your home and reduce your carbon footprint.
Increase Home Value
Installing solar panels adds significant value to a home or business. According to Zillow, homes with solar panels tend to sell 20 percent faster and for 17 percent more than those without. This is because buyers become attracted to properties with lower utility bills, making them more desirable investments. Additionally, many states offer tax credits to offset the cost of installing solar panels on your property. This incentive helps reduce the amount you’ll spend up front for installation costs, allowing you to maximize your return on investment over time.
Reduce Carbon Footprint
Solar power reduces air pollution by reducing our reliance on fossil fuels such as coal and gas for power generation. In addition, when you generate electricity from solar panels, you can actually send any excess electricity back into the grid! This is called net metering, which gives homeowners credit for their excess energy production that they can use during times when they need additional electricity from the grid. It’s a win-win situation – reduced pollution and reduced energy costs!
Conclusion
To sum up, solar energy systems are an excellent way to save money on your utility bills.
Your savings will be impacted by; the purchase method, tax incentives, and utility offset. There are three main methods to compare when thinking of purchasing solar: power purchase agreement, solar leasing, and purchasing. Within purchasing you can consider a loan or single payment option as well.
Solar energy systems also bring additional benefits like an increased home value and reduced carbon footprint. Together these features create a great incentive for households looking to explore their solar options for utilities savings and beyond.
To get started on seeing how much you would save with a solar energy system, contact SolarUnion today for an estimate!