Cut Your Electric Bill With Solar Panels

by Michael Kling on 3 May 2013 8 comments

Thinking about reducing your carbon footprint by going solar?

Besides helping the environment, installing solar panels can dramatically reduce your electric bills.

Solar panel installers say the panels can cut monthly electric bills by 50 to 90%. The Department of Energy confirms that a solar electric system can meet "nearly all the needs" of an energy-efficient home.

A two-kilowatt system could cost $16,000 to $20,000 including installation, or $8 to $10 per watt, according to the Department of Energy. Cheaper PV systems are available, but they only slightly cut electricity costs. At the high end, a five-kilowatt system that completely meets the energy needs of many conventional homes can cost $30,000 to $40,000 or $6 to $8 per watt, installed.

What's more, the cost of solar panels has fallen substantially in recent years, due to improving technology and low-cost imports. According to Clean Edge, a renewable energy research firm, solar costs for the panels themselves have dropped from $7.50 per watt to $2.50 since 2000.

In addition, photovoltaic, or PV, panels will protect you from rate increases in the future, which run at 4% or more a year, since the sun will never charge more for its power. That means 10 or 20 years from now the cost of electricity may have doubled, but you'll be getting your power for free or for very little.

Solar panels also increase the value of homes, so homeowners should get their investment back when they sell their homes. A Berkley Lab study of California homes found that homes with photovoltaic panels sold for a premium over homes without the panels.

How much you can save depends on how much sunshine you get, the solar system you install, the cost of electricity in your area, and how much electricity you use, all factors that vary widely.

If your utility has net metering, you'll be credited for excess energy the PV system creates during the day. In effect, your meter will run backwards. That means your electric bill could potentially be zero. In some areas, utilities may pay homeowners for excess energy.

Tax Credit Where Credit Is Due

Homeowners can currently obtain a federal tax credit for 30% of installation costs.

Many states also offer rebates and tax credits. Eligibility criteria, incentives, and installer equipment requirements vary widely. For listings of state, local, utility, and federal incentives, visit the National Database of State Incentives for Renewable Energy (DSIRE). The Department of Energy also has a nifty online tool for finding state incentives for solar energy, as well as other alternative energy sources.

How Much Can You Save?

After getting quotes from installers and calculating the state and federal tax savings, use your past year's electric bills to estimate your savings.

Divide the installation costs after tax incentives by 25 years to find the system's annual cost, and compare the annual cost to last year's electric bill to estimate your savings. If you borrow money to pay for your solar system, take into account the interest you'll pay, too.

California, the largest solar energy market, is pushing PV panels in a big way with its Go Solar California campaign, a joint effort of the state's Energy Commission and the California Public Utilities Commission. The California Solar Initiative offers rebates to customers of its investor-owned utilities — Pacific Gas and Electric, Southern California Edison, San Diego Gas & Electric — with rebate amounts depending on the performance of the solar panels. All you need is roof or ground space that gets unobstructed sunlight from 11 a.m. to sunset year-round.

Customers of municipal utilities may also qualify for incentives through their municipal service providers. For the California Solar Initiative program, you first must complete an energy efficiency audit done through your utility's program manager. It can be done online or over the phone.

Buying Sunshine's Electricity on Credit

Installing a solar system may cost tens of thousands of dollars, but you might be able to lease the equipment with little or no money upfront. If you opt for leasing, you pay a fixed monthly fee, typically for 15 to 20 years, while the solar company maintains the panels. Solar leases, or third-party financing, is relatively new and is expected to energize the solar business, says a report from GTM Research. To date, leasing is available in 14 states, including California, Arizona, and Colorado.

A downside of leasing is that the company, not you, gets the federal tax credit. And you can't be certain the company maintaining the system will be around for 15 or 20 years, especially given the young solar industry's record of turmoil and bankruptcy.

Getting Started

In California, the state maintains a database of solar contractors who are eligible to apply for state incentives; other states may have similar programs. Talk to at least three installers. Ask about their warranties, how many systems they've installed, the average cost per watt they charge, the peak generating capacity, and the total cost including hardware, connecting to the grid, and permits.

The contractor will handle the state rebate paperwork. Utility customers get a monthly incentive based on the PV system's output, but owners of systems under 30 kilowatts are also eligible for an upfront rebate.

Other states also offer tax credits or rebates. For instance, Arizona, another sunny state, has a 25% tax credit for residents installing solar energy systems, up to $1,000, and Nevada offers a tax rebate of up to $12,500 for residential solar electric systems. Ask your utility company for referrals for installers. 

So if you live in a sunny spot, you can say goodbye to rising electric bills while feeling good that you're doing something to help the environment.

Have you upgraded your home or property with solar panels? Are the savings meeting your expectations?

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Guest's picture
Jon

With an older home in an area of the country where energy rates are quite low, it hasn't made financial sense to add solar panels, especially since the underlying roof will need to be replaced in another four or five years, so the entire installation would have to be removed, then replaced. I did, however, just buy a solar battery charging system, for use with our camp trailer.

Guest's picture
Allessio77

Installing Solar was the best thing I have done for a long while. Eliminated my electric bills entirely. 2.5 kw system--1670 sq ft home--Arizona.

Guest's picture

It's irresponsible to promote solar panels as money-saving. Even with a system that is tied to the grid that gives you credit for excess electricity, the chances of seeing a return before the system needs replacing is very low. Active solar is a terrible choice as a money-saving investment.

Guest's picture
Allessio77

My payback will be in 6.5 years! The system will last at least 10 if not 20 years.

Guest's picture

A few friends have recently invested in solar panels for their homes and some even their pools. Large start up cost but definitely a great way to cut costs down the road. Another form of investment.

Guest's picture

I think more and more people will begin to consider things like this in the very near future. The reality is that soon we'll have no choice but to work toward sustainability, and solar panels are obviously a major part of that.When your energy bills are out of control, it might be time to consider this.

Guest's picture
suzemagoo

Credit for the excess electricity is key in many cases as a means to pays for it.

The neanderthal power company here isn't able to accept excess. Yet they have plenty of money to replace all the old meters with newfangled remote access ones. Saves them beaucoup manpower costs for meter readers but does nothing for the consumer except increase rates to pay for the new meters.

Had we any forward looking leadership here, the state would have tied a grid upgrade into the acceptance of the new meters. Neanderthals abound.

Guest's picture
No Nonsense Landlord

It seems like 20K would take quite a few years to re-coup, even with a 30% tax credit. And here in MN, I would have to shovel snow off the panel, and we might go a month without sun. Even when we have sun, it's only 8 hours or less in the Winter.

I think I am better off moving to Florida or Arizona.