Are Solar Panels Worth It?

Are Solar Panels Worth It?

*Data provided by the U.S. Energy Information Administration (EIA).

Residents in areas with higher-than-average rates, such as California, will benefit more from a solar panel system than those in areas with a low cost of electricity.

Energy consumption also affects how much a solar system will benefit your home. Homes with low energy consumption won’t receive long-term savings from going solar. Most reputable solar companies will review your average energy usage and estimate your potential savings from going solar. If your energy consumption or electricity rates are too low, a solar panel system won’t be recommended.

Local, State, and Federal Tax Incentives

Homeowners can use solar incentives, credits, and rebates to save money on their solar panel system. For example, the federal solar tax credit provides a tax reduction equal to 30% of your solar installation costs. Additional state tax credits and incentives may be available in your area. Your local utility company may also offer one-time rebates.

Additionally, your state may have net-metering programs. These programs allow customers to sell extra energy back to the grid for credits on future electricity bills or payouts at the end of a calendar year. Alternatively, you can install a solar battery to store excess energy for use during a blackout, low sunlight days, or periods of high electricity rates.

We recommend checking the Database of State Incentives for Renewables and Efficiency (DSIRE) to find solar incentives and rebates in your area. 

Location

Solar photovoltaic (PV) systems work best in areas with ample sunlight. Solar panels will work in inclement weather but won’t generate their maximum power levels. If you live in an area with year-round cloudy or rainy weather, your solar system may not reach its peak energy output, and your long-term savings will be reduced.

Your home should also be free of any obstructions that could cast shadows on your panels, such as surrounding trees and nearby buildings. Blockage for even a few hours a day could reduce your panels’ energy output and lower your potential savings. Homes in the northern hemisphere that face south, southwest, or west receive the most direct sun exposure, resulting in optimal solar energy production.

Property Value

Any home improvement project can boost your home’s property value, including solar panel installation. The U.S. Department of Energy’s National Renewable Energy Laboratory (NREL) found that your home value increases by $20 for every $1 you save on your utility bills. If your solar panel system saves you $800 per year, that translates to an added $16,000 to your home value. 

Your increased property value may not necessarily result in additional property taxes. Several states have laws protecting homeowners from paying additional taxes for clean energy upgrades. These laws vary by state, so we recommend researching exemption laws in your area. 

Roof Design

Your home’s roof design and angle are crucial to your solar panel installation. You’ll need enough roof space to install an adequate number of solar panels. How many panels you need depends on your energy usage and which type of solar panels you select.

High-quality solar panels are more efficient, so you’ll need less of them to power your home. These panels help to conserve space when additional roof obstructions, such as chimneys or skylights, reduce your available area. Choosing inexpensive solar panels with lower power output will require more panels and ample roof space. 

Panels should be installed at an angle between 15 and 40 degrees for peak sun absorption. If your home has a steep pitch, your solar installer will need to use special mounting equipment to adjust to the correct pitch. This is a more complicated installation and will increase your labor costs.

Are Solar Panels a Good Investment?

Expect to pay anywhere from $15,000 to $25,000 to purchase and install a solar system for your roof, according to the Center for Sustainable Energy. There are tax incentives to offset the sizable upfront costs. The Inflation Reduction Act includes a tax credit to cover 30 percent of the cost of purchasing and installing a solar system. The credit does not apply to leased systems. Consider state incentives, too, like in New York, which provides a 25 percent tax credit, up to $5,000, for purchased or leased systems.

You also need to consider how much solar panels will reduce your energy costs. Confirm that you can sell any excess electricity you produce back to the grid, otherwise it might not be worthwhile for you to do it. Next, look at how much you spend on electricity over the course of the year, a calculation that will vary based on where you live, the size of your home and how many people live in it. An expert should evaluate your roof and your home, weighing factors like the direction the house faces, the age of your roof and tree cover.

“What you’re trying to determine is how long it will take to justify that upfront cost,” said Kimberly Palmer, a personal finance expert at NerdWallet, adding that, on average, the payback for solar panels is six to nine years.

Solar panels do not add significant value to a home, but they don’t harm it, either. Homeowners who sell their homes within five years of installing a system “are almost getting 100 percent of their investment back,” said Ben Hoen, a research scientist at the Lawrence Berkeley National Laboratory in California, who studies the cost, benefit and market analysis of solar systems. He added that buyers are willing to pay a premium for homes with newer solar panels that is roughly equal to the current market value. Homeowners do not, however, reap that benefit for leased systems.

Are Solar Panels Worth It? (2023 Guide)

Here are some factors to help you maximize the value of your solar investment. 

Location

The location of your home plays a vital role in the value of a solar power system. If you live in a part of the country that gets lots of sunlight exposure throughout the year, you will get more out of using solar panels than others. 

The data analysis site Stacker determined that the following 10 states receive the most exposure to sunlight in the United States:

• Arizona

• California

• Colorado

• Florida

• Kansas

• Nevada

• New Mexico

• Oklahoma

• Texas

• Utah

Though states like Florida, Texas, California and Arizona are excellent regions to install a solar system, solar panels may not generate enough energy to be worth the cost if your home experiences a lot of shade from trees or other buildings. Additionally, roofs facing south, southwest or west (in the northern hemisphere) receive more direct radiation from the sun, so the panels will generate more solar energy. 

Your Home’s Roofing

The size, shape, and slope of a roof are also important factors to consider. According to Garrett Nilsen, the deputy director of the U.S. Department of Energy’s Solar Energy Technologies Office, roof structures can be one of the biggest roadblocks to going solar.

“If there are trees near your home that create excessive shade on your roof, rooftop panels may not be the most ideal option,” he says. “Solar panels perform best on south-facing roofs with a slope between 15 and 40 degrees, though other roofs can be suitable too. Installers can model roofs to determine if the orientation and slope are suitable for energy generation.”

Steep roofs make installation challenging and can increase labor costs or require additional mounting equipment. Roofs with plenty of surface area and few obstructions — such as skylights and chimneys — are ideal. You can still add solar panels to smaller roofs but should choose more efficient panels, such as monocrystalline panels, that generate more power using less space.

Local and Federal Tax Incentives

Solar tax incentives and rebates are offered on the federal and state levels. For example, the federal tax credit offers a 30% credit on installing residential solar systems through the solar investment tax credit (ITC). 

Other solar incentives vary from state to state. For example, Florida offers homeowners the Property Tax Abatement for Renewable Energy Property. This incentive adds more value to your solar installation through a 100% property tax exemption for residential renewable energy property, as well as an 80% property tax abatement for nonresidential renewable energy property. 

We encourage you to use the Database of State Incentives for Renewables & Efficiency to learn what other rebates and solar tax credits are available in your state. 

Energy Consumption

Before installing solar, you should take stock of your monthly energy consumption. According to the U.S. Energy Information Administration, the average household uses around 893 kilowatt-hours (kWh) per month. A residential solar setup produces anywhere from 350 to 850 kWh per month. Therefore, you can save as much as 95% off your utility bill.

If you experience higher electricity rates, switching to solar will likely be a good investment. However, if your home does not require a lot of energy consumption to operate day-to-day, you may not save enough to balance the installation cost. 

You should also reach out to your local utility company to see if they offer an established net-metering program. Net-metering is a billing tool in which the energy produced by your solar energy system is sent back out to the grid. The amount of energy produced is also deducted from your energy bill, saving you money and providing clean energy for your community.