Do Solar Panels Save You Money?

Sustainability is the new “cool kids club.” If you drive a Prius, grow your own organic garden, and sort and recycle all your plastics every trash day, chances are everyone on the block envies your drive to be Earth conscious.

But not everyone is onboard with the sustainability change just yet. One of the main reasons is due to cost. Recycling takes precious time, electric or hybrid cars cost a small fortune, and buying organic often is a luxury. Especially when it comes to sprucing up your home — such as installing solar panels — that one minor change can leave a dent in your wallet. With solar panels being all the rage these days, can they really be cost effective?

Solar panels always promise a lower price over the long term. The amount of money you could save from your electrical bill is supposed to cover the thousands of dollars it will cost you to install the devices in the first place. Plus, some states offer credits or tax cuts for being environmentally conscious, but does it still outweigh the initial cost?

Now, Tesla is even coming out with solar roof tiles: a more subtle, aesthetically-pleasing way to go “green.” But the price-tag for these tiles are still through the roof (pun intended). Despite their initial promise to make them affordable for all, the price for one of these shiny new Tesla roofs is between $70,000 and $100,000.

Have you been thinking about making your house more green, or maybe just enjoy the idea of being off the larger city grid by switching to solar panels? Let’s look at the financial cost of solar panels and find out if making the switch to “going green” is really as affordable as everyone says.

The Math

When it comes to breaking down the cost of a solar panel system, there is no exact formula or answer. So much of it is dependent on your location, your habits, the installer, and the size of your house.

To start, try to calculate how many watts (w) you use in your house month-by-month. A watt is a unit of measurement for electricity, and all solar panels will be rated on their wattage. Consider your daily habits that contribute to your electrical bill. Do you use electricity to heat or cool your home? Are you a heavy user at night? Your electrical bill should have the average amount of kilowatts (1 kilowatt = 1,000 watts) that you use each month, and the electrical company can help you break it down even further.

Now, solar panels normally range in 100-360w units. How many will you need to meet the electrical needs of your home every month? Use this number to do your shopping when considering the cost of the tiles or panels themselves.

Luckily, there are also tax cuts and credits that you can look forward to when installing solar panels. This is known as the Federal Investment Tax Credit (ITC), which was recently extended by the government to last until 2021, meaning anything constructed before that time will receive a tax discount. As the Solar Energy Industries Association (SEIA) explains:

“A tax credit is a dollar-for-dollar reduction in the income taxes that a person or company claiming the credit would otherwise pay the federal government. The ITC is based on the amount of investment in solar property. Both the residential and commercial ITC are equal to 30 percent of the basis that is invested in eligible property which have commence construction through 2019. The ITC then steps down to 26 percent in 2020 and 22 percent in 2021. After 2021, the residential credit will drop to zero while the commercial and utility credit will drop to a permanent 10 percent.”

In addition to this amazing tax cut, some electrical companies provide discounted “starter kits” to help you transition, while some states offer their own state tax incentives. Additionally, some utility companies offer an electricity buy-back incentive, but not all states are on board with this benefit just yet. You will have to do your research on the extra incentives available in your area.

In the end, you will be estimating how many watts your house needs, how much those solar panels cost per watt, and how much you save with the Federal ITC. An expert on the subject, PowerScout, created a breakdown of what the average solar panel installation cost consumers in 2016: “The national average residential system size is 5,000 watts (or 5 kW). This means that the average system has about 18 panels and costs about $12,500 (after the Federal ITC). That [price] is 12% lower than it was in 2015, and solar panel system costs will continue to fall.”

As for the Tesla roof tiles, that price might be a little bit higher. Consumer Reports initially estimated the average cost would be between $70,000 and $100,000, but after factoring in the saving and the Federal ITC, that price has since dropped to about $35,000 to $75,000. However, Tesla’s tiles are heavily dependent on where you live (due to the amount of sun you’ll get in that area), and a large part of their sales pitch relies on the amount of money you will save after 30 years.

The Decision

The biggest question remains: does the heavy upfront cost make the savings worth it? Will you be staying in that house for at least 30 years to make up for the thousands of dollars you spent to get solar panels installed?

Ultimately, you have to weigh the pros and cons of this decision. If you’re planning on staying in the home for a couple of decades, the pros will outweigh the cons. The thousands of dollars you will be saving in energy costs will eventually trump the amount you had to put down on the initial installation. Maintenance will be your only major concern.

Similarly, if you invest in solar at your home and then sell the home after the installation is complete, you could probably break even on the cost of installing the panels. Solar power will certainly increase the value of any home and can prove to be a useful investment. However, the data for how much your home value will increase is not something that can be tracked currently.

Regardless, most people will not have the amount of money necessary to purchase solar panels outright. Are solar panels worth the investment for your home if you have to take out a loan to afford them? If you put this purchase on your credit card, will the interest you accrue almost double the cost of the panels or exceed the 25 percent threshold on your utilization ratio that is important for your credit score? Loans and credit cards can be beneficial for getting a leg up in life, but solar panels might not be the right large-scale purchase to place on your credit card if you can’t afford them outright.

In the end, solar panels will save you money, but you have to be patient to see the turnaround. It could take a few years, but — as Consumer Reports claims —  how much you get out of the solar panels is dependent on how long you stay in that home. Using an example from Consumer Reports:

“A typical owner of a single-family home will stay put for 13 years, according to the National Association of Homebuilders. Using the example of our staffer’s home in New York, after paying $45,400 for the [Tesla] solar roof and Powerwall, he would save about $16,935 in electricity after 13 years. Even with that savings and $12,500 in federal tax credits, he’d still come out behind by $15,965 if he moved at this point. Some of that loss could be offset by potentially increased resale value, but it’s impossible to predict how much a Solar Roof will add to the value of a house.”

Conclusion

Solar panels will save you money in energy costs, but the amount of money you put down first might jeopardize your overall savings. If you’re a brand new homeowner and plan on an extended (30 year) stay, then go ahead and invest in solar. However, if you’re a house flipper, or not planning on staying much longer than a few years in your current home, then chances are it won’t be worth the upfront costs.

Going green and going solar can seem like the cool thing to do, but your wallet is the real decider in what avenue you should take. If you can’t afford to make the move to solar energy, then consider investing in other “green” alternatives. Get into composting, recycling, or biking to work everyday. You can still be cool and earth conscious without spending a fortune on a new solar-paneled roof.

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