solar panels cost effective

Are Solar Panels Cost Effective? How much do solar panels save? The rising cost of electricity from traditional sources makes solar installation seem like a no-brainer for many homeowners.

But the true cost of solar panels, and whether they’ll help you save money, depends on a few key factors. On average, installation and the system together can run between $15,000 and $25,000, according to the Center for Sustainable Energy.

Before you make the leap, learn how your electric bill, location and incentives can impact your wallet over time. Here are six steps to take to determine whether you’ll save more than you spend on solar panels.

solar panels cost effective

1. Review your electric bill

Solar panels generate their own power and can therefore greatly offset your monthly electricity bill, if not eliminate it. The higher your bill, the more likely you’ll benefit from switching. But you should note that electricity rates and usage — the main charges on your statement — are volatile.

“If a utility’s electricity prices fluctuate, so could the amount of savings,” says Garrett Nilsen, a program manager at the U.S. Department of Energy’s solar energy technologies office. “Similarly, if energy consumption changes, the amount of savings can also vary.”

Location largely affects electricity rates. The national average is about 13 cents per kilowatt-hour, according to 2019 data from the U.S. Energy Information Administration.

2. Evaluate your sunlight exposure

More sun means more energy produced and a greater potential to save with solar. Certain states, like Arizona and California, average more sunlight hours per day.

Your home’s orientation toward the sun, the amount of shade and its roof type also affect a solar system’s output. You can estimate the efficiency of panels in your area by using the Solar-Estimate calculator. Enter your address, the average cost of your monthly energy bill and your utility provider.

3. Estimate residential solar panel cost

The brunt of the expense with solar panels is in installation and the purchase of the actual panels.

Minimal long-term expenses can make up for the upfront costs. “Most systems don’t require much maintenance and are designed to last for 20 years or more with little change to the amount of electricity produced,” Nilsen says.

When calculating the total price, consider how much energy you regularly consume — your usage is listed on your monthly utility bill —  and what size system will generate the amount needed. Some tools, like the Solar-Estimate calculator, estimate the system size for you.

With installation, an average residential 5kW size system costs between $3 and $5 per watt, according to the CSE, which results in the $15,000 to $25,000 range. That cost is before any tax credits and incentives.

If you know your current energy usage, you can calculate how much you’ll need to pay for solar panels.

» MORE: Calculate your monthly payments on a solar loan

Then comparison shop for solar panels as you would other big-ticket items, such as a car or TV, says Vikram Aggarwal, CEO of the solar marketplace EnergySage. Some companies lower installation costs through rebates and other programs.

Aggarwal recommends getting quotes from three to five contractors. EnergySage compiles solar companies’ customer reviews, certifications, Better Business Bureau profiles and other information to help you find reputable providers.

4. Look for incentives

The government offers homeowners significant incentives for installing solar panels as an alternate energy source. For example, a residential federal tax credit allows taxpayers to claim 26% of installation costs for systems placed in service by Dec. 31, 2020. The credit dwindles to 22% in 2021 and expires Dec. 31, 2021.

The federal tax benefit is nonrefundable, meaning you can’t get the savings in the form of a refund. Instead, you can reduce — and possibly eliminate — the amount you owe on your taxes.

Additional credits vary by location. Depending on your state, you may receive extra incentives like cash back, property tax exemption, waived fees and expedited permits. In some states, homeowners with solar panels can sell excess power to their local utility companies. Look up credits available in your state by reviewing the database of state incentives for renewables and efficiency.

Incentives may actually go away and it may not actually pay to wait for too long.”Vikram Aggarwal, CEO of EnergySage

But benefits aren’t guaranteed to last. “As solar is becoming cheaper, state and city governments and utilities continue to reduce the kind of incentives that are available,” Aggarwal says. “Incentives may actually go away and it may not actually pay to wait for too long.”

5. Keep an eye on trade policy

Changes in government trade policy also impact prices. In January 2018, President Trump imposed a four-year tariff on imported solar cells and panels that started at 30% and drops 5% each year until February 2022. So far, the tariff has resulted in a 16 cent per watt increase for the average consumer, which translates to an overall increase of $960 for a six-kW system, according to EnergySage.

The cost of foreign-manufactured panels may still drop, lessening the tariff’s effect over time. However, as the tariff decreases, so does the federal tax credit. If you’re leaning toward going solar, you might save more if you do so sooner rather than later.

6. Make the call

If you live in an area with high energy rates and a suitable solar rating and can afford the initial investment, it’s worth installing solar panels in your home while the 26% tax break is in place — for the good of the environment and your wallet. But don’t expect to eliminate your power bill overnight.

If you decide to purchase solar panels, shop around and search for incentives. Keep in mind that you don’t have to buy solar panels — you can lease them, too. That offers a lower upfront cost, although since you don’t own the panels, they won’t raise the value of your home, and you may not be eligible for incentives.

What is solar power and why should you consider it?

Solar power systems are also called solar photovoltaic (PV) systems. They work by collecting solar energy in solar panels which are normally roof-mounted, but can be mounted on the ground. The solar energy collected is converted into alternate current (AC) with an inverter. While solar panels will only work during the daytime, battery storage units are available that allow the excess power to be used at night.

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Solar power has been through three stages. Until about 2011, solar panels were expensive and the payback period was longer. After 2011, they started coming down in price and today, the price of solar panels has stabilised and is far more affordable than in the past.

Solar panels have also improved in efficiency and reliability. In the past, solar panels were expensive and most homeowners bought smaller systems up to 2kW. Today, a 5kW system is about the same price as a 2kW system was before 2011 and is a better system to have because it can account for most if not all of your energy requirements. To know more about what is solar energy read this.

How much does solar power cost?*

Today, the average cost of a 5kW system is around $6500, but it can be more expensive in some areas.  For example, in Darwin, a 5kW system costs around $11,000 while in Adelaide, it costs under $6000. In Sydney and Perth, solar power costs just over $5000 and in other states, it costs around $6000.

When you consider buying a 5kW solar system, you also need to think about the payback period. Average payback periods in different cities are around:

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  • 4.2 years in Adelaide
  • 4.7 years in Darwin
  • 4.8 years in Sydney and Perth
  • 5.4 years in Brisbane
  • 6.4 years in Canberra
  • 7.4 years in Melbourne
  • 8.2 years in Hobart

These figures take into account the cost of electricity in different areas and that is why Darwin, which has the highest costs has a low payback period. The average payback period in Australia is 5.8 years, but even at the highest payback period of 8.2 years in Hobart, solar panels are well worth investing in. It’s also worth noting that electricity prices rise steadily, so the payback period could even be shorter.

Estimates of households in Australia that already have solar power range from 1.5 million to 2.0 million. This number will probably increase in the future as the cost of electricity rises.

Many solar panels have warranty periods of up to 25 years, making them a wise investment considering their payback period of just 5.8 years on average.

How to get the right sized solar system

Solar panel systems are made up of several panels and the size of the system is based on the number of panels and the efficiency of the panels. Estimates vary because solar panels can be installed in areas where the sun rarely shines or in sunny areas. Solar panels can also be installed on roofs that have partial shade during the day, which decreases their efficiency. These are averages and your solar power installer can tell you how efficient your solar power will be in your area.

Solar power is measured in “self-consumption” which is an indication of how much energy you use during the day. These are some estimates of how much energy you will save for different energy consumption levels with a 5kW to 10kW system measured in kilowatt hours (KWh):

  • 5-10KWh will save 30 percent
  • 11-15KWh will save 48 percent
  • 21-25KWh will save 66 oercent
  • 31-40KWh will save up to 82 percent

It is possible to get a solar system that is too large for your household, but you don’t want to get a system that is too small for your household. Solar power retailers and installers can help you find the perfect system for your needs and a smaller system for a smaller household will cost less than a larger system.

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Why investing in a solar system battery is a good idea

The prices above are for solar panels only and a battery will cost more. A battery is a good investment because you are likely to be able to store energy in the battery during the day and have it to use at night. This will decrease your use of electricity from the grid and lower your electricity bills.

Solar batteries are a good choice, but you don’t want to buy a solar battery that is too small or too large for your solar panels. Sizing of batteries is based on average electricity usage and the size of the solar system you have. Batteries don’t just store enough energy to keep your house powered overnight. If you get the right sized battery it can give you “energy autonomy” for three to five days.

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Solar batteries cost between $2000 and $12,000, with the higher cost being batteries for large systems and a large battery can weigh up to 290kg while a smaller battery may weigh only 25 to 45kg. Even at the higher end of the scale, batteries have a payback period of three to five years and their warranties are far longer than their payback periods. Better batteries have a 10 year warranty and others may have a seven year warranty. Even at seven years, you still save money since the payback period is five years maximum.

It’s probably a good idea to buy lithium batteries because lithium batteries generally have 10 year warranties and are highly effective. They aren’t hard to find because about 80 percent of solar batteries on the market are lithium batteries.

Batteries with inverters and chargers can be more expensive than batteries only. A battery for an 8kW system may cost around $7700 while the same sized battery with an inverter/charger may cost around $11,800. These prices include the battery and installation costs. Most households don’t require an 8kW system, but this is an indication of the price differences. The key thing also to remember is to know how to keep solar panels clean to make them last. 

Choosing a solar panel supplier and installer

While state rebates have been phased out, government rebates are still available. “Rebates” take the form of Small Scale Technology Certificates (STCs) which vary in price depending on market conditions and other factors. In order to qualify for STCs, you must buy solar panels and batteries from a certified retailer who will offer a discount for the price of the STCs. This discount can be from $500 to $1000 depending on the system you buy and can represent a substantial savings.

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Finding a certified solar panel supplier is fairly easy because most solar panel suppliers are certified. However, they also sell different products and you want to find good solar panels and batteries with long warranty periods.

It’s always best to get quotes from three solar panel suppliers and compare their services and products. They will give you supply and installation costs as well as the discount for STCs. Compare the prices carefully and choose a high quality system at the right price. Some other things to look for are:

  • Solar installers must be licensed
  • They should be fully insured
  • They should give you itemised quotes
  • Their warranty periods should be stated
  • Their products must meet Australian Standards

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