How Much Money Does Solar Energy Really Save?

A roof with solar panels on it against a blue cloudy sky.

The national electricity consumption average in the U.S. is about 1 kW per hour, and the average cost per kW is around 10 cents. Since there’s about 744 hours in a month, the average monthly electricity cost for all that energy is about 74 dollars. That being said, electricity costs vary from state to state based on many factors. With an increase in utility bills of about 3% per year, you may be considering ways to save on your electricity bills. Solar energy may be your solution.

Solar Power Panel Solution

Over the last five years, the cost of solar panels has dropped significantly. There are also many financial incentives available for having them installed. In fact, between the price drop and the incentives there are some panels that are available at a cost below $10K with installation fees included.

Solar Panel Costs

The average cost of a solar panel installation is around $5 per watt and the average solar system is around 3kW. Based on these facts, home solar power systems can be installed for just over $15K

To determine all of the costs involved in installing solar panels, you will need to break down the price by the cost of the product and the cost of labor. For a $15K residential solar panel system, around 30% of the price tag is for the solar panels. Those costs can vary depending on the type of panel you purchase. The price of solar panels is typically determined on a cost-per-watt basis.

Solar Panel Installation Costs

A man on the roof of a house installing solar panels.

The labor involved in installing the system will account for about 20% of the overall costs. This includes all of the necessary permits and permission from your utility company to connect your system to their grid. There are extraneous items required over and above the solar panels as well, including electrical wiring components that enable the system to function. For example, inverters are used to convert the direct current from the solar panels to an alternating current, which powers the appliances in your home. The cost of the inverter is around 10% of the total installation cost. Finally, it's important to consider the operational and maintenance costs which will be around 20% of the total.

Based on a $15k solar power system installation, here is the breakdown of costs:

  • $4500 for solar panels
  • $3000 for electrical components
  • $1500 for inverter
  • $3000 for labor
  • $3000 for maintenance

Solar Financial Incentives

There are several financial incentives that can reduce the cost of installing a solar power system in your home. The federal solar tax credit provides a 30% rebate, which will reduce your total cost drastically. In addition, individual states offer other incentives for installing residential solar power systems. Be sure to check with your state and local governments to see what rebates might be available in your area.

Solar Power Savings

Someone looking at utility bills with a calculator.

In order to determine the amount of potential savings in using solar panels to power your home, you will need to determine how much power your panels will generate for you. For instance, a 3kW solar power system will generate about 450 kW of power per month. Keep in mind that the amount of power generated will be directly influenced by the average amount of sunlight you receive in your area. Given the average consumption of 730 kW per month, your home would use only 280 kW from a utility provider. At a rate of ten cents per kW, the monthly cost would be $28. That would mean a savings of $45 each month for the life of your solar power system. Based on those savings, the investment cost of your solar power system will be paid off in just over seven years. After that, the savings go straight into your pocket!