Home Solar Power: Cost v. Savings

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Installing solar panels, or photovoltaic cells, is a great way to reduce harmful pollution and lower your electricity bills, if you have the money to spend upfront.

For the average family of four, living in a single family home, that means an investment of around $30,000.

Like any investment, there are returns that can be gained over time. In this case they include tax rebates in addition to future savings on utility bills.

But before you find an installer and start making plans for the money you’ll save by going solar, you may want to consider how long it will take for this investment to pay off.

Tax Incentives Are a Start
To support the use of solar and other renewable sources of power, the IRS offers an energy tax credit in 2009 for 30% of the cost of qualified alternative energy equipment.  And depending on where you live, you may be able to get state income tax credits, a sales tax exemption on your purchase and a property tax exemption.

Take New York state, for example. Assuming a $32,000 initial cost, a 30% federal rebate, a maximum state rebate of $5,000 and a $12,000 rebate through the New York State Energy Research and Development Authority, the overall cost is just $5,400, notes Scott Rakowski, New York State regional manager at Alteris Renewable.

To find out what kind of incentives your state offers for installing solar cells in your home, visit the Database of State Incentives for Renewables & Efficiency at DSIREUSA.org.

Recouping Upfront Costs: By the Numbers
If you think $30,000, or even $5,400, is a high price to pay, consider that the use of solar cells now costs less than 1% of what it did in the 1970s, according to the Energy Efficiency and Renewable Energy division of the U.S. Department of Energy.

Still, it could take more than six years for you to recoup the cost of the average home system, according to Broadpoint.AmTech, a technology research firm.

In its calculations, the firm assumes an average cost of $28,000 to equip a home with solar panels and an estimated tax rebate of $10,000. The firm also assumes you’re paying 17 cents per kilowatt hour for conventional electricity, which you’ll still need to pay for from time to time. At these numbers, if you receive six full hours of sunshine a day, it would take about six and a half years for your investment to pay off, the firm estimates. If you change the price of electricity to 11 cents per kilowatt hour, the average according to the federal government’s Energy Information Administration, it’ll take almost 10 years based on Broadpoint’s equation.

Of course, that's just the start: If you do have that kind of cash on hand, using solar panels could actually make potential future electricity price increases less of a concern.


Electricity Savings Can Vary
How much you actually save in electricity also depends on your location, how energy efficient your home is and what other changes you make to improve your home's energy efficiency.

Solar power works best in an energy efficient building, the Department of Energy says, so adding insulation, energy efficient lighting, appliances and windows goes far to reduce your home’s electricity use before you install your system.

Net Measuring a Local Benefit
Some utility companies use a measurement system called net metering, which could add to your savings.

With net metering, when your photovoltaic system generates more power than you need, the excess energy you create goes back to the grid and makes your meter run backward, in effect paying you for the energy you contribute.

For example, in Hawaii and New York, where retail electric rates are high, this could be especially beneficial, the Department of Energy says.  And utility companies also benefit.  The solar energy you’d provide would likely come during periods of peak demand for electricity, during the day.


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A Guide to Energy Tax Credits

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5 Cheap Ways to Go Green

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