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How Does Solar Energy Pay for Itself?

Updated: Jan 31

When considering solar power for your home or business, you might come across the statement that solar energy will eventually pay for itself. It might sound too good to be true, but, in many cases, this is exactly what happens. The monthly cost savings of switching to solar can amount to how much you pay for your system over time. Consumers who purchase sustainable solar energy can make back 100 percent of their investments and more in the long term – especially when you factor in tax incentives and energy credits that lower the initial cost. Here’s how it works.

The Price of Solar Panel Installation

Calculating how long it will take your solar panels to pay for themselves starts with understanding how much the investment will cost. There is no set answer to this question across the board. Each system is unique and will cost a different amount depending on the needs of the home or business. You will need to request a quote from a professional company to find out exactly how much your system could cost and how much you will save each month. Here’s an example of what the final price of an average-sized system could look like:

  • An average five-kilowatt solar system in Houston can cost up to $14,000.

  • Until 2019, the federal government offers a 30 percent investment tax credit. This takes $4,200 off the price, for a total of $9,800.

  • The Houston area also provides the SolarSPARC program, which could provide an additional $3,000 rebate. Now the total price is $6,800.


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Homeowners who choose smaller solar companies can also save up to $5,000 in installation costs. Even without these added savings, you’re looking at spending less than half the original price of the system. Your initial investment will cover the purchase of your solar panels and installation. Keep in mind that you must purchase, not lease, your solar system to receive tax credits. Leasing your system will not qualify you for most incentives.

Calculating How Much a Solar System Can Save Every Month

The next step in learning when your system will pay for itself is to calculate the average monthly savings you’ll enjoy with your new solar energy. The actual production of photovoltaic (PV) energy is free. This is the main financial benefit of switching to solar. While owners must pay to purchase and install the system, they will not have to pay for the electricity the system produces. The monthly utility bill savings will depend on the system purchased.

Here’s an idea of what you could save by integrating solar. Say a solar system produces 13,000 kilowatt-hours of energy per year. This provides an incredible savings of $150 to $200 per month on electric bills. This is a drastic reduction and could even eliminate your reliance on the main power grid completely, depending on your energy usage and the market. Calculating your potential monthly utility bill savings can show you exactly how much a solar system is worth over time.

Google has a handy tool called Project Sunroof, that can help you calculate your solar savings potential. It uses Google Earth imagery of your home or business to map out how much solar energy you would need, what it costs, and what you could save. Keep in mind, however, that Google’s “personalized solar plan” is not based on an in-person review of your property or an estimate from the installation company. To get a true estimate of what you could save, talk to a professional solar company.

When Would Your System Pay for Itself?

You’ve subtracted government incentives from the initial price of your solar power purchase. Then, you’ve calculated your potential monthly energy savings based on the system you will have. Now it’s time to put the equation together and figure out how many years it will most likely take for your system to pay for itself. In the example above, the owner paid $6,800 for a five-kilowatt system after government incentives.

The average homeowner spends about $111.08 per month on electric bills, according to the U.S. Energy Information Administration. With a five-kilowatt system, the homeowner can likely cut his or her energy bills in half. That’s an average savings of $55.54 per month, or about $667 per year. At this rate, it will take about 10 years before the energy saving pay for the entire solar system. With an average system lifespan of 30 years or longer, that gives the owner about 20 years of savings after paying off the system.

Note that this is a modest estimate. Most homeowners will save even more per month with higher kilowatt systems and credits from their utility companies. Many people manage to reduce utility bills further and even enjoy some months for free using the excess solar power their panels produce. The perfect mix of incentives, electricity costs, and savings can result in an ideal four-year payback. However, the national average is 12 years. Still, with such a long lifespan, any solar investment is a good investment. Talk to someone today about how much a system could save you.

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