All The Ways Installing Solar Can Save You Money
From tax exemptions to lower energy bills, solar installation could bring big benefits to your wallet and the environment.
Rising energy costs and climate change are good reasons for homeowners to switch to solar energy. But some may be wondering if it’s worth the trouble and upfront costs. However, between tax credits to renewable energy certificates, there are plenty of financial incentives to make the change as well. And even though installation may seem costly, the long-term savings on energy consumption may justify the upfront costs.
When running the numbers, major factors would include your location, the cost of installation, current energy consumption, local energy costs on the public power grid, and rebates or incentives available in your city or state. Below, find out more on how solar panels work, how much they cost, and the potential ways you could benefit from making the switch.
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How Do Solar Panels Work?
Photovoltaic (PV) panels, better known as “solar panels,” work by absorbing energy from sunlight and converting it into electricity, which can be used immediately or stored in batteries for later use. The direct current electricity generated from solar panels flows through an inverter to generate alternating current electricity, which can power your home appliances. Extra energy that isn't used by you will go to the electric grid, or an electric battery bank, if you have one.
How Much Does it Cost to Install Solar Panels?
The cost of installing solar panels depends on how many panels you need, the efficiency of the panels, how much sun your home gets, how much energy your family uses, local energy rates, and the solar service provider you choose. According to Forbes, the average cost of solar panels for homes is $16,000, but the costs range from $3,500 to $35,000, depending on the type and model.
To get an estimate for your home, you can use the online marketplace Energysage to find competitive solar rates in your area. To get your final cost, an installation company will measure your roof and recommend panels based on the size of your roof and your usage needs. You’ll also need to make sure your roof is in good condition before installing the panels, because fixing it later will be more difficult. So, it’s best to time solar panel installation to align with the completion of roof repairs or replacement.
Can You Get Free Solar Panels From the Government?
If you've been considering solar, you may have heard some rumor about the government offering free solar panels. Unfortunately, that information was lost in translation. The government does not offer free solar panels, but certain solar providers or installers may offer solar panels with no installation costs. In many of these cases, however, you are not actually the owner of the panels. Instead, you will be leasing them from the company. This does not entitle you to any tax credits or state incentives, and, although you won't owe any money upfront for the installation, you will still have to pay for the electricity you use. Additionally, any extra energy produced by the panels belongs to the company and does not benefit your household.
However, while free solar is still too good to be true, there are are certain government and state incentives to installing solar at your home.
Incentives and Tax Credits
The most valuable government incentive is the solar Investment Tax Credit (ITC), which has been extended by The Inflation Reduction Act (IRA) at 30 percent for another 10 years. Rooftop solar system owners can get the credit by filing IRS Form 5695 with their taxes to deduct 30 percent of the value of the solar system from their federal taxes. It is a one-time credit that can be rolled over into the next year if it cannot be claimed the same year.
Incentives also vary by state. California, Texas, and Massachusetts tend to be more solar friendly, while states like Alaska and North Dakota offer fewer incentives. You can visit the Database of State Incentives for Renewables & Efficiency to find out more about the incentives, loans, and tax credits available in your state.
If you install solar at your home, you can also benefit from solar renewable energy certificates (SRECs), assuming you live in a state with an SREC market. As a homeowner, you can earn one SREC for every megawatt hour of electricity your solar panel system generates. You can then sell these SRECs back to the SREC market to bring in some extra income.
For non-homeowners and homeowners alike, some states like Hawaii and New York now offer community solar, which allows people to share in a solar project or solar farm. Energy is fed into the grid and the energy company distributes it to customers. It’s the ideal solution for renters, short-term owners, and lower income families that want to enjoy clean energy without the upfront cost of installing solar panels.
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Solar Panel Savings
How much you save by installing solar depends on the amount of time it will take to pay off your solar panel installment costs. This timeframe is typically called the “payback period.” Calculation is based on the initial costs minus any tax credits or incentives divided by your average energy cost per year. If you are not getting 100 percent of your home’s energy from solar, you will also have to factor in yearly rate increases for the public utility. For example, an initial investment of $15,000 divided by a yearly usage of $1,500 will result in a 10-year payback period. Since solar panels typically last around 20 to 25 years, that is not a bad return on your investment if you plan to live in the home for 30 years. If you planned to move out to a new home in 5 years, then solar panels probably aren’t right for you. You can use online calculators, like energysage or ecowatch to estimate the costs and the payback period.
Given their long lifespan, low amount of maintenance and repair needed, environmental benefits, and the long-term savings on your energy bills, solar panels can be well-worth their upfront costs. New technologies and more government incentives will also enable solar energy to become more affordable, more accessible, and more efficient in the future.
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