Are solar panels worth it? The cost and environmental benefits of going solar

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Rising energy costs may have you thinking of going solar, but are solar panels worth it? Home solar panels can save you hundreds of dollars annually on your electric bill. And with new federal tax rebates that allow you to save 30% on the cost of a solar panel system, it seems there’s no better time to take advantage of solar.

Still, solar panels cost thousands of dollars, and their savings depend on the weather, which seems more unpredictable than ever. Given these pros and cons, it’s crucial to consider all aspects of solar when choosing whether to take the plunge and invest in a new system or pass on it.

What is solar power?

Solar energy converts sunlight into electricity through photovoltaic (PV) panels mounted on your home’s roof. The electricity flows through a conductive wire to a device called an inverter. The inverter turns the direct current (DC) electricity the solar panels produce into usable electricity, known as alternating current (AC).

Since solar energy doesn’t burn fossil fuels, it creates no greenhouse gasses, making it an environmentally friendly way to generate power. This energy can be used immediately to power lights, refrigerators, air conditioners, televisions and other devices powered by electricity, stored in a battery for later use or sold back to your local power company’s grid for use by other homes.

One environmental downside of solar panels is their end-of-life cycle. PV panels typically last around 30 years, but may contain heavy metals or other hazardous chemicals. They may require special handling and disposal when you are ready to replace them. It cost $20 to $30 to recycle PV panels in 2020.

How much do solar panels cost?

The cost of solar panels depends on several factors, including the system’s size, the installation’s complexity, your solar installer and your geographic location. According to the Center for Sustainable Energy, you can expect to pay $2 to $3 per watt for a residential solar system.

Most residential solar systems are sized between 4 and 10 kilowatts (kW), with the average size of a solar system in the United States being 5 kW (there are 1,000 watts in a kilowatt). Using the $2 to $3 cost per watt, the cost of a solar system is between $8,000 and $30,000. There may also be additional costs associated with solar batteries that store energy during low-sunlight periods, and routine maintenance costs.

For reference, the average annual electricity consumption for a U.S. residential utility customer was 10,632 kWh in 2021. So that average customer would need a large solar panel system to meet their needs.

When reviewing prices, homeowners should keep in mind that not all solar providers are the same, said Josh Kossman, senior director of sales at SunPower, a solar energy equipment provider in Richmond, California. He suggests getting multiple bids and vetting each service when shopping around for a solar panel provider.

“Look at how many years they’ve been in business and how many systems they installed,” said Kossman. “You absolutely want to look online for reviews and testimonials to find out what the overall customer experience is.”

Federal government incentives for solar

These prices don’t include government tax credits, which can significantly lower costs. Thanks to the Inflation Reduction Act, which came into effect at the start of 2023, you can get back 30% on the price of solar panels and their installation through 2032 (the credit will be available until 2035 but at a reduced rate).

The federal solar tax credit, sometimes called the Investment Tax Credit or ITC, is available whether you purchase the system upfront, finance it via a solar loan or pay for it through a home equity loan. While it is not a cash-back rebate, the credit can be claimed as an offset on your federal income taxes for up to five years or until you’ve recouped 30% of your solar investment.

Average residential solar system cost after ITC

To calculate the average cost of solar panels after the federal tax credit:

Multiply your system cost, including solar batteries and installation fees, by 30%. Then, subtract that amount from your initial system cost. For example, if your system costs $15,000, subtract $4,500. Your total cost after the incentive is $10,500.

State and local government solar incentives

Along with federal tax credits, many states offer additional incentives for installing solar systems. For example, California offers residents rebates of up to $1,000 per kilowatt hour for adding battery storage to their solar systems through its Self-Generation Incentive Program (SGIP). Your solar installer can help you apply for the rebate. After you’re approved, you’ll get the first 50% of the rebate. The remaining 50% will be paid over five years in annual payments, based on system performance.

Many states also have a property tax exemption that allows homeowners to exclude their solar system from the valuation of their homes. The savings can be significant, considering that the ROI on a solar system can be as high as 20%, depending on where you live.

Also, some states exempt solar systems from state sales tax, which can amount to hundreds or even thousands of dollars depending on the cost of your system and your state’s sales tax rate. You can find a complete list of state tax exemptions and incentives at DSIRE.

Net metering

When your solar system generates more power than you use, it will push power back to the public grid so other homes can use it. Through a billing arrangement called net metering, many utility companies will give you credit on your electric bill for this surplus electricity.

While this is a nice perk, Rich Stromberg, vice chairman of the Photovoltaics Technical Division at the American Solar Energy Society, said you shouldn’t expect a massive return. “They’ll pay you back at the wholesale rate, which is the rate at which a utility can buy power from a power plant,” he said. While net metering rates vary from state to state, Stromberg said you can typically expect to get back about 3 to 5 cents per kilowatt, a fraction of what your electric company charges you for electricity.

It’s also important to note that not all states offer net metering, and there’s no guarantee that those who do will continue to do so. Florida recently considered legislation to end net metering altogether, and California just slashed its rates on net metering.

Given these low net metering rates and the volatility of net metering, Stromberg said it doesn’t make sense for homeowners to spend money on a system that produces significantly more than they use. “If you’re making more than 5% over what you use, you’re probably losing money on the whole deal,” he said.

Potential savings benefits of solar panels

The average residential electricity rate in the United States as of July 2023 is about 17 cents per kilowatt-hour (kWh), though this varies significantly depending on where in the country you live. If your annual household electricity consumption is 7,500 kWh, you would pay around $1,275 to your local utility company for the year.

The average 5 kW system can generate around 7,500 kWh of electricity each year, saving you $1,275 a year, depending on where you live. Since solar systems have a lifespan of 25 to 30 years, you’ll save between $31,875 and $38,250 in utility bills over the life of the solar system.

Let’s say you install a 5 kW system for $13,000. With the 30% federal tax credit on the price and installation cost of the system, you’ll end up paying $9,100. If you subtract your initial $9,100 investment on the system, you could save between $22,775 and $29,150 over traditional electricity during that 25 to 30 year span.

Keep in mind this doesn’t include any electricity you may sell back to the electric company through net metering or the cost of any maintenance the system may require.

Is my home right for solar?

When determining whether solar is worth it, you’ll want to consider your energy use, the condition of your roof and the amount of sun exposure it receives.

Review your electric bill

Begin by reviewing your electric bill to determine what size solar panels you need and how much money you can expect to save by installing solar panels, said Kossman. The average 5 kW system can generate around 7,500 7,500 kilowatt-hours (kWh) of electricity annually. By multiplying that number by your utility rate, you can estimate how much you can expect to save. Homes with high energy consumption or rates, such as those in the Northeast and West Coast, stand to save the most.

Check the sun exposure and shading

Fortunately, even cold weather climates are suitable for solar energy because the system runs on exposure to sunlight, not heat. PV panels produce power throughout all four seasons, though power production is generally lower during the winter due to shorter days. The best solar panels are built to withstand severe weather, including hurricanes, hail and snow storms.

When determining whether your home is right for solar, you’ll want to look at the direction your roof faces and the amount of shade it receives from the surrounding trees, said Stromberg. A home that’s a good candidate for solar has a due-south-facing roof to ensure the panels receive an average of four hours of direct sunlight daily.

Stromberg says too much shading can be a deal-breaker for solar. “You may have a lot of trees around your house that you probably don’t want to cut down for a variety of reasons, including aesthetics, natural cooling and wildlife,” said Stromberg.

You can get an accurate estimate of how much energy you can expect to generate each month based on the sun exposure for your home’s geographic location and the system’s size by entering your address on the PVWatts Calculator on the National Renewable Energy Laboratory website.

Assess your roof

Making sure your roof is large enough and strong enough to support the number of solar cells you need isn’t the only thing you want to think about, said Stromberg.  If your home is going to need a new roof in a few years, it’s probably best to hold off on solar. To maximize your return on this investment by getting 25 to 30 years out of your solar panels, you’ll need to get at least that much time out of your roof.

“I’ve seen some systems that people have maybe had for 10 or 15 years and then their roof has to get replaced,” says Stromberg. “They end up having to pay thousands in labor for an installer to come out to remove the system and put it back on after the roof is replaced.”

Bottom line

Investing in solar makes sense if you have high energy rates and live in a home with minimal shading that receives an average of at least four hours of direct sunlight daily. Just keep in mind that even with recouping 30% of the system’s total cost through federal tax rebates, you’ll still need to make a significant investment upfront, either in cash or through financing, which comes with the expense of interest.

Also, consider that it can take six to nine years to recoup that money in energy savings, so investing in a solar system may not make sense if you plan to move in a few years. That said, if your home gets the right sun exposure, your roof is in good condition, and you plan to stay in your home for a while, you may reap thousands of dollars in savings by installing solar panels.

Frequently asked questions (FAQs)

Note: The prices above reflect the retailers' listed price at the time of publication.

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