How Much Do Solar Panels Save?

Most homes require between 17 and 21 solar panels, and costs after credits can range from $16,870 to $23,170. But, for larger homes, the cost can be much higher as more panels are required. Yet despite the high up-front costs of installing solar panels on your home, many homeowners are seeking solar panel loans to help them finance an endeavor that will positively impact the environment. 

However, this begs the ultimate question: do solar panels really save you money? Thankfully, the answer is yes. It’s estimated that the average homeowner can save somewhere between $20,000 and $97,000 over the lifetime of their solar energy system. And that’s some pretty big savings.

Highlights & Key Takeaways 

• The amount of money you can save with solar panels depends on various factors, such as the system's size, the electricity cost in your area, and the amount of sunlight your panels receive.
• The average homeowner can save between $1,000 and $1,500 per year, depending on the abovementioned factors.
• Solar panels can provide a significant return on investment, with some homeowners seeing a payback in as little as eight to 15 years.
• Taking advantage of available incentives and tax credits, such as the federal solar tax credit, can significantly reduce the upfront cost of installing solar panels and increase overall savings.

Do Solar Panels Really Save You Money?

As the fastest-growing electricity source in the U.S., solar power is proving to be a promising investment for homeowners. The International Energy Agency forecasts that solar generation could soon surpass natural gas and coal. But what does this mean for homeowners who invest in solar panels? Consider that your home value increases by $20 for every $1 of annual savings you achieve through solar panels, as stated in a National Renewable Energy Laboratory study. If a home solar system saves you $1,500 per year, it could increase your home value by an impressive $30,000. With these numbers in mind, let's explore how much solar panels can save you in the long run.

How Does Solar Energy Save Money? 

A savings of $20,000 to $97,000 over 25 years or so translates into some pretty big savings. But just how does that savings occur? Here are some examples.

• Reduce or eliminate your electricity bills—Once you install a solar panel system, you will generate your electricity from the sun's energy, which can greatly reduce or even eliminate your monthly electricity bills. Most homeowners realize savings of $50 to $150 per month.
• Receive tax incentives—Many countries and states offer tax incentives to homeowners who install solar panel systems, which can significantly lower the upfront costs of installation.
• Increase your home value—As we mentioned, a study by the National Renewable Energy Laboratory found that each $1 of annual savings achieved by solar panels increases your home value by $20. This means that investing in solar panels can increase the value of your home and potentially lead to a higher resale value.
• Reduce maintenance costs—Solar panels require minimal maintenance and long lifespans, so you'll save money on repairs and replacements.
• Hedge against rising electricity costs—By generating your electricity, you'll be less affected by rising electricity prices and enjoy a more stable and predictable energy bill.

How Long Does it Take Solar Panels to Pay for Themselves?

The time it takes for solar panels to pay for themselves can depend on several factors. 

• Cost of electricity in your area
• The size of your solar panel system
• The amount of sunlight your location receives 
• Your energy consumption patterns
• The quality and type of solar panels you select 
• Solar incentives and tax credits available in your state
• The time of day and season when you consume electricity

But despite these variables, solar panels will typically pay for themselves in about eight to 15 years. However, some homeowners may experience a quicker payback period, sometimes as soon as five to 10 years. After the payback period, the energy produced by solar panels becomes essentially free, resulting in reduced or eliminated energy bills. Additionally, solar panels have a lifespan of 25 to 30 years, meaning you can enjoy decades of energy savings beyond the payback period.

How Much Do Solar Panels Save the Average Homeowner?

Switching to solar power can reduce energy bills and save money in the long run. According to Forbes, the average homeowner in the U.S. can save between $10,000 and $30,000 over a 20-year period by installing solar panels. However, the amount of savings can vary depending on various factors we shared above, such as the size of the solar panel system, the cost of electricity in your area, and the amount of sunlight your location receives.

Average Solar Panel Savings Per Month

The average savings per month from solar panels can vary depending on various factors. Those factors include

• The size of the solar panel system
• The amount of electricity you use
• The cost of electricity in your area. 

However, the average monthly savings from solar panels in the U.S. is currently around $100 to $150. 

The amount you save, however, can be more or less depending on your specific circumstances. For example, if you live in a state with high electricity rates, have a larger solar panel system, or use more electricity, you may see even greater monthly savings. 

• Hawaii has the highest household electricity prices among U.S. states — The average retail price of electricity for Hawaiian residences was approximately 45 U.S. cents per kilowatt-hour. 
• New Hampshire comes in second place with an average price of 30.4 U.S. cents per kilowatt-hour. 
• Utah and Washington had the lowest prices during that period, with an average of around 11 U.S. cents per kilowatt-hour.

Your monthly savings may be more modest for homeowners with smaller solar panel systems or who use less electricity. 

Average Annual Solar Panel Savings

U.S. homeowners who switch to solar power can save an average of $1,000 to $1,500 per year on their electricity bills. However, these savings can be much higher in states with high electricity rates and strong solar incentives. If you live in states like California, New York, and Massachusetts, you’ll likely have better access to strong solar incentives, including generous tax credits and rebates. On the other hand, states like Alaska and Wyoming have little to no solar incentives.

And though $1,000 to $1,500 per year is the typical annual solar panel savings, homeowners can save as much as $5,000 or more per year with a solar panel system in some extreme cases. 

Average Long-Term Savings for Solar Panels

The long-term savings of a solar panel system can add up significantly over time. According to EnergySage, the average homeowner can save an estimated $20,000 to $97,000 over the lifetime of their solar panel system, which typically lasts between 25 to 30 years. This estimation takes into account factors such as energy usage, electricity rates, and the cost of the solar panel system itself. And as you know by now, investing in solar energy can help you benefit from reduced or eliminated energy bills, increased home values, and a reduced carbon footprint.

Average Return on Investment (ROI) for Solar Panels

ROI, or return on investment, for solar panels is calculated by dividing the total savings over the solar panel system's life by the system's initial cost. 

Here's the formula:

ROI = (Total savings over solar panel system's life) / (Initial cost of solar panel system)

To calculate the total savings over the life of the solar panel system, you'll need to estimate the amount of energy the system will generate each year, the cost of electricity in your area, and any incentives or tax credits you may receive. Then, considering inflation and other factors, you can calculate the present value of these savings over the system's life.

It's important to note that ROI can vary widely based on the specific factors mentioned above, and it's important to consider the long-term benefits of solar panels beyond just financial savings, such as increased home value and reduced carbon emissions.

Average Solar Panel Savings by State

The amount you can save because of your solar panels can vary widely from state to state. Check out this chart from EnergySage that provides example savings for ten states. While states like Washington may only see a 25-year savings of just over $19,000, other states, especially California and Massachusetts, can see savings anywhere from $76,000 to almost $97.000. That’s a pretty impressive payback over 25 years.

Factors Affect How Much Homeowners Can Save with Solar Panels

Deciding to invest in solar panels isn’t a decision to take lightly. Though there are many benefits, including the obvious positive impact on the environment and lowered demand on the U.S. power grid, various factors can impact the amount of savings homeowners can expect. 

While solar energy is an increasingly popular choice for homeowners looking to reduce their energy costs and carbon footprint, the amount of money saved can vary based on various factors. 

Initial Cost of Solar Panels and Installation

Most homes require 17 to 21 solar panels to cover 100% of their energy usage. And the associated costs for that number of panels will typically vary between $16,870 and $23,170 after incentives are applied. However, it's important to remember that these figures are merely averages, and your actual costs may be higher or lower depending on factors such as the size of your home and its location. 

The cost of a solar panel installation can also vary significantly based on where you live. For instance, according to Angi.com, the cost of solar panels in Nashville, TN, could be as high as $80,000, while in Phoenix, AZ, they can be obtained for around $28,000. In general, the cost of a solar panel installation is typically broken down into three categories: materials, which account for 50% of the cost; labor and permits, which make up 25%; and maintenance and overhead expenses, which comprise 25%.

Tax Breaks and Incentives

Residential solar power systems can save homeowners money. But these savings aren’t just tied to the monthly electricity bill drop of $50 to $150. Several rebates and tax credits help encourage homeowners to take the plunge and begin producing renewable energy. Federal, state, and local benefits may earn you money back for installing a qualifying system.

Here are a few examples of how tax credits can save you money, based on where you live.

• In California, homeowners can receive a tax credit of up to 30% of the total cost of their solar panel system through the federal solar investment tax credit (ITC).
• Arizona offers a state tax credit of up to $1,000 for homeowners who install a solar panel system.
• In Colorado, homeowners can receive a rebate of up to $1.75 per watt of installed solar capacity, up to a maximum of $9,000.
• Hawaii offers a tax credit of 35% of the total cost of the solar panel system, up to a maximum of $5,000 per system.
• In Massachusetts, homeowners can receive a state tax credit of up to $1,000 for installing a solar panel system on top of the federal ITC.
• New Jersey offers a state tax credit of up to $1,000 for homeowners who install a solar panel system, in addition to the federal ITC.

Type, Number, and Efficiency of Solar Panels

There are five primary classifications of solar panels available on the market today. The type of solar panel you select can impact the number of panels you might need, but in most cases, you’ll need somewhere between 17 and 21 to provide 100% of the electricity needed to power your home.

• Monocrystalline solar panels—These panels are constructed out of a single crystal of silicon and are the most efficient type of solar panels but also the most expensive. These panels have a sleek, black appearance.
• Polycrystalline solar panels—These panels are made from multiple silicon crystals and have a distinctive blue color. However, while they are more affordable than monocrystalline panels, they are also less efficient.
• Thin-film solar panels—These are made from a thin layer of photovoltaic material deposited on a substrate such as glass, metal, or plastic. They are the least efficient but most flexible and lightweight, making them suitable for certain applications like building-integrated photovoltaics. This refers to incorporating solar panels directly into building materials, such as roofing, windows, or facades, which helps generate electricity while serving as functional building components.
• Bifacial solar panels—These panels can produce electricity from both sides, making them more efficient than standard solar panels. However, they are also more expensive.
• Concentrated solar panels—These panels use lenses or mirrors to focus sunlight onto a small area of solar cells, which can significantly increase their efficiency. However, they require complex tracking systems and are more expensive than standard solar panels.

Climate and Average Sun Exposure

The efficiency of your solar panels is impacted by the amount of sunlight available, the climate of where you live, and even the time of year. More daylight hours and sunny weather can lead to higher power production, whereas lower sunlight hours and overcast conditions can reduce efficiency. While the temperature doesn't directly impact, latitude and local climate can affect the amount of sunlight received, thus impacting solar panel output.

Household Energy Usage

The amount of energy your household consumes plays a significant role in the efficiency of your solar panels. If you use more energy than your solar panels can produce, you'll still need to rely on grid electricity. This means you won't be able to take full advantage of the potential energy savings from your solar panels. On the other hand, if your household energy usage is lower than the amount of energy produced by your solar panels, you may be able to sell the excess energy back to the grid, earning credits on your electricity bill. 

According to an article by Ohio State University, homes with energy-efficient appliances and low electricity consumption are likelier to see the greatest return on investment from their solar panel systems.

Local Power Costs

The cost of electricity in your area can impact the efficiency of your solar panels. If your local power costs are high, your solar panels can significantly save your electricity bill. According to the Bureau of Labor Statistics, the average cost of electricity varies by region, with some areas having significantly higher prices than others. 

For example, In Ohio, the average cost of electricity in the Columbus area was 11.04 cents per kilowatt-hour in 2021, while in the Cleveland area, it was 12.28 cents per kilowatt-hour. If you live in an area with high energy costs, investing in solar panels can make even more financial sense.

Net Metering Policies

Net metering policies can significantly impact the efficiency of solar panels. Net metering allows homeowners to sell any excess energy their solar panels produce back to the grid for credits, which can offset the cost of electricity they draw from the grid when their panels are not producing enough power. 

So, net metering policies are crucial for providing you an incentive to install solar panels, as they make it more financially feasible. Without net metering, you may not be able to fully benefit from solar panels, which could decrease their efficiency and overall savings. Net metering policies can vary by state, so it's important to research the specific policies in your area before installing solar panels.

Solar Panel Financing and Loans

Most homeowners don’t have the cash to help cover the typical $16,870 and $23,170 in upfront expenses. But this doesn’t mean you can’t invest in solar energy if it is truly important. There are a variety of financing options available to you, including:

• Solar panel loans
• Solar panel leasing
• Contractor financing
• Power purchase agreements (PPAs)
• Solar panel rental

Solar panel loans are often the most popular choice as they can help homeowners spread out the cost of a solar energy system over several years, making it more affordable. By choosing a solar panel loan with favorable terms and interest rates, homeowners can save money in the long run and positively impact the environment. Some of the best solar panel loans available on the market include those from LightStream, SoFi, and Credible. These loans offer competitive rates, flexible repayment terms, and high loan amounts, making them an attractive option to finance your solar panel installation.

How to Estimate Your Solar Panel Cost Savings

Various solar power calculators are available to help you estimate how much you can save with solar panels installed in your home. This solar calculator from MarketWatch can help you get a pretty good picture of what to expect. To get an estimate, be prepared to enter the following details:

• Your zip code
• The type of material used for your roof
• How steep your roof is (flat, medium, or steep)
• How much shade your home gets
• Square footage of your home
• Number of floors your home has
• The average amount of your monthly electrical bill
• Whether or not you wish to purchase a battery 

The calculator then returns you insightful details such as estimated installation cost, your payback period, your estimated savings after 25 years, and the anticipated change in your annual electrical bill. 

Suppose you want to estimate your solar panel cost savings the old-fashioned way. In that case, you can use this equation:

Annual Savings = (Electricity Consumption x Utility Rate per kWh) - (Solar System Size x 1,000 x Solar Panel Cost per Watt x Capacity Factor)

• Electricity consumption - the amount of electricity your household uses annually in kilowatt-hours (kWh).
• Utility rate per kWh - the cost of electricity per kilowatt-hour charged by your utility company.
• Solar system size - the size of your solar panel system in kilowatts (kW).
• Solar panel cost per watt - the cost of installing solar panels per watt.
• Capacity factor - the efficiency of the solar panel system, which is affected by factors such as weather conditions and the angle of the panels.

Final Word

Though the amount you can save on your solar panels will vary based on the many factors we shared above, most homeowners can anticipate saving somewhere between $50 and $150 per month. And while that doesn’t seem like much, consider that the average homeowner can save somewhere between $20,000 and $97,000 over the lifetime of their solar energy system. And that’s a pretty impressive number, especially when you are also helping to reduce our carbon footprint.