How Do Solar Panels Work with Your Electric Bill

Solar panels generate electricity from the sun, but not all of it is used as it is generated. To use all the electricity generated by solar panels, they are typically tied to the electric grid. When solar panels produce more electricity than the home or business needs, the excess is sent back to the electric grid. This process is called net metering, a way for solar panel owners to receive credits on their electricity bills. In this article, we’ll explain all you need to know to answer how do solar panels work with your electric bill.

Highlights & Key Takeaways

• Solar panels capture sunlight and convert it into usable electricity, which can be used to power your home and appliances.
• Any excess electricity generated by your solar panels can be fed back into the grid, resulting in credits that can offset your future electricity bills by approximately $50 to $150 per month.
• The size of your solar panel system, your energy usage, and your local electricity rates are all factors that can affect your solar savings.
• Financing options can make it easier to switch to solar power by reducing upfront costs, but it's essential to research and compare the terms and conditions of different financing options.

How Are Solar Panels Tied to the Electric Grid?

A small but growing percentage of U.S. homes and commercial businesses are adding solar panels to generate electricity. In 2020, about 3.7% of single-family homes had small-scale solar arrays, while only 1.6% of commercial buildings used solar power in 2018. However, the adoption of residential solar continues to increase, with the West leading at 8.9%, the Northeast at 4.7%, the South at 1.7%, and the Midwest at 1.4%. And commercial solar adoption was most common in the West, with 3.8% of buildings using local solar, followed by the Northeast at 2.5%, the Midwest at 0.8%, and the South at 0.6%. Yet one of the reasons that solar adoption might not be as fast as anticipated is that there can be confusion about how do solar panels work with your electrical bill. 

When the solar panels are not producing enough electricity, the home or business draws power from the grid. This allows solar panel owners to have a constant electricity supply, regardless of the weather or time of day. As more homes and businesses install solar panels, the electricity generated by the grid will decrease, resulting in lower demand for electricity from traditional power plants.

Do You Still Pay Electricity Bills After Installing Solar Panels?

As a baseline, consider that though what Americans pay for electricity can vary widely based on many factors, the average monthly electrical bill in the U.S. is $117. Hawaii, Connecticut, and Alabama tend to have the highest electrical bills, and states such as Utah, New Mexico, and Colorado tend to have the lowest. And though solar panels can save you money on your electrical bill, you’ll still get one for the following reasons:

• Solar panels need the sun to generate electricity - on cloudy days and nights, you’ll likely get your power from the grid.
• Vast majority of residential solar panel systems are designed to be grid-tied - this means that solar panel owners can still draw electricity from the utility grid when their solar panels are not producing enough energy. Although grid-tied solar systems can reduce a homeowner's reliance on the grid, they are still billed by the utility for service charges in addition to the cost of the electricity they use.
• Solar energy systems tend to generate more electricity than needed - solar battery storage can be installed to save that excess energy for later use when the sun goes down. However, staying connected to the grid is typically more cost-effective, as relying solely on battery storage can be expensive. 
• Homeowners can get credit for their excess solar generation -  through a net metering program. The program's specifics will vary depending on the utility company and net metering terms. But generally speaking, credits earned from excess solar generation can be used to offset future electricity bills. We’ll explore this in further detail below.

What Is Net Metering and How Does It Affect My Electric Bill?

Net metering is a utility billing program that allows solar panel homeowners to receive credit for any excess electricity they generate and send back to the grid. This means that when a solar panel system generates more energy than a home needs, the excess electricity is sent back to the grid, and the homeowner receives credits on their electricity bill for the electricity sent back. 

These credits can be used to offset the cost of your electricity drawn from the grid when your solar panels aren't generating enough electricity, such as at night or on cloudy days. So, consider net metering as a way to reduce your electricity bill, allowing you to use the credits earned from excess solar generation to offset the cost of any electricity you pull from the grid.

Will Having Solar Power Ever Eliminate My Electric Bill?

Even though many homeowners elect to get solar panels to save money on their electricity bills and do good for the environment, it doesn’t mean their electrical bills will go away entirely. Your home will still be connected to the power grid, so you’ll still get that bill in your email every month (or via snail mail if you’re still going old school).  

With most utility companies, there will be a fixed charge on your statement that you’ll pay every month, regardless of the electricity you use. However, excess electricity you send into the grid can earn you hefty tax credits. And that’s good news for those wanting to save money on their solar panel purchase.

Why Do You Still Get an Electric Bill After Installing Solar Panels?

Though solar panels will save you money on your electrical bill, you will still receive a bill for the following reasons:

• You may still use electricity from the grid at night or when your solar panels aren't generating enough electricity
• Your utility company may still charge you for the fixed costs of maintaining the grid and delivering electricity to your home
• You may not have enough solar panels installed to cover all of your electricity needs
• You may not have a solar battery installed to store excess solar energy at night or during cloudy days.

Do You Really Save Money on Electricity Bills with Solar Panels?

One of the main reasons that more and more homeowners are turning to solar panels is because it is better for the environment. According to the Office of Energy Efficiency and Renewable Energy, solar energy is crucial in reducing greenhouse gas emissions, which is vital for protecting wildlife, ecosystems, and humans. As an added benefit, the adoption of solar energy can result in improved air quality and a reduction in water consumption from traditional energy sources. 

But while having solar panels installed on your home can make you feel better about the impact you are making on our carbon footprint, it begs the question, do you really save money on electricity bills with solar panels?

How Much Do Solar Panels Save on Electricity Bills?

Solar panels can save you anywhere from 10% to 90% on your electricity bills, depending on several factors that we’ve listed below. 

• The size of your solar panel system and the amount of electricity it can produce
• The cost of electricity in your area and how much you currently pay for electricity
• The angle and direction of your roof or the location of your solar panels and how much sunlight they can receive
• Your energy consumption habits and how much electricity you typically use
• The efficiency of your solar panel system and the type of solar panels you install
• Whether or not you have net metering in your area and the specifics of your net metering program
• Any incentives or rebates available in your area for installing solar panels

So, on average, a typical solar panel system can save you approximately $100 to $200 per month on electricity. 

Average Monthly Electric Bill with Solar Panels

As we said earlier, the average monthly electrical bill in the U.S. is $117. And, the amount of money your solar panels can save you will depend on your local electricity rates, sun hours, usage, and any local incentives. Later in this article, we’ll discuss the factors thatt influence your average monthly electrical bill with solar panels. But in the meantime, you should know that your 5 kW residential solar system can lead to savings of $100 to $150 per month on electricity. 

Comparison of Electric Bill Before and After Solar Panels

Let’s look at a fictional representation of what your electrical bill could look like before and after solar panel installation. We’ll model our example of the Solar family, which is discussed in the article by Bell Solar & Electrical Systems. 

Our family is the Johnsons, four of whom live in suburban Texas. They have a lovely home with all the modern amenities, but their monthly energy bill has been a source of concern for them. They pay an average of $200 a month for electricity which is well over the national average, and they are tired of watching their hard-earned money go towards paying utility bills. They decide to invest in a 10 kW solar panel system. With the size of their home and their energy consumption, the 10 kW system is the perfect fit for them. By making the switch to solar, they hope to save hundreds of dollars on their monthly energy bills, freeing up more money for their family's needs.

As the Johnson family plans to stay in their home for at least ten years to grow their family, they expect that their demands on energy will grow too. But for now, their current usage remains relatively static and they expect to consume about 20,000 kWh per year, given that their monthly bill is $200 and they pay 10 cents/kWh. Assuming prices steadily increase from 10 cents/kWh to 12 cents by 2028, they can expect to consume about 200,000 kWh of electricity over the next decade, which will cost about $24,000.

After choosing a 10 kW solar panel system, the Johnson family is able to produce about 12,000 kWh, which is close to their annual energy needs under ideal conditions. Assuming a cost per watt of $3.50, their system will cost $35,000 before any incentives or rebates. With the current investment tax credit (ITC) rate of 26%, they could receive a tax credit of $9,100, bringing the total system cost down to $25,900. 

The savings from their solar system will offset their current monthly electricity bill of $200, which will result in an annual savings of $2,400, or $24,000 over ten years. This means their solar system will pay for itself in eight to nine years, and the Johnsons can continue to save on their electricity bills for the remainder of their system's lifespan, which is typically around 25 years.

How Much Will My Electric Bill Be with Solar Panels?

Ultimately, it is challenging to provide an exact estimate of how much your electricity bill will be if you have solar panels installed. Without knowing the details of your specific home, the geography in which you live, and the size of your solar system, there are simply too many factors to include in what would become a guesstimate. 

However, installing a solar system can save anywhere from $50 to $150 monthly on your electricity bill. However, the savings can be significantly increased with the help of state incentives and the federal solar tax credit. With the Federal Investment Tax Credit (ITC), you can claim a credit worth 30% of your solar panel system cost on your federal tax return, providing a substantial savings opportunity. Several states also offer rebates, grants, and exemptions from property tax for homeowners who switch to solar energy.

Factors that Affect Electricity Costs with Solar Panels

The decision to install solar panels can provide you with long-term financial benefits, including reduced electricity bills and increased savings. However, the actual savings can vary based on a variety of factors. Understanding these factors can help you decide whether solar panels are the right choice for you and your household. Here are some key factors that affect electricity costs with solar panels.

• Electricity rates in your area
• The size of your solar panel system
• Your energy consumption patterns
• Your home's geographical positioning, shading, and sun access
• The quality and type of solar panels
• Solar incentives and tax credits available in your state
• The time of day and season when you consume electricity

What Are the Average Solar Savings by State?

Despite the varying factors that can influence your average solar savings, we know that having some sort of guideline can be helpful, especially if you are trying to decide if solar panels are right for you. To that end, please understand that these estimates provided by Forbes are not definitive and can vary depending on your household’s circumstances. However, they provide a useful starting point for predicting potential savings from installing solar panels on your home. 

These estimates are based on state-by-state averages and can serve as a general guide to help you calculate your potential savings from switching to solar.

In Which States Do Solar Panels Offer the Most Savings on Electric Bills?

According to our chart above, Hawaii, Georgia, and Alabama offer the most savings on electrical bills. Hawaii is a prime location for solar power due to its high electricity costs and abundant sunshine. Georgia also offers significant savings due to the state's favorable solar policies, including a state tax credit and net metering program. Alabama, on the other hand, offers lower electricity costs and a moderate amount of sunshine, making solar a viable and cost-effective option for homeowners in the state. 

However, it's important to reiterate that the savings on electricity bills vary depending on various factors, which we shared earlier in this article.

In Which States Do Solar Panels Provide the Least Amount of Savings On Electric Bills?

Homeowners in the District of Columbia, Utah, and Montana will realize the least amount of savings by installing solar panels. But this isn’t to say that solar panels won’t still provide benefits if you live in those areas. To that end, here are a handful of reasons why these states may offer fewer savings than others:

• Lower electricity rates - In Utah and Montana, electricity rates are relatively low compared to other states, which means there is less room for savings from solar energy.
• Limited sunlight - In the District of Columbia, the number of sunny days per year is lower than in other areas. Approximately 59.3% of the time during daylight hours is sunny, while the remaining 40.7% is likely to be cloudy, shaded, hazy, or have low sun intensity. This means less solar energy is available to generate power and reduce electricity bills.
• Lower incentives - These states may not offer as many incentives, rebates, or tax credits to homeowners for installing solar panels as other states. This can result in higher upfront costs for homeowners, which reduces the overall savings on electricity bills.

Why Are Solar Panels Not Reducing My Electricity Bill?

As we have shared, having solar panels installed on your home can save you an average of $50 to $150 per month on your electrical bills. But in some cases, you might not be seeing that savings right off the bat. Here are some reasons your electrical bill might be higher than expected.

• Weather - If your area experiences lower-than-average sunlight or more cloud cover than usual, your solar panels may not be able to generate as much electricity as they would on sunnier days. So, if you live in states such as Washington, Vermont, or Alaska, you might not see as much in savings as you would in sunnier states. The cloud cover causes you to rely more on traditional electricity sources, leading to a higher bill.
• Increased electricity consumption - Sometimes, homeowners may increase their electricity consumption after installing solar panels. You may be using more electricity during peak sunlight hours to maximize the benefits of your panels. Or, you haven’t yet gained confidence in your solar energy system and feel more comfortable using electricity because you know you are generating your power.
• Changes in energy rates - Energy rates can fluctuate and increase over time, leading to a higher bill regardless of whether you have solar panels.
• Maintenance issues - If your solar panels are not properly maintained, they may not function efficiently, leading to a reduction in electricity generation and potentially higher bills. The most common type of solar panel maintenance required is cleaning. Remember that dirt and debris can collect on your panels, especially during inclement weather or extended periods without rainfall.

Tips for Improving Your Electric Bill with Solar Panels

It’s only natural to want to improve and lower your electrical bill once those solar panels are installed. Here are some tips to help you do just that.

• Reduce your energy consumption - One of the key ways to reduce your electric bill is to optimize your energy consumption. Use energy-efficient appliances and equipment in your home, and avoid wasteful practices like leaving electronics on standby or lights on in empty rooms.
• Choose the right solar system - The size and type of solar system can also affect your electric bill. Make sure you're choosing the right-sized system for your home and your energy needs. Additionally, consider choosing a system with features like battery storage or smart inverters to help maximize your savings.
• Monitor your system's performance - Regularly monitoring your solar system's performance can help you identify any issues or inefficiencies driving up your electric bill. Ensure you're monitoring your system's output and checking for any signs of damage or malfunction.
• Stay on top of maintenance - Proper maintenance is key to keeping your solar system running smoothly and efficiently. Make sure you're keeping your panels clean and free of debris, and that you're scheduling regular check-ups with your solar provider.
• Take advantage of incentives and programs - Take advantage of any incentives or programs that can help you lower your electric bill even further. This may include net metering programs, which allow you to earn credits for the excess energy you produce, or tax credits and rebates for solar installation.
• Consider going off the grid entirely - While this concept might be a bit extreme for some, installing a battery storage system in conjunction with your solar panels can help you become completely independent from the grid and reduce or eliminate your electric bill entirely. Keep in mind, however, that going off the grid can be a significant upfront investment, and it may not be feasible for every homeowner.

Final Word

Installing solar panels on your home can be a long-term electrical savings endeavor. But, it will take some time for you to recoup the installation costs. To that end, while you start saving somewhere between $50 and $150 per month on your electrical costs, you’ll know that you are leaving a positive mark on our environment, pulling less demand from an already challenged U.S. electrical grid.