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How much do solar panels save? Let’s do the math
- Updated: Jan 12, 2025
- Created: Jan 12, 2025
- 9 min
Edited by: Andrei Gorichenskii
Solar panels are a proven way to save money on your energy bills. But how much can you actually save by switching to solar? And what factors will affect your savings? In this article, we’ll take a look at the financial benefits of solar panels and help you determine if they’re a good investment for you.
Key takeaways
- The average American household consumes around 10,500 kWh of electricity per year.
- An average solar system can cost anywhere from $10,000 to $30,000.
- In 25 years, your system would save you roughly $30,000 on bills.
How much do you spend on electricity?
30 kWh/day — average daily consumption of an American household
To figure out how much we can save on electricity with solar panels, we first need to set a starting point – how much do we spend on electricity bills right now? The typical American household consumes about 10,500 kilowatt-hours of electricity per year, according to EIA. This breaks down to roughly 900 kilowatt-hours per month or 30 kilowatt-hours per day.
Your consumption may differ from the national average. States with hot summers and cold winters tend to have higher usage as they rely on air conditioning and heating systems. For instance, the annual average consumption in Louisiana with its scorching summers is over twice that of mild-climate Hawaii: 1,200 kilowatt-hours/month compared to 540 kilowatt-hours/month.
The national average electricity price sits around $0.17 per kWh. So a typical household pays about $150 per month for electricity. Costs vary widely by state though. Utah, for example, has a lower average cost of $0.108 per kilowatt-hour, resulting in a monthly bill of around $100. States like Connecticut, New York, and California see higher energy expenses, exceeding $200 per month.
To calculate savings, you need to track your home’s electricity consumption. Start with checking your electric bill. Many bills provide detailed usage data on how many kilowatt-hours the utility had to credit you for. Or you can contact your utility and ask them to provide this information. You may also take a look at your electrical meter, modern ones often have monitoring capabilities and track your energy usage in real-time.
We’ll take the nation’s average and assume we spend about $150 per month and $1,800 per year on electricity. In 25 years – the approximate solar system lifetime – we would have spent about $45,000 on bills. This is a rough estimate, not including the traditional annual rate increase of about 2%.
Electricity costs by state
Will you still have an electric bill with solar panels?
Yes, you will still have an electric bill even with solar panels. While solar panels can significantly reduce your reliance on the grid, they don’t eliminate the need for electricity entirely. Solar panels generate electricity during daylight hours, but when the sun isn’t shining, you’ll need to draw power from the grid. Even if you generate a lot of electricity, you may still have to pay fixed charges and fees to the grid.
How much do solar panels cost?
What scares homeowners most about solar panels is that they’re really expensive. An average home solar system can cost you anywhere from $10,000 to $30,000, depending on its size and complexity. Batteries add up another 50% or more.
Let’s take a US average-size solar system of 7 kilowatts. In California, this system would produce about 30 kilowatt-hours per day or 900 kilowatt-hours per month, completely covering the electricity needs of an average household.
The cost of our 7-kilowatt solar system may float somewhere between $15,000 – $25,000, including hardware, shipping, installation, and permitting and inspection fees. Taking $20,000 as average and subtracting the 30% Solar Tax Credit, the final cost of our system comes down to $14,000.
What is the average payback period for solar panels?
7-8 years — average payback time of a solar system in the US
By installing solar panels, people expect to save money primarily by not paying bills. Assuming that our bill is now $0 and we save $1,800 per year by not paying it, it’ll take us about 7-8 years to break even. By year 25, our system would earn us roughly $30,000.
These are very rough calculations. We didn’t factor in solar panel degradation, seasonal production changes, and possible maintenance and repairs. Neither did we consider the traditional increase in electricity prices, net-metering options, or difference in electricity rates across the states.
What influences solar panel savings?
Electricity bills and solar system costs aren’t the only things to determine the final savings. Let’s see some other factors playing a part.
Solar incentives and rebates
Multiple incentives coming in the form of tax credits, rebates, or grants, can greatly reduce the upfront cost of installing solar panels. The Federal Solar Tax Credit offers 30% off our solar panel system’s initial cost, including installation. Many states and local governments also have their own solar rebates and grants. Check your state to learn more about available programs. If you generate more electricity than you consume, your utility company may credit you for it. Some utilities offer net metering programs, which allow you to sell excess solar power back to the grid for credits and then draw it back for free when you need it.
Purchase vs. loan
There are generally two main options of getting a system: outright purchase and loan. When buying solar panels, you benefit from your system immediately. This option requires a hefty upfront investment, but doesn’t require paying the interest. Loans can make solar panels more accessible by spreading out the cost over time. You don’t need anything except to meet the loan eligibility requirements, but every month you will have to pay a fixed amount as interest.
Location and sunlight exposure
The amount of sunlight striking your panels directly impacts their output. In southern states with ample sunshine, such as Arizona, California, Florida or Texas, solar panels will generate more than in cloudy Washington. Trees, buildings, or other structures that cast shadows on solar panels also reduce their energy production.
Why is my electric bill still high with solar panels?
There are several reasons why your electric bill might still be high even with solar panels:
Location and climate: Your location and the climate in your area greatly impact solar panel generation. If you live in an area with frequent cloudy days or short daylight hours, your panels won’t generate as much electricity.
System size: The size of your solar panel system is crucial. If your system is too small to meet your energy needs, you’ll still have to rely on the grid for a significant portion of your electricity.
Energy consumption: Your energy consumption habits also play a role. If you’ve increased your energy usage, your solar panels may not be able to keep up.
Time of day usage: If you use most of your electricity during peak hours when the sun isn’t shining, your solar panels won’t be able to offset your usage.
Location and climate: Your location and the climate in your area greatly impact solar panel generation. If you live in an area with frequent cloudy days or short daylight hours, your panels won’t generate as much electricity.
System size: The size of your solar panel system is crucial. If your system is too small to meet your energy needs, you’ll still have to rely on the grid for a significant portion of your electricity.
Energy consumption: Your energy consumption habits also play a role. If you’ve increased your energy usage, your solar panels may not be able to keep up.
Time of day usage: If you use most of your electricity during peak hours when the sun isn’t shining, your solar panels won’t be able to offset your usage.
How much can you save on electric bills with solar by state?
The savings potential can vary significantly based on factors like average sunlight hours, local energy rates, and state incentives. Here’s a breakdown of how much you could save on your electric bills by going solar in different US states.
Approximate solar panel savings by state with a 6-kilowatt system
Does solar increase property cost?
Yes! Homes with solar panels sell for about 4% more than homes without them and tend to sell a bit faster too, according to Zillow.
How much is that? With the average U.S. home price in 2024 at $500,000, solar panels can add about $20,000 to the home's value. That’s roughly the cost of installing a good solar panel system anywhere in the country. This means the system can pay for itself when you sell the house. Of course, the actual added value will depend on the condition of your solar panels and roof.
Julia Zaraeva
Author
Years of experience in translation and a love of nature help Julia find the right words to encourage going solar. She joined the team in 2023 and is happy to make her contribution to a greener future.
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