Installing solar panels on your rooftop is an investment decision, which means there are costs and benefits involved. However, with proper planning and when getting a professional design and installation, the long-term financial savings from a quality home solar system can be much higher than the initial upfront costs.
In this guide, we will help you answer one of the most common questions among homeowners before purchasing a photovoltaic system: “How much can I save with solar panels?”
There are two main factors that determine the dollar savings achieved by a home solar system: their annual energy generation and the kilowatt-hour price charged by your electricity provider.
- The electricity output of solar panels depends on their sunlight input, which means they generate more in places with a sunny climate.
- This amount is then multiplied by the kilowatt-hour price, which represents the avoided cost when going solar.
Both factors are important when calculating the power bill savings achieved by solar panels. For example, if a home solar system generates 15,000 kWh for a homeowner paying 12 cents/kWh, and a system in another city generates 12,000 kWh for someone paying 15 cents/kWh, both owners will save $1,800 per year. This leads to an interesting conclusion: when electricity prices are high, solar panels can be cost-effective in places with moderate sunshine.
There are two online resources you can use for free to check out the sunshine available in your location, and average electricity prices in your state.
- The World Bank’s Global Solar Atlas provides detailed information about solar resources around the world, and you simply need to click on your geographic location.
- The US Energy Information Administration calculates average electricity prices in all states each month.
With these two resources, you can estimate how much you can save on power bills by going solar. An accurate calculation is only possible with a professional assessment of your roof and power bills, but having a ballpark figure is useful.
Using the World Bank’s Global Solar Atlas
The World Bank and the International Finance Corporation (IFC) did an excellent job gathering and mapping solar data around the world. To use the Global Solar Atlas, you simply need to find your location or their map and click on the screen. There are two ways to do this:
- Input your coordinates on their search bar.
- Drag the map, zoom into your location, and click.
The Global Solar Atlas will provide detailed information, but the number we will use here is the “Specific Photovoltaic Power Output”, measured in kWh / kWp. This stands for annual kilowatt-hours generated, per kilowatt of peak solar capacity.
For example, if you live in a place where the map displays a specific PV power output of 1,600 kWh/kWp, and you install a 10-kW home solar system, you can expect an electricity output of around 16,000 kWh per year (you only need to multiply both values).
If you use the map to zoom into the US, you can see how sunshine rates vary across the country. You will notice that southwestern states like California and Arizona get the most sunshine, while the New England and Great Lakes regions get moderate sunshine. The lowest sunshine rates in the US are found to the Northwest, near the Canadian border.
For example, if you click on the San Francisco Bay area, you will find that the specific PV power output ranges from around 1,700 to 1,800 kWh/kWp. This means you would get between 17,000 and 18,000 kWh with a 10-kW solar PV system.
On the other hand, the specific PV power output drops to around 1,300 – 1,400 kWh/kWp if you click on locations around the Great Lakes. A solar PV system of the same size (10 kW) would yield around 13,000 – 14,000 kWh per year.
That’s it! Now you can use the Global Solar Atlas to check sunshine rates in any part of the world. However, the electricity output of solar panels only tells half the story, as mentioned above. To see how this translates into dollar savings, we also need to know local kWh prices.
US EIA: Average Electricity Prices by State
The US EIA has an online table that provides electricity prices by state, considering all sectors: residential, commercial, industrial and transportation. This table is updated each month, and it also compares kWh prices with those from one year ago.
- Just keep in mind that gathering and analyzing information takes some time, which means the US EIA actually provides data from 2-3 months ago.
- As of February 2022, for example, the table shows kWh price data for November 2021. However, this is valuable information, nevertheless.
As you can see in the EIA table, US electricity prices have been on the rise recently. Between November 2020 and November 2021, the average electricity price for US homeowners increased from 13.31 cents/kWh to 14.12 cents/kWh. This is a 6% increase that gets reflected in power bills, but this also means solar owners are saving 6% more on average.
At the time of this guide (February 2022), several states have electricity prices of over 20 cents/kWh: Connecticut, Massachusetts, New Hampshire, Rhode Island, Vermont, New York, California, Alaska, and Hawaii. This is bad news if you get all your electricity from the grid, but high kWh prices also increase the value of solar energy. An output of 10,000 kWh is worth $1,412 at the average US price (14.12 cents/kWh), but the value of that energy increases to more than $2,000 in these states.
Now that we have covered the Global Solar Atlas and the US EIA electricity price table, we can use these resources for a few examples. According to the Solar Energy Industries Association, the top 3 solar markets are currently Texas, California, and Florida. Below, we will estimate how much you can expect to save with a 6-kW system in the following locations:
- A Texas home with a solar resource of 1,500 kWh/kWp.
- A California home with a solar resource of 1,700 kWh/kWp.
- A Florida home with a solar resource of 1,600 kWh/kWp.
Keep in mind these are just general examples, and sunshine rates can change a lot within the same state. The following table estimates the annual electricity savings in each case, assuming the average kWh price for homeowners.
|System Capacity||Location||kWh Output/Year||Average kWh Price||Annual Savings|
|6 kW||Texas||9,000 kWh||12.81 cents/kWh||$1,152.90|
|6 kW||California||10,200 kWh||23.76 cents/kWh||$2,423.52|
|6 kW||Florida||9,600 kWh||12.60 cents/kWh||$1,209.60|
This is a very simplified example, but it shows how home solar systems of the same size can have very different results based on local sunshine and electricity prices. You can get in touch with a solar installer near you for a PV system quote and a more accurate savings calculation, but this procedure gives you a quick and simple estimate.
Do Solar Panels Lose Performance Over Time?
Solar panels deteriorate like any device, but this happens very slowly when you have a good product. The best solar brands normally have a productivity loss of 0.50% per year or less.
For example, if your system generated 15,000 kWh during the first year, it may produce around 14,925 kWh during the second year, and around 13,500 kWh after 20 years of use. However, consider that electricity prices tend to increase over time, and this compensates for the productivity loss of solar panels.
Assume you have a home solar system that generated 10,000 kWh during its first year. If your electricity price was 15 cents/kWh during that year, you saved around $1,500:
- During year 2, the output of your solar panels drops by 0.5% (50 kWh).
- However, with the 6% electricity price hike reported for 2021, you would now be paying 15.90 cents/kWh.
Considering a solar PV system output of 9,950 kWh and an electricity price of 15.90 cents/kWh, the power bill savings increase to $1,582.05. Even when the solar panels are 0.50% less productive in this example, their annual savings are up by more than $80 due to higher electricity prices.
Generally, the annual increase in electricity prices is much higher than the productivity loss of your solar panels, which means power bill savings tend to increase even with fewer kWh generated.
If you’re considering solar panels for your home, also keep in mind that regulations and incentives change by state. For example, if you live in a state with a favorable net metering policy, you save the full value of all the electricity produced by solar panels. This includes the energy you consume directly, and surplus generation that gets exported to the grid.
On the other hand, if your state lacks net metering, your electricity provider might give you reduced credit for surplus generation. In this case, you only save the full value of the solar energy consumed, and annual savings are decreased as a result.
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