Under the right circumstances, the short- and long-term financial benefits of switching to and using solar energy are well documented. While there’s a good chance you can benefit personally by converting to solar energy, there are several things you need to consider to make sure it’s an economically viable alternative for you.

Let’s take a closer look at what those variables and the corresponding benefits are:

How long you’re going to be living at your current address – The payback period for many solar installations is about 7 to 10 years. This means you’ll see a break-even between the costs you pay to install versus the amount of time it takes to save on reduced energy bills. There are things that can impact the payback period, such as where you live, the size of your installation, if you have battery storage, what kind of rebates and incentives you get, and how optimized your system is. For example, the payback period in Hawaii is closer to five years, significantly low when all factors are considered.

Purchasing vs. leasing a system – When you purchase a solar installation, you may be able to finance most or all of the installation costs and spread payments out over several years. This means no immediate out-of-pocket costs, but you will be saddled with monthly repayment obligations. If you lease a system, the solar provider will pay for all the upfront costs, maintenance, and repairs of the system. They will own the system, and you will be able to “buy” solar electricity from them at a cost lower than traditional electricity costs.

Financing aside, you can actually make money with your solar system. Once your system has been paid for, you could actually make money from your installation. Any power you produce on your own is the power you don’t need to purchase from your electric utility. And when your system provides more power than you use, that excess power is sent back to the grid, and you actually receive an energy credit.

Protection from rising energy costs. In all areas of the country, the costs of buying power from local utilities continue to increase. Everyone who has ever paid a utility bill is familiar with the “rate increase notices” that they see in the statement way too often. However, with a warrantied life of 25 years and a useful life of 40-50 years, solar panels lock in predictable energy costs for decades.

Save money on a macro scale as well. Not only can you save money on a personal basis by switching to solar, but you are also contributing to savings on a more global basis as well. The National Research Council (NRC), an arm of the National Academy of Sciences, has determined there are several non-climate change damages associated with producing and burning coal. The damages are from sulfur dioxide, nitrogen oxides, and particulate matters impacting human health created by burning coal. Damages average about 3.2 cents for every kilowatt-hour (kWh) of energy produced from the coal plants.

A similar recent study by Harvard Medical School’s Center for Health and the Global Environment found that coal’s cost on the economy is between $330 and $500 billion. This included damage to crops and farmlands, hospitalization due to pollution impacts, and impacts on critical resources like freshwater supplies.

In addition to these benefits, there are also tax incentives and credits to consider, as well.

Tax Incentives Can Add to Your Savings, But You Better Hurry

The good news is that there is currently the federal solar Investment Tax Credit (ITC) in place that can offset the cost of purchasing and installing a solar energy system. Even better, those tax credits are a whopping 30%, and there is no cap on the dollar amount. The credit can be taken all in one year or spread out over five years. And, the home served by the system does not have to be the taxpayer’s principal residence.

But the bad news is that those federal tax credits will start to ramp down at the end of 2019. So if you’re on the fence as far as deciding to go forward with a solar system or not, this is more than just a gentle nudge to make up your mind soon.

The 30% credit ends in 2019 and drops down to 26% in 2020. In 2021, the credit drops to 22%, and it ends permanently in 2022.

Many states and electricity providers also offer rebates as well. For example, the state of Arizona, a place where solar power makes a lot of sense, provides a flat $1,000 incentive on top of other inducements. Other states, such as California, Hawaii, Maryland, New Jersey, New York, and many others offer rebates and incentives as well.

Some states also offer Solar Renewable Energy Credits (SREC). This means you can earn and sell credits for the electricity that your solar system produces.

Your best bet is to contact either your electricity provider or a reputable solar energy company to find out precisely what rebates and incentives are available in your particular city and state.

Comparing Costs of Solar Energy and With Other Types of Energy

There are several ways to compare the costs of solar energy with other types of energy. Here are several facts and figures to consider:

Electricity Costs

According to the U.S. Energy Information Administration (EIA), the 2018 costs of electricity per kWh by consumer group were as follows:

  • Residential 12.89¢
  • Commercial 10.44¢
  • Industrial 6.58¢
  • Transportation 9.53¢
  • All Sectors 10.23¢

Several factors influence actual electricity prices in various locations. They include the type of power plants, the costs of fuels and fuel transportation, and state pricing regulations, among others.

Factoring these elements in, the states with the highest average residential price of electricity in April 2018 were:

  • Hawaii 31.21¢ per kWh
  • Massachusetts 22.34¢ per kWh
  • Alaska 21.61¢ per kWh

Those with the lowest average prices in April 2018 were:

  • Washington 9.74¢ per kWh
  • Louisiana 9.80¢ per kWh
  • Arkansas 10.00¢ per kWh

In 2018, the average residential cost was up 5.5% from 2017.

Overall, residential prices in the U.S. have risen by 3.0% per year over the past ten years.

In 2016, the U.S. average residential household used 897 kWh per month, and the average monthly electricity bill was $112.59 before taxes and fees.

Prices are higher for residential and commercial customers. This is because it costs more to distribute the electricity and step the voltages down. Industrial customers use more and can take their electricity at higher voltages, so it does not need to be stepped down.

Solar Power Costs

In the past 40 years, photovoltaic solar cell prices have come down by a factor of 100. This includes coming down by a factor of 25 over the last 15 years.

Solar module prices have experienced a dramatic price reduction in recent years. For example, from 2007 to 2014, worldwide average module prices dropped about 78% from $3.25 per watt to about $.72 per watt.

This is because the price of the raw material polysilicon, which makes up a large part of the total cost of a module, dropped significantly. A shortage in 2007 saw a short-term spike in prices, but that also led to suppliers dramatically increasing production capacity that actually resulted in a glut on the market by 2010, creating a significant price drop.

Price declines in solar modules continue to be driven by:

  • the increasing efficiency of solar cells
  • major manufacturing technology improvements
  • economies of scale
  • a significant uptick in the competition that has created a module oversupply

Solar has seen a growth rate of more than 20% annually in recent years. That has created manufacturing efficiencies. Growth has also created several new companies in the marketplace competing for big contracts, and that has also had a positive effect on driving prices down.

Another advantage of solar is that there is only a small degradation of a system’s performance over time, about half of one percent per year. This means that a P.V. system will still produce electricity at 75% of its original production after 50 years.

Exact savings are difficult to quantify on an individual basis, but the rule of thumb is that the higher your bill, the more likely you’ll benefit from switching. However, electricity rates and usage — the main charges on your statement — are volatile. If a utility’s electricity prices fluctuate, so could the amount of savings.

On a macro level, solar compares favorably when putting up against other forms of energy plant types. Consider the following lifetime Levelized Costs of Energy (LCOE) in dollars per MWh for various kinds of energy plants.

  • Offshore Wind $138.0
  • Coal with 30% Carbon Control/Storage $130.1
  • Coal with 90% Carbon Control/Storage $119.1
  • Biomass $95.3
  • Advanced Nuclear $92.6Natural Gas Combined Cycle $74.9
  • PV Solar $63.2
  • Hydro-electric $61.7
  • Land-based wind $59.1
  • Geothermal $50.1

According to the EIA, nuclear plants have several challenging issues, so few new nuclear facilities are expected to be built.

Geothermal, hydro-electric, and biomass are not mainstream electrical production facilities, and plants are located only in a few locations.

The wind is limited because an average daily rate of 20 miles per hour is needed to be economically feasible, and few areas have this type of condition.

However, the shining sun is abundant, and this makes solar energy a universal candidate for a new and growing source of energy production.

The Bottom Line

How much it costs to operate a solar installation and how much your savings will depend on a number of issues. You need to consider the amount of your consumption, how much your solar installation will generate, your local electricity rates, and more.

According to recent figures from the EIA, the typical U.S. household uses approximately 10,766 kilowatt-hours (kWh) of electricity per year. That works out to a monthly average is 897 kWh. And, the home pays 12.57¢ per kWh.

So, the average American’s electric bill is about $113 per month.

Solar installations are typically between 5 and 10 kilowatts. On average, a 5 kWh installation will produce about 8,000-kilowatt-hours per year, enough to cover the annual energy requirements of quite a few U.S. households. If the average demand is 897 kWh per month, the vast majority of an electric power bill will be paid for by solar.

Calculating exact savings is best done by a solar installation contractor by plugging in all of your variables, as well as what you want your solar installation to accomplish, but with these comparisons, you can begin to see the benefits of saving when you make a move to solar.