According to the National Renewable Energy Laboratory, in 2021 the average US. residential solar installation had 7,000 watts of capacity at an average cost of $2.65 per watt.
That puts the average price tag of going solar at just under $19,000.
So, is it worth it?
Do solar panels wind up generating enough electricity to provide a reasonable return on that investment?
Let’s crunch some numbers and find out.
Factoring in the 30% Federal Tax Credit
First, however, we need to take into account the Solar Investment Tax Credit (ITC), which lets you deduct 30% of the full cost of going solar from your federal income taxes.
That amounts to a $5,700 discount on the average $19,000 price tag.
There is one minor caveat here, however.
Since the ITC is a tax credit and not a rebate, you can only deduct what's due to you from what you already owe the IRS. So, if you paid the average price of $19,000, you'd have to owe at least $5,700 in order to be able to take full advantage of the ITC.
And, of course, someone who doesn't wind up owing any federal income tax won't have anything to deduct and, hence, won't get any discount from the ITC.
Fortunately, you're allowed to carry the full 30% ITC back one year or forward over the next 20 years.
So, unless you're the very rare bird who pays no federal income tax for two decades straight, you'll be able to take advantage of the full 30% discount on going solar afforded by the ITC.
That brings the average cost of going solar down to $13,300.
The cost of doing nothing
According to the Energy Information Administration (EIA), in March 2022, the average U.S. residential electric rate was $0.1447 per kilowatt-hour (kWh).
EIA also reports that the average home consumes 14,407 kWh of power each month, which comes to $1584 annually.
So, even if the electric rates remain constant, by the end of 20 years that $19,000 initial investment in solar panels will have saved the average homeowner $31,680 —assuming that their system is capable of supplying all the power they need.
But, as everybody knows, the odds of electricity rates remaining the same for the next 20 years are slim to none.
Factoring in the inevitable rate hikes
Back in March 2002, for example, the average residential rate was only $.0772 per kWh.
That means that in the intervening two decades, electric rates have gone up around 87%—which comes to an additional 4.35% increase over the 2002 rate every subsequent year.
If electricity prices rise at the same rate for the next 20 years, 2022’s average annual electric bill of $1584 will have almost doubled to $2,962 by 2042.
Summing the numbers from 2023 to 2042 up, the average homeowner without solar panels can expect to shell out around $46,150 for electricity over the next 20 years.
Of course, that’s assuming that energy prices only rise at the same rate they did when inflation was low. And, given the current bout of red-hot inflation hitting our economy, we're all but certain to see much bigger rate increases over the next two decades.
All the more so given how hard inflation is hitting the energy sector, as well as the inevitable additional price hikes we’ll be seeing as the fossil fuels utility companies burn to produce electricity become even more scarce.
So it turns out that the average homeowner who invests in a solar system will get a phenomenal 20-year return.
Even if we assume that energy prices won’t rise any faster than they have during the last 20 years of low inflation, going solar will save them around $46,150 over the next 20 years at a cost of only around $13,300.
That’s $32,850 in profit—which comes out to a very tough-to-beat 250% 20-year ROI.
Of course, that 250% ROI assumes that you're going to pay outright and not incur any monthly interest.
And $13,700, though a good deal less than $19,000, is still a significant sum that many homeowners will want to finance.
While interest rates for a short-term solar loan can be as low as 3%, rates for a 20-year loan typically fall between 5% and 8%.
If we assume a 7% interest rate, the monthly payment on a 20-year loan of $13,700 come to around $103 or a total of $24,720 over the life of the loan.
20-Year ROI with & without financing
No matter how you slice it, solar power looks to be a phenomenal investment.
Taking the Solar Investment Tax Credit into account, the average total investment for a homeowner who pays for their solar system outright is only around $13,300.
While the average investment for homeowners who, instead, choose to finance going solar will total around $24,720.
Even if we assume relatively low energy inflation, the average cost of not going solar, on the other, comes to a whopping $46,150.
Paying $13,300 outright while saving $46,150 means $32,850 in profit. That’s a phenomenal 250% 20-year return on investment for those who pay outright.
Paying $24,720 for a 20-year loan while saving $46,150, on the other hand, yields a $21,430 profit— which amounts to a still very nice 87% return on investment for those who choose to finance.
How much can you save?
Of course, these figures are only averages, and individual homeowners and businesses may save more or less money by going solar.
Contact us to find out how much money solar power can save you each month.
Using satellite imagery and state-of-the-art software, our trained specialists will design the optimal solar system for your home and determine how much electricity it will generate each month.
Our production estimates are also guaranteed in writing. So if the numbers wind up looking good, you can be confident you'll be making the right decision.