Are Solar Panels Worth It?

are-solar-panels-worth-it

Solar panels generate electricity free of fuel costs. Installing a home energy system based on solar panels can reduce, or maybe even eliminate, your electricity bill. The system has a substantial up-front cost, however. It also costs in terms of maintenance
expense over the lifetime of the system, and will eventually have to be replaced, because solar panels have a finite life span. Given all of this, how much can actually be saved by installing a solar panel system to your home? Is it worth it?

Cost Of Installing A Solar Power System

The first consideration is the up-front cost. Note that “up-front” may be a deceptive term. A lot of companies offer financing, often with no down payment, for installing the solar system.

This results in monthly payments over the life of the loan, and means higher total installation cost, including interest on the financing. Of course, it’s also possible to finance the installation through a home equity loan, but again, the interest on the second mortgage has to be included in the total price.

Assuming you are going to pay for the whole thing up front in cash, though, the cost of a fully-installed is still hard to predict. It depends on the energy use of your home and also on where you live, since solar panels generate more electricity per cell in sunny Arizona than they do in perpetually-overcast western Washington or British Columbia. Moreover, many governments offer rebates or tax offsets for installing renewable energy, and
that reduces the net cost. It’s realistic to expect an up-front cost somewhere between $20,000 and $45,000 for a home energy system generating 4 to 6 kilowatts. This cost can be reduced substantially by using a solar power kit and doing the installation labor oneself. There are trade-offs there, of course, as you won’t have any guarantees on the installation, and if you damage the equipment while installing it that may void manufacturer’s warranties as well. If you know what you’re doing, though, the savings are considerable.

Cost Versus Energy Savings: Payback Time

Once you have a clear idea of how much it’s going to cost to install your solar power system, the next step is to compare this to your monthly electricity bill savings. Dividing the cost by the monthly savings gives you a payback time in months. This is how long it takes you to recoup the cost of your solar power system from utility
bill savings.
Let’s say you have an average monthly electric bill of $200 and you install a solar power system costing $25,000 (after rebates and tax savings) that cuts your electric bill to an average of $10 per month. Your monthly savings (on average) equal $190. (Electric bills are not a constant, of course. Either summer or winter usage is usually a great deal higher than other parts of the year, depending on where you live, whether you use air conditioning in the summer, and whether you have electric heating and water heating systems.)

You would pay off your solar power system in 132 months at that rate, or eleven years. That is probably a conservative figure, though, because electricity costs from non-renewable sources are rising with the cost of fossil fuels and that is unlikely to end anytime soon. Factoring in future increases in electricity costs isĀ  impossible to do accurately. Just assume that any payback time calculation will be pessimistic compared to reality.

Life Span

Solar panels don’t last forever, but they do last a long time. Current warranties on commercial solar panels guarantee that they will produce nine-tenths of their rated output for the first ten years, and 80% for the next ten years. Solar panels can easily last 30 to 40 years. Assume, however, that you will be replacing the solar panels in your system after 20 years of use.

The cost of doing this is, unfortunately, impossible to predict. The advances in solar energy technology for the past twenty years have been staggering. We have no reason to expect anything different for the future. But as long as the payback time is substantially less than twenty years, you will have achieved very significant net savings on your energy costs.

  • author's avatar

    By: Neville

    New Zealand based entrepreneur and passive income machine. My views are my own a reflect me exactly. My family comes first and I believe a strong family unit is the backbone of any safe functioning society. I am a strong advocate for justice, which incorporates equity and fairness. I’m a skeptic and am always open to change any of my views based on evidence. I also love tennis and American muscle cars.

  • author's avatar

    Visit the author’s website