Solar power has emerged as a compelling solution to the country’s growing energy needs while mitigating the adverse effects of climate change. In fact, more Americans are already choosing solar. According to the Solar Energy Industries Association (SEIA), the nationwide solar capacity exceeded 135,700 megawatts (MW) in 2022.
The main draw of solar energy is its self-sufficiency. Not to mention installing solar panels isn’t exactly rocket science. Most are also installing solar panels for the financial benefits of going solar.
Solar panels are a typical investment for homeowners with decent sun exposure and pay high electricity prices. Electricity costs can make up a large portion of your monthly expenses.
Should you go solar? This article will discuss the financial benefits of going solar and more.
Understanding Solar Power and Its Cost Savings
To fully comprehend the financial benefits of going solar, we must first understand why solar energy is considered self-sufficient.
What Are Solar Panels Made of?
As everyone already knows, solar panels generate electricity by converting energy from the sun into power. It does so due to the photovoltaic cells that make up solar panels. These cells are sandwiched between layers of semiconducting materials like silicon. Silicon has properties that allow it to absorb photons and release electrons, creating an electric current.
Solar Panels Produce DC and AC Electricity
Solar panels generate a direct current (DC) of electricity when electrons flow within the solar cells. This is then passed through an inverter to convert into an alternating current (AC) suitable for powering appliances and feeding into the electrical grid. You can use the generated electricity to power various electrical devices or store it in batteries for later use.
Solar Panels Allow You To Generate Your Own Power
When you go solar, you create your own power instead of renting. This is an important aspect of the financial benefits of going solar. You only need good solar panels and batteries like the Renogy Lithium Iron Phosphate Battery to generate your own power.
Fortunately, the cost of solar photovoltaic (PV) systems has been consistently declining over the years. The National Renewable Energy Laboratory predicts “a decade of cost reductions in solar and battery storage installations across utility, commercial, and residential sectors.”
Solar Energy Saves You Money In the Long Run
Another significant benefit of going solar is the potential for long-term energy saving. When businesses and homeowners generate electricity from solar panels, they offset their electricity bills. Experts suggest the average residential solar system offsets electricity costs by 75% to 100%, translating into significant long-term savings on energy bills.
What Is Net Metering?
Adopting solar power can lead to reduced energy costs through net metering. Net metering is a process that allows a homeowner to overproduce power and store credits for power with the utility company to be used when they need them, like night time or winter.
With net metering, the electricity generated by the solar panels is first consumed on-site.
Any excess electricity is sent back to the grid. The electricity sent back to the grid is measured by a bi-directional meter, and the utility company credits the owner at the same rate as the retail price of electricity. The credit is applied to future bills. This is why many say net metering is at the core of the financial benefits of going solar.
Why Net Metering Is One of the Major Financial Benefits of Going Solar
When the solar energy system is not generating enough electricity during cloudy days or at night, the solar system owner can use credits earned through net metering to offset the electricity consumption from the grid.
By offsetting the electricity consumed from the grid with the credits earned through excess electricity generation, the owner no longer relies on grid electricity. A properly built solar system can leave you without a power bill.
It is important to note that when you send extra power to the grid, you are not getting money back but credits that can be redeemed for free power from the utility company. Different utility companies also give credits at different rates, so the amount you get will vary from one utility company to another.
The financial benefit of net metering extends over the long term. You can save money on your electricity bills for the entire lifespan of the solar power system. Your savings will depend on various things, such as local electricity rates, net metering policies, and the size of the solar system.
The city of San Diego, California, has been proactive in promoting solar energy adoption. Their net metering program allows solar energy system owners connected to the grid to receive credit for the electricity they send to the grid. A case study conducted by the local authority revealed that participants in the program saved an average of $900 per year on their electricity bills.
Government Incentives and Tax Credits
The financial benefits of going solar are boosted further by the government, especially if they seem too expensive for your needs.
There are various incentives provided by federal, state, and local governments to promote the adoption of solar power systems:
- Property Tax Exemptions: Many local governments offer property tax exemptions or reductions for commercial and residential properties that install solar energy systems. These incentives help reduce the overall cost of the solar system.
- Investment Tax Credit (ITC): The Investment Tax Credit (ITC) allows businesses and homeowners to deduct a percentage of their solar system installation costs from their federal taxes. The credit was worth 26% of your project costs in 2022. It drops to 22% in 2023, then expires for residential projects at the start of 2024.
- Cash Rebates: Many states offer rebate programs that provide cash incentives to residential and commercial customers who install solar panels. Rebate amounts vary by state and are often based on the solar system's capacity or the electricity amount it produces.
- Sales Tax Exemptions: Some local governments waive sales taxes on solar energy equipment purchases to reduce the upfront costs for businesses and consumers.
Long-Term Return on Investment
You can’t discuss the financial benefits of going solar without talking about return on investment (ROI). In solar panel system installations, ROI is the measure of how long it takes to recover the initial investment through energy savings or revenue generated.
To find out your system’s ROI, calculate the initial and maintenance cost of the system and the revenues generated.
Factors Affecting the Initial Cost of Solar Panel Systems
The initial investment in a solar system includes the cost of the solar panels, batteries, inverter, labor, and other components. The cost can vary from one region to another and depends on the quality of the components and system size. Solar installations are more affordable nowadays thanks to the solar panel costs that have been declining over the years.
Payback Period of Solar Panel Systems
Solar system installations have a generally shorter payback period. Analyzing the payback period of solar power systems involves determining the time taken to recover the initial investment through savings on electricity costs. A shorter payback period indicates a faster return on investment.
Comparing ROI of Solar Energy Systems and Other Investments
When it comes to ROI, solar energy systems have a very good return on investment compared to other investments. Solar power systems can yield an average ROI of 8% to 12% or higher, depending on the specific circumstances. The ROI of a savings account ranges from 1% to 3% annually, while bonds range from 2% to 6% annually.
Increasing Property Value
One of the financial benefits of going solar that often gets overlooked is its impact on property value. In fact, properties with solar panels sell for more money. According to research by Zillow, having a solar energy system can boost a home's value by 4.1%.
Solar energy systems are also shown to increase the attractiveness of a home on the open market. Communities that embrace sustainability and renewable energy often value the properties with solar energy systems. The National Renewable Energy Laboratory (NREL) says homes with solar panels sell 20% faster.
The main reason why solar homes and properties sell for more money is because of the savings potential.
As electricity prices continue to rise, the long-term savings solar panels provide become even more valuable. The financial benefits of going solar is attractive to potential buyers and can increase the perceived value of a property.
Solar panels have a lifespan of over 25 years, and most of them come with warranties. The presence of solar panels on properties can be seen as a long-term investment that provides both immediate and future financial benefits, increasing the overall value of the property.
Misconceptions About The Financial Benefits of Going Solar
When it comes to solar panels, or even if you’re interested in the best portable solar panels, some may be a bit hesitant due to misconceptions.
Let us examine and debunk some of the myths around solar energy systems.
Myth #1: Solar Energy Only Works in Warm Weather
Fact: Solar panels can still generate electricity even in cold weather and can work more efficiently in colder temperatures.
Myth #2: Solar Panels Require High Maintenance and Additional Expenses
Fact: Solar panels can last 25 to 30 years or even more. Solar panels don’t need that much maintenance since they can withstand various weather conditions. Routine maintenance involves occasional cleaning to remove dust or debris that might accumulate on the panels.
Myth #3: The Average Person Can’t Afford Solar Panels
Fact: Solar panels prices have significantly decreased over the last 10 years thanks to increased manufacturing efficiency, technological advancements, and economies of scale. There are also various government incentives, tax credits, and financing options to help businesses and homeowners adopt solar energy without a substantial upfront investment.
Conclusion: Know the Financial Benefits of Going Solar
By installing solar panels, you can enjoy the environmental and financial benefits of clean and renewable energy. You can increase your property value and earn a high Return on Investment (ROI) in the long run. Once your solar panels start producing electricity, you don’t have to pay for them. They also need little maintenance.