Introduction
More and more homeowners across the United States are adopting solar energy as their preferred energy source. But what makes solar a good investment? This article discusses what makes solar an investment worth considering for your home or business. We'll start with the problems of continuing to source power from a utility company, then cover the benefits solar offers, and close with an example solar investment including a return on investment.
What you are doing now for electricity
If you're reading this article, odds are you still get your electricity from a utility company. Although your utility serves a purpose, you'd probably choose to live without it if you could. Here's why:
- Energy rates continue to increase. Your utility company is not going to lower your rates anytime soon. Rates continue to increase year over year.
- You have no control over your power. If the grid experiences a failure, you're left without power — often when you need it most.
- You likely don't have multiple utilities to choose from. Most utility companies have no competition, which means no reason to offer better pricing.
- The majority of power comes from burning fossil fuels. Most utility power still comes from coal and natural gas.
- You pay a bill every month, and that bill never goes away. Have you considered what your bill will be in 10 years? Or how much you'll spend on utility bills in 20?
Solar energy as a solution
Solar energy creates a unique alternative. Rather than continuing to pay your utility company for electricity, you can invest in a solar panel system and produce your own power right from your roof. Some benefits to consider:
- Solar protects you from future utility inflation. The sun never changes its cost of sunlight, so your cost to produce energy stays the same.
- Solar can provide power when the grid is down. Not all systems are capable of backing up your home, but add a battery and you could be completely energy independent.
- Solar is a clean energy source. You can do your part to contribute to a cleaner environment and a brighter future.
- You choose how to pay. Pay for your system outright and enjoy annual returns, or finance it and have a manageable payment with an end date.
- Solar adds value to your home. Unlike money paid to your utility company, an investment in solar returns value back to you.
Calculating your investment
Let's jump into the numbers and see if the financials pencil out. This section uses an example utility bill and system size. Your actual numbers will vary, but the calculations are the same.
Example utility expense
Say you're like most homeowners and spend $120.00 on electricity per month:
| Time period | No inflation | With 3.5% annual inflation |
|---|---|---|
| 1 year | $1,440 | — |
| 10 years | $14,400 | $16,893 |
| 15 years | $21,600 | $27,785 |
| 25 years | $36,000 | $56,087 |
These numbers serve as our utility expense comparison against a solar energy investment, which we calculate next.
Example system size and expense
A lot of factors go into sizing a solar panel system, and by far the best way to get an accurate size and quote is a customized proposal. But to keep it simple, for this scenario we can install an 8 kW system that would produce enough energy to offset 100% of a $120 bill. Priced using Solar Wave's transparent flat-rate pricing:
| Line item | Amount |
|---|---|
| System size | 8 kW |
| System price | $25,600 |
| Federal tax incentive | $6,656 |
| Solar net investment | $18,944 |
Evaluating the solar investment
The first and easiest calculation is net savings and estimated savings based on inflation.
| Calculation | Math | Result |
|---|---|---|
| Net savings | $36,000 − $18,944 | $17,056 |
| Estimated savings (with inflation) | $56,087 − $18,944 | $37,143 |
So if your utility company loves you and decides to never raise your rates again, an 8 kW system saves you $17,056 over its 25-year lifetime. Factor in the realistic potential for future rate increases and that same system can save you $37,143.
ROI & payback calculations
| Metric | Math | Result |
|---|---|---|
| Year one ROI | $1,440 ÷ $18,944 | 7.6% |
| Payback without utility inflation | $18,944 ÷ $1,440 | 13 years |
| Payback with utility inflation | Compounded at 3.5% | Just under 10 years |
The bottom line
Investing in a solar energy system is your chance to turn an energy expense that will never go away into an investment. Your system's return on investment can be 10% or higher and your payback can be under 10 years. Even better, according to sources like Zillow and Energy.gov, you'll also be able to sell your home for more in the future if it has solar.
The catch
Like most things that sound too good to be true, there is a catch. Solar is not one size fits all. It all comes down to your current utility expense and whether you have any limitations to installing a well-positioned solar panel system. By far the best way to evaluate your unique scenario is a free, 100% online custom proposal.
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We'll design a system for your roof and run the full financial breakdown on your actual usage.
Start Your ProposalFinancial advice disclaimer
We are not certified financial planners, advisors, or analysts. The contents of this article are for informational purposes only and do not constitute financial, accounting, or legal advice. We can't promise the information shared here is appropriate for you or anyone else. By using this site, you agree to hold us harmless from any ramifications, financial or otherwise, that occur as a result of acting on information found here.
Steven Weaver
Steven is the founder of Solar Wave and has dedicated the last seven years of his career to the solar industry. After consulting for multiple solar companies across the US he founded Solar Wave in Denver, Colorado. Solar Wave is on a mission to continue the rapid deployment of residential and commercial solar in Colorado by offering the best solar equipment and installation services at the lowest prices possible.
