Are you looking to install a solar energy system on your home but concerned about the upfront cost?
Have you considered that solar panels pay for themselves over time and even generate a return on investment (ROI)? Solar panels can even increase the value of your home.
What is solar panel ROI? In this guide, we look at the returns you can expect from going solar.
What Is Solar Panel ROI?
ROI measures the profit you make on an investment. The ROI for solar panels for a home is the amount of money you make from the savings on your energy bills and the value added to your property after you've repaid the installation costs.
Solar panels can have a high ROI, especially in sunny areas where you can meet most or all your electricity needs and eliminate your energy bills. Rising utility prices and falling equipment costs are making it cheaper than ever before to reap the financial as well as environmental benefits of solar energy.
How to Calculate ROI
The ROI on your solar panel system will depend on the cost of installation and how much you can save on your energy bills. To calculate ROI, you need to consider:
- installation cost, including equipment and labor
- size of your home
- preparation costs, including insulation
- borrowing costs
- government incentives
- estimated solar energy output
- electricity prices
- average electricity use
Once you get tailored quotes from several solar panel installers, you will have an idea of the upfront cost and how long it will take to make back your initial investment. This is known as the payback period.
The average cost of installing solar panels on a home in the US can vary from $5,000 to $40,000, according to Consumer Affairs. The type of solar panels, the manufacturer you choose, and the number of panels you need for your property, all affect the cost.
The average household energy bill in the US totals around $1,489 per year, data from the US Energy Information Administration (EIA) shows. Taking that figure, the payback period for an average $12,000 installation is around eight years. That compares with a 25-30 year lifespan for the average solar energy system.
You can use a solar panel ROI calculator to compare the payback period for the quotes from different solar installers. This will help you to identify when your investment will start making a profit. It can also help you to decide which installer to choose.
The Role of Government Incentives
There are federal, state, and local incentives available to encourage the uptake of solar energy that increase the average ROI on solar panels. Governments at all levels have committed to subsidizing renewable energy to meet their environmental targets.
Federal Solar Investment Tax Credit (ITC)
The ITC is a rebate that allows homeowners who pay income tax to claim a 26% credit to offset the cost of installing a new solar energy system. You must own the solar panels rather than lease them, and you should claim the credit in the same tax year as you install the system. You can carry over any unused credit to the following tax year.
The ITC will fall to 22% in 2023, so you should try to take advantage of the higher rate while it is available.
Individual states offer various subsidies, including sales tax exemptions, property tax credits, renewable energy credits, and net metering. Some municipalities offer additional incentives, so it is important to check what is available in your area. They all combine to bring down the cost of your solar installation further from what you can save with the federal ITC.
Net metering allows you to sell any surplus electricity you generate from your solar panels to the local power grid. This creates an extra income stream that increases your return on investment and can reduce your payback period.
How to Maximize Solar Panel ROI
There are several ways you can get the most out of your solar panel installation to reduce the upfront cost and increase your ROI. The amount you pay for the system, and the length of time it operates, have an impact on the money you can generate.
Research by the National Renewable Energy Laboratory (NREL) found that large solar installation firms charge an average of 10% more than smaller installers. Getting several quotes from local companies, as well as the larger installers, can help you save on the installation cost and reduce the time it takes for your investment to break even.
Compare Equipment Options
The cost of solar panels, inverters, and other components varies depending on the manufacturer, the type of technology they use, and the quality of the equipment. While high-end panels have higher efficiency ratings, they may not offer the best value for money for your property. Look for the best combination of efficiency and price to get the most for your money.
Maintain Your Solar Panels
Once you have installed your solar energy system, you can maximize your return on investment by making sure the equipment is well-maintained.
Keeping your solar panels clean will make sure they generate the most electricity throughout their lifespan. Have them professionally cleaned at least once a year. Regular inspections will identify any damaged components that need to be replaced to prevent strain on the system.
The longer your solar panels operate at the highest efficiency, the higher ROI they will generate.
Invest in Solar Energy to Generate Returns From Your Home
Installing solar panels on your home is an investment that can help you save money and contribute to a cleaner environment. Finding the best installer, taking advantage of the incentives that are available to you, and scheduling regular maintenance will maximize your solar panel ROI.
With over 20 years of experience, Simply Solar offers a high-quality service that will get you the best ROI. We make it our goal to ensure your switch to solar is convenient from start to finish. Our in-house technicians will provide a custom installation for your home so that you can get the most efficient system possible. Contact us for a free estimate.