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Published on February 3rd, 2014 | by Zachary Shahan

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How Much Are Solar Panels? Wrong Question. Ask How Much Solar Panels Can Save You

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February 3rd, 2014 by Zachary Shahan
 

Originally published on Cost Of Solar.

OK, it’s true, How Much Are Solar Panels? can be a useful question. But, really, this question is largely of minimal importance today. Either through $0 down loans or 3rd-party-ownership models that let you lease a solar power system instead of buying one, most residents and businesses with a decent roof or ground space for solar panels should have an opportunity to go solar without buying the entire solar panel systems up front.

The real questions — the real ways in which going solar affects your finances — is in how much it saves you and how soon or when it starts to save you money.

I recently created the short infographic below to highlight the 20-year savings from going solar in some of the most populous states in the country, as well as in Hawaii, which has the greatest average savings per project.

solar power savings How Much Are Solar Panels? Is Wrong Question    How Much Are Solar Panels Gonna Save Me? Is Better

Notably, those savings are based on 2011 research. The cost of solar has dropped tremendously since then, so the savings should be even greater (on average). Unfortunately, I haven’t seen more recent research on this matter. The specific data points — average 20-year savings from going solar — for those states are as follows:

  • California: $34,260
  • New York: $31,166
  • Florida: $33,284
  • Texas: $20,960
  • Hawaii: $64,769

These numbers were included in a cool solar power infographic I shared last week. However, the map displaying these numbers was number 3 of 4. I’ve gone ahead and pulled out this key map and will insert it below so that you can see savings in your specific state if you don’t live in one of the four most populous states or Hawaii.

solar savings How Much Are Solar Panels? Is Wrong Question    How Much Are Solar Panels Gonna Save Me? Is Better

Credit: 1BOG

These savings are tremendous. Even the national average (again, in 2011, when solar panels were much more expensive) is above $20,000! How much are solar panels… going to save me? That’s the question to ask. (Of course, you can request a quote on Cost of Solar to get a savings estimate and even a follow-up site visit for a more exact estimate, and it will also give you an estimate of how much solar panels for your house or business will cost.)

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About the Author

is the director of CleanTechnica, the most popular cleantech-focused website in the world, and Planetsave, a world-leading green and science news site. He has been covering green news of various sorts since 2008, and he has been especially focused on solar energy, electric vehicles, and wind energy since 2009. Aside from his work on CleanTechnica and Planetsave, he's the founder and director of Solar Love, EV Obsession, and Bikocity. To connect with Zach on some of your favorite social networks, go to ZacharyShahan.com and click on the relevant buttons.



  • heather ann

    whats the pencentage you can save

  • Richard Bugby

    I built a “pop can heater”(actually three) and they save 25 % on natural gas usage in the winter months. (for the last two months). the boxes are made from 2″ foam fastened together with 4″ gorilla tape, (duct tape of any kind does not hold) and I am getting over 200 degrees at the top of the box on a 40-50 degree day. I did not drill or cut holes in the can bottoms and did not calk them in place. I did add something on the venting in the back that i am going to patent that almost doubles my heat rise. Richard Bugby, SLC

  • John Floyd

    The cost of solar panels have gone down substantially, although much of such cost reductions have not been passed onto the Buyer. While NREL ponders how they can pass on these savings to the consumer I will bide my time as greater and greater cost savings are being achieved in technology. If I could lease without an extended lease commitment, say 3-5 years, I’d grab it but most companies want to tie you into based on today’s ridiculous costs for over 10 years or more.

    • Bob_Wallace

      You can buy solar panels for $0.70/watt.

      It’s hard to claim that cost drops have not been passed on to customers at those price levels.

  • CaptD

    I think the next big thing in marketing Solar will be making the decision to go Solar much simpler by guaranteeing payback of the total install costs over a fixed number of years! This way homeowners (and other roof owners) could plan on future savings and perhaps even borrow money now now based upon their future returns.

    Imagine if Tesla tossed in a new car with each new 25 year Solar install contract, think what that would do for both Tesla’s and their Solar business’s bottom line!

    A Solar Win-Win for sure.

    • Bob_Wallace

      I think what’s going to turn US rooftop prices on their heads is the emergence of large installation companies.

      Large companies will benefit from economy of scale. They’ll be able to purchase in large quantities. They’ll be able to spread the cost of management, advertising and software over many more watts. They’ll have the political clout and sophistication to smooth out local permitting roadblocks.

      SunCity is already up and going.

      Sun Run has just picked up an installation company which will allow them to do both financing and installation.
      http://www.reuters.com/article/2014/02/04/sunrun-acquisition-idUSL2N0L81VB20140204
      We’ll likely see a few different companies try somewhat different approaches. Someone may sell franchises. Some may go the “treat your employees well” route Costco takes.

      Rather than companies spending time knocking on doors in an attempt to find customers we’ll move to a market where customers call in on their own.

  • Will E

    hello docscience, from Groningen the Netherlands.
    How to calculate solar profits.
    I pay no energy bill for the house anymore.. I have put 6000 Kw on the roof. have cut natural gas for heating and warm water, saving gas connection cost metering cost capacity cost and net maintenance cost and used natural gas and energy tax cost and 21 percent VAT over all these costs, and installed an air to water heat pump.
    COP 4, means 1 Kw Electricity delivers 4 Kw of heat. house all electric.
    produce 6000 Kw,
    use 6000 Kw a year, energy bill zero, co2 zero. was 250 euros a month.
    savings 12 times 250 euros is 3000 a year.
    I am still on the grid, greenchoice green energy, I deliver what I use.
    solar panels cost now 1 one euro a Kw, so cost for panels 6000 euros
    cost for air water heat pump 6000 euros. is 12.000 euros paid.
    I needed a new gas heater, cost 3000 euro, need it no more
    so is 12000 minus 3000 is 9000 euros
    so 3 times 3000 euros is 9000 is three year payback time.
    system is running now for two years. works better than natural gas.
    as you calculate for 30 years,
    for 30 years I make on the house 90000, euro minus 9000 euro
    is 81000 euro is 110000 US dollars. never have to pay energy bills no more.
    same with EV. solar on the garage. EV is Tax free and gas free and almost maintenance free. saves me again 3000 euro a year. is again in 30 years 90000 euros. is 120000 US dollars. co2 free.
    In this case I calculate price EV is the same as gas car. about 25,000.00 euros.
    so I make 230000 dollar with solar and the use of it. use what you produce.
    otherwise paid to utilities and petrol companies.
    and I live in Groningen in the Netherlands, and Groningen has become an earth quake territory,
    caused by gas pumping out of the earth below. last year 52 billion cubic meters.
    houses damaged, people afraid, industries leaving. billions of euros damage.
    this is a true story
    the only problem is
    people do not believe it.

  • Will E

    sell stock buy solar.

    • docscience

      Let’s check the wisdom there.
      1 kw of solar costs $5100 installed in the US.
      1 kw of solar produces $146/yr in electricity average in the lower 48
      A good dividend stock pays 5%
      5% of $5100 is $255 per year

      At the end of 30 years, assuming 5% growth, your $5100 in stock should have increased in value to $22,000. On the other hand, your 30 year old solar panels and inverter will be tired and ready for replacement, a NEGATIVE value.

      No Will E, buy stock, not solar.

      • JimBouton

        I have an 8.33 kw system (PPA) in Texas that cost me (total up front) $9,800. That averages out to $1176 per kw. My PPA is for 20 years.

        I’m still analyzing the data (only up and running for four months), but I expect to see a complete payback of the system between 5 to 7 years.

        Texas does not have a FIT, but we do have energy providers that will rebate the “extra electricity” that I produce and send back to the grid.

      • Bob_Wallace

        The average US residential solar price is $4.72. After the federal subsidy it’s $3.30.

        You need to pay your electric bill out of your invested funds.

        You need to subtract state and federal taxes from the money you take out of your investment and use to pay your electric bill.

        You need to adjust your electric bill up over time with inflation.

  • SolarPod

    Well written article focusing on geo-location and price of kWh.

  • GatsbyTheGreat

    This is a step in the right direction, but the real question is whether investing $X in solar panels will result in a return (through savings or otherwise) over 20 years that is greater than investing the same amount in the stock market (for example, an S&P index fund).

    I have a feeling that we’re not yet there, and — if that is true — then solar is still an investment that must be made for reasons beyond financial gain alone.

    Kudos if you can prove me wrong. Hopefully we’ll get there soon.

    • Jeff R.

      How about clean air? Fossil fuel free transportation by powering an EV? Or freezing your electricity rates for 20 years vs. being at the mercy of your utility company?

      • GatsbyTheGreat

        I like clean air, and I like solar. My reply wasn’t meant to be an attack at all, in fact. Articles about how much solar will save us over time are relatively common, and they tend to argue the point as if in a vacuum — you could save this much money compared to doing nothing. The problem is that there is a very real opportunity cost in allocating your money in one investment over another: if there are better places to make financial gains, then the financial argument for solar gets a bit weaker.

        As I said above, “…solar is still an investment that must be made for reasons beyond financial gain alone”. Clean air or any other motivator are good reasons to invest in solar, but they aren’t the point of the article, nor of my comment.

        (Of course, in some places — like Hawaii, according to the above map — it is a viable investment strategy on financial grounds alone.)

        • Larry

          Most average citizens don’t have an extra $20-30,000 laying around to invest [stock market or anything else]. Get real. Let’s help out the middle class homeowners so the can SAVE some money and then maybe they will have a few spare dollars to invest somewhere.

          • Bob_Wallace

            The question is legitimate. Not many people fall into this category, but some do. Even some middle class homeowners.

            Thing about someone who is even lower middle class and inherits a modest sum. Would it make more sense for them to invest in the market or buy solar?

          • GatsbyTheGreat

            The premise outlined in the infographic is that you must spend money first on the solar installation in order to then reap the savings (and potentially FiTs).

            The question is, ‘ *If* you have the money to spend on the solar installation, does it offer a better return over 20 years than spending the same amount instead on some other investment?’

            It appears that in some places (Like Hawaii, The UK and The Netherlands) solar is a great deal, and in other places (large portions of the mainland US) it is not yet at parity with returns from other investments.

            Sure, let’s help out the middle class homeowners; the question then becomes ‘If the government gave half a $20,000 solar installation and the other half $20,000 in index funds, who would be better off in 20 years?’

          • Bob_Wallace

            I’m having trouble with the “better return” part.

            How about asking “Would you have more or less money overall?”.

            In a fair comparison it would seem that the money not spent for electricity would need to be placed into the stock market before one could fairly compare.

            And there’s no ‘one answer fits all’ answer. Someone who lives in a lower cost electricity area might use a lot of electricity on hot days and be dealing with TOU billing. Someone else in the same neighborhood might be shifting a lot of their electricity use to lower cost parts of the day.
            About $4/watt is the average cost for residential solar. But installation in some states is very high (as much as $8) and that could be dragging the average up.

            It looks to me as if one is paying about average for electricity, is able to get solar for the average price, and lives in an average solar location solar makes more sense.

            And it looks like dropping the cost of solar just a small amount (even 10%) makes solar a clear winner in a lot more places.

          • GatsbyTheGreat

            Electricity savings _after_ paying back the cost of installation would make more sense. — Otherwise I agree.

          • Bob_Wallace

            There are many variations on this theme. People probably need to set up their own spreadsheets and run the model(s) that most interest them. (If anyone needs help I’ll try to give some.)

    • Bob_Wallace

      Solar is not as risky an investment (returns are largely fixed), so a direct to stock market returns is not totally appropriate.

      I’m not sure we should look at solar as an “investment”. Unlike investments a solar system has a lifetime. After some number of years it will stop performing. That could be 30, 50 or 100 years but it is finite.

      Solar is more of a pre-purchase. Spend some money up front and avoid payments for electricity for a large number of years.

      • GatsbyTheGreat

        Fair. So perhaps it’s better to compare against bonds, or against futures which also have a limited lifespan.

        (Edit: CDs may be the best comparison then)

        If we know how long the investment is expected to last, and what the cradle-to-cradle costs are, we could also calculate cost over time for a solar installation of a certain output (assuming replacement at the end of life and maybe building in improvements in technology for the replacement installation, and increasing energy prices)… of course then we’re getting into full-on modeling and not a simple litmus test for an investment decision.

        • mike_dyke

          Let’s try and give you some real-world figures from my own experience.

          I live in Bournemouth on the South coast of the UK and installed a 4kw system on my E-W roof about 18 months ago for a cost of about 6000 pounds.

          The Feed-In-Tariff at the time was 21p per Kwh and I’ve since generated enough to get about 800 pounds in the first year from the scheme. This means that the system will be paid for in about 8-9 years.

          As a bonus, I’m also getting on average 25% of my electricity from the panels (More in summer, less in winter as you’d expect) so my electricity bills have dropped.

          As another bonus, there was a 1 hour grid power outage in the area last July and we didn’t even notice.

          The FiT will last for 25 years, so after It’s completed, I’ll probably replace the system with a new version at that time. It will probably be a lot cheaper to buy and will generate more electricity – hopefully enough to power my house completely (especially if I chuck some storage in as well)
          I could also sell on my current system as second-hand as it should still be working OK.

          So, after 8-9 years I’ve got back my initial investment and working just on profit. (Less if you add in the Electricity bill savings)

          • GatsbyTheGreat

            Sounds pretty good. So — and with respect to Bob Wallace’s comments above — what do you think your 20-year return on investment would be? Obviously there’s some extrapolation here, and it would need to include the cost of equipment, installation and permits, while also including combined savings to the electrical bill over those 20 years.

            Given the FiT and the comparatively higher cost of power in the UK vs the US (if I recall correctly), my gut reaction is that this will probably be a no-brainer there. Without the FiT, or at US electricity prices (with regard to savings) I’m not so sure that it’s a slam dunk… but again, good news if I’m proved wrong.

          • mike_dyke

            Assuming the £800 is typical, then
            £800*20 years = £16,000
            £6,000 = total set up cost (about average at the time)
            0 = running cost
            Therefore 20 year ROI from just the FiT = £10,000

            Electricity – I’m on a scheme called Economy 7 where the whole house runs on a more expensive than average tarif during the day and a cheaper than average tarif (for 7 hours) during the night (I’ve got two meters). This is for the charging of Night Storage heaters at the cheaper rate.
            The Tariffs change every year (normally upwards :-() so it’s difficult to quantify.
            However, the solar panels are reducing the most expensive daytime usage which helps a lot
            Rough guess = £200-£300 over a year = £200*20 = £4,000.

            Total ROI = £20,000 for a one-off investment of £6,000 over 20 years but it will still keep going after the 20 years is up.

            As you said – a no-brainer at the time. The Fit has reduced since then and is not as generous.

            Now if I could add some storage in as well…

        • http://zacharyshahan.com/ Zachary Shahan

          So, comparing against CDs, for average households that went solar in 2011 (when solar was more expensive), the projected ROI beats CDs in 43 states. http://costofsolar.com/solar-roi/

          • Bob_Wallace

            Yes. The return on (safe) fixed rate investments is way too low to make investing the money and paying electric bills work.

            My credit union is currently offering 1.45% on a 5 year CD in the $10k to $50k range.

            Plugging that into my (someone should double check) spreadsheet you start losing money the first year and use up all your CD money in 15 years. And you don’t own a solar system that will give you 5, 10, 20, … more years of electricity.

          • Matthew

            Bob, you need to look into peer to peer lending, that rate is 8 or 9 percentage points lower than it needs to be.

          • Bob_Wallace

            That’s a different issue. What I was dealing with was whether it made more sense to put money into solar or into a fixed rate instrument or stock fund and pay the electricity bill from the earnings or buy a solar system.

            The math of whether it makes more sense to borrow money to install solar or continue to electricity payments is something else.

        • Bob_Wallace

          OK, I had some time to get back to this one and I set up a simple model. Might be a good idea if someone else runs the numbers for a double check.

          I started with an assumption of 30 kWh per day, $0.12/kWh for an electric bill of $1,314 per year.

          I assumed living somewhere in the middle of the US with 4.5 average solar hours per day and came up with a 6.7 kW array and rounded up to 7kW to allow for system inefficiencies.

          Then I took the latest average US residential costs from Greentech Media ($4.72/W) and reduced it by 30% to reflect the federal subsidy. That came to $3.30/W.

          $23,128 for a 7kW system.

          Plugging that in with an 8% annual gain and paying the annual electric bill of $1,314 (increasing at 3% per year) I got -

          At $3.30/W the investment grows for 23 years until the inflated price of electricity catches up and capital starts to disappear. Value at 23 years is $33,359. At 30 years the fund value is down to $32,071. And at 40 years the fund value is down to $17,251.

          If the system could be installed for $3/W after 30 years there would be only $5,701 left in the fund.

          If the system could be installed at current German prices of $2/W the fund runs dry after 16 years.

          So, given the various assumptions I started with, it looks like installing at current average prices would be iffy in terms on an investment. One might be better off to put the money into the market, and use earnings to pay the electric bill.

          What is not included is the capital gains tax which might be enough to tip the scales toward purchasing the system.

          Bring the system cost down just a little and it looks like buying the system is a better idea.

          • GatsbyTheGreat

            Great run-down on the math, and it’s really nice to have a realistic discussion about this stuff.

            My one question is why do you say (below, in response to docscience) that you need to draw down the intial investment by the cost of electricity?

            I had been assuming 2 cases (let’s say three to add a control)

            In all cases, a person has X to invest. (This number can be anything but let’s start with the 7KW cost above. I’d imagine that different numbers here may yield different outcomes, as — for instance — utility-scale investments will be different from residential-scale).

            In case 1, the person takes X and invests it all in a solar installation. Depending on subsidies, FiTs and the cost of power, they see a combination of savings / earnings that offset the initial investment (we’ll call those the gains)

            In case 2, the person takes X and invests it all in an index fund. Projected gains are a bit easier to calculate, but taxation must be taken into account (and in case 1 as well).

            In case 3 (our new control) the person takes the money and puts it in a high yield savings account or perhaps a bond — something considered safe.

            I don’t see why the cost of electricity should be credited against the investment in cases 2 or 3. We are saying that savings = gains in case 1 so if we add lack of savings = loss to case 2 and 3 then we are falsely doubling the cost of electricity in the model for cases 2 and 3.

            … which is all a long-winded way of saying so far so good and I’d like to see more. As an only-sometimes commenter, I’m really impressed with the discourse happening here.

            In the meantime I’ll stand with my original gut-check (backed by Bob’s preliminary figures above) that we’re not there yet, at least in large portions of the US.

            Hoping, as always, to be proven wrong. Convincingly.

          • Bob_Wallace

            You’ve got to bring all the costs into the picture.

            If you put $24k into an investment rather than buying a solar system then you have to pay the electric bill. Somehow the entire costs/earnings/savings have to be included in the model.

            I may have misunderstood the initial question. I started with the question that if someone had the cash to install solar would it make more sense to install solar and avoid electricity bills or to invest in stocks and pay the electric bill out of the earnings.

            In your cases 2 and 3 I don’t see the electric bill getting paid.

            If I’m not following you give it another try.

            If you live in a place like North Dakota with <9 cent electricity and a state government which does not support clean energy/provide subsidies then solar won't pencil out against investing in stocks. (But probably will compared to CDs.)

            If you live in a place with higher than average electricity prices (Hawaii, New York, California, etc.) and your installation industry is mature enough to give you average or better install rates then is will.

            If the numbers don't work out where you live right now it would be a good idea to keep monitoring the cost of solar. Prices are falling very rapidly. $4/watt, $3.30 with the federal subsidy, will likely seem foolishly high before long.

            Australia, Germany and the UK are about $2/watt. We buy the same hardware, we pay about the same labor costs. We'll likely get the extra customer acquisition and permitting costs out of our mix.
            ——-

            We attempt to create a good place for reasoned and reasonable discussion.

          • GatsbyTheGreat

            I think I see the discrepancy — I was assuming that case 1 might have only partial coverage of electricity costs, and was therefore assuming the entirety of the electricity costs to be a constant in all cases (from which, case 1 makes gains relative to the other cases when it avoids these costs.) Since case 1 gains the value of avoiding these costs, it doesn’t make sense to also deduct additional amounts from cases 2 and 3 for not avoiding these costs (as we already assume they are paying these).

            Put another way, in this hypothetical situation a person is living on a fixed income and 100% of it is going to cover costs (including electricity). They have ~$25,000 in liquid assets. How do they invest this money to end up with the greatest net worth in 20 years? Since they are already paying electricity bills we don’t subtract the cost of electricity from the investment each year; instead we add the amount saved over time in the case of lower electrical costs (case 1), as this directly contributes to cash on hand at the end of the 20 year period.

          • Bob_Wallace

            I’m not sure I totally follow you. (I’m in a very distracting environment at the moment.)

            It seems that you aren’t making a complete accounting. If they put $25k in stocks and then pay the electricity bill out of pocket then you’ve got to reduce the final gain by the amount spent out of pocket.

            If you start out with an annual $1,314 electricity bill and it grows at 3% per year then over 20 years you will have paid out $35,308.

          • GatsbyTheGreat

            In all 3 cases, it is assumed that the electricity bill Y is being covered, along with other ongoing costs of living. The solar option then has any savings Z (compared to the do-nothing option or invest in stocks option) added to its ‘earnings’ relative to the other two over the 20 year period. In this way, the cost difference is accounted for — but as earnings to one case rather than costs to the other two. Since we are comparing relative profitability (I believe that) the end result is the same.

            I take this approach because (it seems to me that) investments are usually made separately from (and above) covering ongoing costs of living.

          • Bob_Wallace

            But the point is to purchase solar in order to cut living expense costs.
            You can’t look at solar as an investment unless you include all the gains.

          • GatsbyTheGreat

            I am including that gain in case 1. My point is that also penalizing case 2 and 3 by deducting the lack of a gain is effectively double taxation.

            If there is a baseline cost Y then case 1 either gets gain Z by reducing that cost or cases 2 and 3 lose Z by comparative inefficiency… but it can’t be both or it is a false gain.

          • Bob_Wallace

            I’ll try to look more carefully at your situation later tonight.

          • sault

            I’m a little lost in this discussion, so let me throw another spanner into the works!
            What is the return if you also take the savings from the solar array and invest it in the market too? You need to break out the annualized returns into monthly blocks since you pay for electricity monthly. Or did you already account for this?

          • Bob_Wallace

            I’m also a little lost. ;o)

            I spreadsheeted a specific question -

            Would it make more sense to take a fixed amount of money, put it in stocks, and pay the electricity bill out of that investment or install a solar system?

            You’re suggesting continuing to pay the electricity bill out of pocket and not take anything out of the invested money?

            I think it would slide things slightly more in favor of stocks. You would defer the 15% capital gains tax until years later when the stocks were sold. That deferred tax money will be earning money.

            But remember that this is at average installed price, electricity price, solar input. Move things a bit one way or another and the outcome changes.

      • Matthew

        Bob, respect you alot, and I’m on the correct side here. Solar is absolutely an investment that performs like a bond. And if Zack approves my latest article I plan on writing a followup article about just that!

        • Bob_Wallace

          I think we might have some crossed wires here.

          Purchasing a solar system at average US prices and avoiding average US electricity purchases will give one a higher return than investing in Treasury bonds. Currently a 20 year Treasury is paying only 3.29%.

          Solar performs better than CDs and better than Treasury bonds. It may or may not perform better than an index mutual fund depending on amount of solar insolation and cost per watt.

    • http://zacharyshahan.com/ Zachary Shahan

      This research is from 2011, when solar panels were much more expensive: http://costofsolar.com/solar-roi/

    • Matthew

      Significantly more risk in the market and I read somewhere that the return on solar is rated “investment grade.”

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