Are Solar Panels Worth It?

Short answer: Yes.

Going green with solar panels is more than just a feel-good decision—it can also help your wallet too. There are plenty of reasons for installing solar panels, but at the end of the day, it still has to make sense financially. As an industry, solar energy is moving beyond the early adopters who were willing to pay top dollar to support emerging solar technology. Today’s consumer is looking to help the planet and make a sound financial decision. The good news: The technology and price have reached a level where solar is more achievable than ever with notable financial benefits. Here’s how to make it work for you.

Solar is a home improvement and an investment

Most contractors would tell you that a major home improvement is an investment. And that’s true—but often it’s only when you look at resale value. Solar, on the other hand, is one of the few projects that also starts paying you back quickly.

In addition to increasing your home’s value by 4% (or $9,274 on a $226,300 home, according to a survey conducted by Zillow), solar pays you back by replacing your electricity bill.

Rather than paying money to the electric company month after month, your dollars go into your system. Consider this example below:

*Image provided by Green Mountain Solar. Visit their website to learn more.

The dashed red line is what your spending could look like when you send money to the utility company over time. It’s purely an expense with no gain over time.

The solid green line, however, is what happens when you invest in solar. Yes, there’s the initial cost of the system—for our example, that’s $20,000 after incentives. However, once this purchase has been made, you essentially no longer have to buy electricity from the utility (more on how this works when we get into net metering below) because you’re generating it yourself. The break-even point typically happens around the 10-year point.

In our example, this would put you $35,000 ahead. The exact figures depend on how much electricity you use and the size of your system, but the overall net positive is realistic.

Net metering: how solar panels pay for themselves

Most solar customers are still tied to the grid—meaning that when their panels aren’t producing electricity to meet the energy demand (say at night or during winter when the sun isn’t as strong), the home pulls electricity from the grid. Fortunately, your solar panels cover the cost of the electricity that comes from the utility company, thanks to net metering. Here’s how it works.

During peak solar generation, panels make far more electricity than you need. This excess power is sold to the utility company and creates a credit on your account. Then, these credits are used to pay for the electricity you use when your panels aren’t producing energy.

When you install solar, you get an electricity meter that runs forwards and backwards. When you’re pulling energy from the grid, your meter clocks up (the same way a regular electricity meter would). When your panels send excess power to the grid, the meter runs backwards. A properly sized system will anticipate how much energy you need to produce in order to offset the energy you’ll need to buy so that ultimately your electric bill comes to zero (or nearly zero).

Solar federal investment tax credit

One major incentive that lowers your initial investment cost for solar is the federal Investment Tax Credit (or ITC). The ITC will be 26% for all 2021 and 2022 projects before stepping down to 22% in 2023. In 2024, the ITC will end for residential projects and fall to 10% for commercial projects. (It was scheduled to step down faster than this, but was renewed at the higher rate in a COVID-19 relief bill.)

So, in this instance, you’re taking about a quarter of the system’s cost right off the top of your price and making that a quicker, smoother payback over the life of the system. But a tax credit is different than a deduction. If you were to owe $10,000 in taxes and you had a $2,600 tax credit based on the cost of your solar panel system, now you’re only going to owe $7,400. The credit is also flexible. If you can’t take it in year one, you have up to 5 years to take it.