Are Solar Panels Worth the Cost?

Solar Panels on Roof of Home.
Cindy Shebley / Getty Images/iStockphoto

Alternative energy sources are currently a hot topic. Consumers are trading in their gas guzzlers for more efficient cars and their appliances for models that reduce energy use.

 If you’re concerned about the environment and looking for a way to reduce your carbon footprint, solar panels are a great investment. Solar energy is the single most abundant natural resource. It’s also clean since there is no emission from its use.

Affordability of Solar Panels

The cost of switching to solar energy can be high. There are many factors to consider when deciding if the switch will pay off in the long run.

Incentives

To incentivize Americans to invest in energy alternatives, the U.S. federal government offers rebates for solar panels. The current rate is a 26% tax credit that reduces at the end of 2022.

Pricing Trends

Since 2009, the cost of solar panels has trended down each year, making them a more affordable investment for many families. In fact, the cost has dropped 70% in the last decade.

Still, the upfront costs are expensive enough that most people have to take out a loan to pay for the installation. In 2020, homeowners spent an average of $10,000-$20,000 on solar panel installation.

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Breaking Even

At this rate, it takes roughly seven years to break even on the cost of solar panels. Once you break even, you can save tens of thousands of dollars over the panels’ 25-year lifespan by selling your unused energy back to your power company.

Resale Value

If you don’t know how long you’ll be in your current home, that may affect your decision to make the leap. Rest assured that solar panels increase home value by around $15,000 on average, according to a study by the Lawrence Berkeley National Laboratory. Homes with solar panels also tend to sell faster than those without.

Financing Options

You have three options for a solar panel system:

  • Purchase: Buying your solar system outright ends up being cheaper in the long run. You may qualify for a personal loan or solar loan with a low monthly payment.
  • Lease: The power company owns your solar panel system. You lease it for a lower monthly energy payment and no loan.
  • Power purchase agreement: Similar to a lease, the power company owns your system. In this case, you agree on a price per kilowatt of energy your home produces.

While you save in the short term with a solar lease or power purchase agreement, you’re not eligible for the tax benefits. Plus, you won’t save as much over the life of the solar panels. Purchasing the system outright is the best long-term financial decision if you want to invest in solar panels.

What To Consider Before Buying Solar Panels

Everything has risks and benefits, and solar panels are no exception. Making an educated decision is important in making the best decision.

Pros of Solar Panels

  • Great long-term investment financially 
  • Solar energy produces no air pollutants or carbon dioxide
  • The physical system has minimal effects on the environment

Cons of Solar Panels

  • Sunlight varies, so your energy availability may be impacted 
  • A comparatively large surface area is required to capture sufficient sunlight 
  • Panels cost more in the short term

Other Considerations

Before buying solar panels, take a few things into consideration:

Make Your Money Work for You
  • Where you live: If your home is shaded by buildings, trees or mountains, solar panels may not be a viable energy option.
  • Square footage: Since solar panels require a lot of space, you have to have a big enough roof.
  • Roof angle: Generally, a roof angle between 15 and 40 degrees works well for solar panels.
  • How much sunlight your roof gets: Solar panels need to be placed where the sun shines directly for most of the day. The direction your house faces may impact direct sunlight.
  • The amount of power you use each month: If you don’t use much power, it could take longer for the cost of the panels to balance out.
  • Electricity costs in your area: Similar to energy use, your current energy costs affect how soon you’ll break even with your investment. It also determines how much the energy company pays you for any excess solar energy your home produces.
  • Price of solar panels in your region: As with many other things, the cost of solar panels depends on where you live. In cities that use more solar energy, installation may cost less. If your home is far away from a major city, it may cost more.

Choosing the Right Solar Panels

There are two basic ways that solar panels work to convert sunlight into energy — photovoltaics and concentrating solar-thermal panels. 

Photovoltaics

PV materials work to convert solar energy into electricity. Each PV cell is called a panel. While the individual panels are less than a millimeter thick, solar installers place them in protective shields made of plastic or glass for longevity.

The number of panels you need depends on your home size and energy needs. Panels connect together to form an array for your home, and the array connects to your local power grid.

Additional pieces connect to the panels and convert the direct energy into electricity to power your appliances and other systems.

Concentrating Solar-Thermal Power

Instead of directly absorbing the energy, CSP solar panels are mirrors that reflect the sunlight to concentrate it onto a receiver. The heat produced spins a turbine or powers an engine to produce electricity for your home.

Mirrors may be arranged in a circle around a power tower or in a line with individual tube receivers.

Understanding Cost

CSP solar panels are newer than PV solar panels, so they may be more expensive. Many factors influence the cost of your solar panel installation, including:

  • Where you live: The national average is $2.81 per watt, and in most states, the cost is within 50 cents of that average.
  • Quality of materials: You will pay more for better quality. Keep in mind that better quality often pays off by lasting longer and providing better results.
  • Panels needed: If your home is larger and uses more power, you’ll need to invest in more solar panels.

Selecting a Solar Company

Once you determine which solar companies perform installations in your area, read reviews of each one. You will want to:

  • Find out which type of panels they install.
  • Consider how long the installation takes.
  • Research any discounts or rebates.
  • Make sure the company is certified by the North American Board of Certified Energy Practitioners.

You can also use Project Sunroof to get free estimates from approved solar panel installers in your area.

Good To Know

In the next few years, you may be able to save money by installing solar panels yourself after purchasing the system. The system is still in the process of being vetted and approved for use.

Our in-house research team and on-site financial experts work together to create content that’s accurate, impartial, and up to date. We fact-check every single statistic, quote and fact using trusted primary resources to make sure the information we provide is correct. You can learn more about GOBankingRates’ processes and standards in our editorial policy.

About the Author

Katy Hebebrand is a freelance writer with eight years of experience in the financial industry. She earned her BA from the University of West Florida and her MA from Full Sail University. Since beginning to work full-time as a freelance writer three years ago, she has written on topics spanning many fields, including home building, families and parenting, legal and professional/corporate communications.
Are Solar Panels Worth the Cost?
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