Weighing the Costs and Benefits of Solar Panels

Solar panels: Energy efficient or a money pit?

Got home improvement projects on the brain? Now that the seasons are changing, you might be inspired to install some solar panels. Depending on where you live, you could potentially save more than $10,000 by adding solar panels to your home.

The cost of solar panels have fallen dramatically over time. Specifically, they’ve dropped by more than 60% in recent years. There’s no better time to install a solar panel on your roof. But can they really save you money? How much are solar panels, with all future costs included? How many solar panels do you need for your home? What other benefits do they offer? Check out our guide and find out whether a solar panel is a smart long-term investment.

Solar panel costs dropped by more than 60% in recent years. There’s no better time to install a solar panel on your roof. But can they really save you money? Click To Tweet

Solar panel installation costs

You may hear some solar advocates talking about the free energy the sun can provide, but adding solar panels to your home is not a costless endeavor. According to estimates from HomeAdvisor, the average cost of buying a residential solar panel system is around $22,000. For those who can afford it, buying the system outright will provide the best return on your investment. If the price is a little too steep, you could get a solar loan. Some states offer solar leases and power-purchase agreements (PPAs) that allow your to rent a solar panel that a third-party company technically owns. You can either pay the company a monthly payment (with a solar lease) or pay for the power you produce (with a PPA).

The cost you pay for solar panel installation can vary depending on the kind of system you buy and where you live. As with any other purchase you make, it’s best to shop around before committing to purchasing anything. Find out if anyone you know has recommendations. Ask installers about warranties and maintenance requirements. And don’t assume that bigger is better! A recent report from the Department of Energy’s National Renewable Energy Lab found that quotes for large installers tend to be 10% higher, on average, than quotes for smaller installers.

Keep in mind that you may need to purchase permits before your installer gets to work. Most city or county governments require either a building permit, an electrical permit or both.

When comparing the cost of solar panels, it’s important to take incentives into consideration. They can reduce the amount of money you end up spending significantly. The federal government has recently extended a renewable energy tax credit, also known as the investment tax credit (ITC). The ITC allows you to deduct 30% of the cost of installing a solar energy system from federal taxes in 2019, 26% in 2020 and 22% in 2021. There’s no cap on the credit’s value. States and local governments also offer financial incentives like cash back, property tax exemptions, fee waivers and rebates. Check the Database of State Incentives for Renewables & Efficiency to see what credits you could qualify for.  

Potential benefits of solar panels

EnergySage found that the average homeowner spends $1,200 on electric bills each year. Who wouldn’t want to pay less? But exactly how much you’ll save by installing solar panels and how long it will take for your investment to pay off depends on where you live. In some states, electricity may cost only 8 cents per kilowatt-hour (kWh), while others charge more than 20 cents. Solar panels are more valuable for homeowners in areas with high electricity costs.

This map can help you figure out whether solar panels are worth investing in.

Saving money is important and reducing your reliance on other energy sources is another benefit of purchasing a solar panel. The upfront investment can be steep, but solar energy can help you avoid rising utility costs dictated by fluctuating oil, coal and natural gas prices. In some places, you could even qualify for government-sponsored solar renewable energy credits. The program lets you sell additional power back to your utility company, allowing you to earn extra money on top of the amount you’re saving.

Speaking of added value, installing solar panels will almost always increase your home’s resale value. In fact, the U.S. Department of Energy found that a solar energy system raises a home’s property value by $20 for every $1 in utility savings per year. Often, the added home value alone makes up for the money you spend on installation costs. Solar homes also tend to sell much faster, which can save you time and money when you’re ready to move to your next home.

The U.S. Department of Energy found that a solar energy system raises a home’s property value by $20 for every $1 in utility savings per year. Click To Tweet

Green insurance for solar panels

Solar panels can affect your homeowners insurance rates. Depending on the kind of solar energy system you have, a provider may simply raise or lower your current premium. Some companies see it as a feature that would cost more to replace, while others take it as a sign that you’re a more responsible consumer. Consider contacting your agent before you install solar panels and always notify them whenever you make a major change to your home.

Most homeowners insurance policies cover solar panels. But depending on the type of system you have, you may need a separate policy. If you’re adding onto the insurance coverage you already have, it’s important to do your research. Where your solar panel is located (whether it’s on the roof or it’s mounted on the ground) and your local climate could have an impact on how much your insurance premiums cost. Not everyone needs a rider or an endorsement, but having one could save you money if your panels are damaged or stolen.

The bottom line on solar panels

There are several benefits to installing solar panels, but only you can decide whether they’re worth having. Besides cost, there are other factors that you’ll have to take into account, including the orientation of your home and whether it faces the sun. Homes in sunny states can generally produce more solar energy than homes in shady or wooded areas. Enter your address, utility provider and the average cost of your monthly energy bill into a solar-estimate calculator to get an idea of how much energy you’ll use and how much money you could potentially save by having solar panels.

Want to know more about solar panels and homeowners insurance coverage? Contact a Hippo specialist. We’re here to help!

 

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