When Are Solar Panels A Good Investment?
As energy prices climb and the threat of climate change looms, the appeal of renewable resources is rapidly transforming the market–and the way we produce energy. Until recently, energy generated from fossil fuels dominated the market. While it still accounts for the majority of U.S. energy production, renewable energy sources like solar, wind, and geothermal are growing increasingly popular.
Installing solar panels is one of the more practical ways of creating renewable energy on a residential scale. Solar panels can save you money in the long run and reduce greenhouse gas emissions. So when should you invest in a solar energy system? Here are 5 important things to consider before you buy solar panels:
(1) Location and Available Solar Resources
Exposure to sunlight is obviously a critical factor in whether or not you choose to invest in solar panels. Where you live and where on your property or residence you install your solar panels have major effects on solar power efficiency. States like Arizona, New Mexico, California, Colorado, and Utah have excellent solar resources. The upper Midwest, Northeast, and Alaska, on the other hand, have significantly less solar exposure, making solar panels a less efficient choice.
Take a look at this solar resource map that was put together by the National Renewable Energy Laboratory to see how much sunlight your region receives:
(2) Local Energy Costs
Some states have exorbitant energy costs–making the payback period for solar panels much shorter. If you’re buying electricity at 15¢ per kilo-watt-hour (kWh) in California and solar panels would generate it at 7¢/kWh over their lifetime, the solar panels will pay themselves off much sooner than if you’re paying 9¢/kWh in Oregon. The higher your energy costs, the better investment solar panels are. If you don’t know your local electricity rates, the U.S. Energy Information Administration has a comprehensive list of energy costs by state that will you give a good estimate.
(3) Cost of Solar Panels
Solar panels cost about $6,000-$8,000 per installed kW of energy. A typical residential solar array is 2kW of installed capacity, averaging about $15,000 total. This is a significant upfront cost for most homeowners, but it has to be considered as you would consider an investment–in terms of overall return. If installed in appropriate conditions (meaning there’s plenty of sunlight, local energy costs are high, and ample incentives are available), solar panels have the potential to save sizable amounts of money in energy cost-savings.
(4) State and Federal Solar Incentives
Fortunately, the federal government – as well as many state and local governments – offers financial incentives for solar. These come in the form of rebates, grants, and tax credits. Government incentives offset the cost of installing solar panels for the homeowner and help reduce the payback period. The federal government offers a personal income tax credit of 30% of the cost of a solar energy system with no maximum. Such grants and tax credits make the installation of solar panels and other improvements possible, even for those who think these types of installations are too expensive.
State, local, and utility incentives vary from place to place. To see what incentives are available in your state, there’s an interactive state solar incentive map at the Database of State Incentives for Renewables and Efficiency (DSIRE).
(5) Payback Period
The payback period is the bottom-line when it comes to buying solar panels. How long it will take to see a return on your investment is probably the most important question you can ask. It’s a complex equation, but one you should investigate before you make the investment.
When you factor in upfront cost, available incentives, local energy costs, solar resources, and installed capacity, you will have a much better idea of how long solar panels would take to pay themselves off, when you would begin to see cost-savings, and how much money you could expect to save over the lifetime of the units.
In ideal conditions, a solar energy system can allegedly pay itself off within 3 to 5 years, after which you would see a significant return on your investment over its lifetime–but that is simply not the case in most places. Whatever the case, if you do your homework, you are guaranteed to save yourself money–whether you decide to install solar panels, or not.[Photocredit: BuildTheSolarPanels; NREL; DSIRE]