Solar power has become an increasingly popular source of energy in recent years due to the declining cost of solar panels and the growing concern over climate change. As a result, more and more homeowners and businesses are considering installing solar panels to reduce their electricity bills and carbon footprint. In this article, we will discuss the economics of solar panels, including their costs, savings, and return on investment (ROI).
What are solar panels?
They are made up of photovoltaic (PV) cells that absorb sunlight and convert it into direct current (DC) electricity.
Costs of solar panels
The cost of solar panels has declined significantly over the past decade, making them more affordable for homeowners and businesses. According to the National Renewable Energy Laboratory (NREL), the average cost of a residential solar panel system in the United States was $2.81 per watt in 2020. This means that a 6-kilowatt (kW) system would cost around $16,860 before any incentives or rebates.
However, the cost of solar panels can vary depending on several factors, such as the size of the system, the type of panel, and the location of the installation. For example, solar panels in areas with high electricity rates, such as California and Hawaii, tend to be more expensive than in other states. Additionally, premium solar panels with higher efficiency and durability can also increase the cost of a solar panel system.
Savings from solar panels
One of the main benefits of installing solar panels is the savings on electricity bills. By generating their own electricity, homeowners and businesses can reduce their reliance on the grid and avoid paying high electricity rates. The amount of savings from solar panels depends on several factors, such as the size of the system, the location, and the electricity rates.
According to the Solar Energy Industries Association (SEIA), the average savings from a 6-kW solar panel system in the United States is $100 per month. This means that homeowners can save up to $1,200 per year on electricity bills. However, the savings can vary significantly depending on the location and the electricity rates. For example, homeowners in California, which has some of the highest electricity rates in the country, can save up to $2,000 per year on electricity bills.
Return on Investment (ROI) of solar panels
The ROI of solar panels is the amount of time it takes for the savings from solar panels to equal the initial cost of the system. In other words, it is the amount of time it takes for the system to pay for itself. The ROI of solar panels depends on several factors, such as the cost of the system, the savings from electricity bills, and any incentives or rebates.
According to the SEIA, the average ROI of a residential solar panel system in the United States is between 7 and 8 years. This means that homeowners can expect to recoup their initial investment within 7 to 8 years of installing the system. However, the ROI can vary significantly depending on the location, the cost of electricity, and any incentives or rebates.
To better understand the economics of solar panels, let’s look at some real-life examples. Example 1: John lives in California and pays an average of $0.21 per kilowatt-hour (kWh) for electricity. He decides to install a 6-kW solar panel system, which costs $16,000 after incentives and rebates.