Consumers have different financial options to select from when deciding to go solar. In general, a purchased solar system can be installed at a lower total cost than system installed using a solar loan, lease, or power purchase agreement (PPA).
If you prefer to buy your solar energy system, solar loans can lower the up-front costs of the system. In most cases, monthly loan payments are smaller than a typical energy bill, which will help you save money from the start. Solar loans function the same way as home improvement loans, and some jurisdictions will offer subsidized solar energy loans with below-market interest rates, making solar even more affordable. New homeowners can add solar as part of their mortgage with loans available through the Federal Housing Administration and Fannie Mae, which allow borrowers to include financing for home improvements in the home’s purchase price. Buying a solar energy system makes you eligible for the Solar Investment Tax Credit, or ITC. In December 2020, Congress passed an extension of the ITC, which provides a 26% tax credit for systems installed in 2020-2022, and 22% for systems installed in 2023. The tax credit expires starting in 2024 unless Congress renews it. Learn more about the ITC.
Solar leases and PPAs allow consumers to host solar energy systems that are owned by solar companies and purchase back the electricity generated. Consumers enter into agreements that allow them to have lower electricity bills without monthly loan payments. In many cases, that means putting no money down to go solar. Solar leases entail fixed monthly payments that are calculated using the estimated amount of electricity the system will produce. With a solar PPA, consumers agree to purchase the power generated by the system at a set price per kilowatt-hour of electricity produced. With both of these options, though, you are not entitled to tax benefits since you don’t own the solar energy system.
Navigating the landscape of solar financing can be difficult. The Clean Energy States Alliance released a guide to help homeowners understand their options, explaining the advantages and disadvantages of each. Download the guide.
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Converting to solar power comes with many benefits, including energy savings, reduced carbon emissions, and increased property value. However, there are some cases when solar panels aren’t worth the investment.
Even with a high-quality system from a top solar provider, your location, home design, and local solar market could all diminish the long-term benefits of solar panels. We’ll explore these factors and more to help you decide if a solar panel system is worth the investment.
Transitioning to renewable energy helps to lower your electricity bills, reduce your carbon footprint, and boost your property value. However, your location, current energy rates, and local solar incentives can all impact whether such a big investment will be worthwhile for your home. We’ll take a closer look at these factors below.
Solar panels provide an economical alternative to fossil fuels. This equals energy savings for homeowners in areas with high electricity rates. According to the U.S. Energy Information Administration (EIA), the average American household spends $122 per month on electricity bills. However, these rates vary throughout the country, with energy bills as high as $180 for some households. Below are the states with the highest electricity rates per kilowatt hour.
State Average Electricity Rate (cents per kilowatt hour)Hawaii
$45.69
New Hampshire
$32.32
Connecticut
$28.84
Massachusetts
$27.77
California
$26.66
Rhode Island
$24.43
New York
$23.97
Maine
$23.26
Alaska
$23.08
Vermont
$20.75
*Data provided by the U.S. Energy Information Administration (EIA).
Residents in areas with higher-than-average rates, such as California, will benefit more from a solar panel system than those in areas with a low cost of electricity.
Energy consumption also affects how much a solar system will benefit your home. Homes with low energy consumption won’t receive long-term savings from going solar. Most reputable solar companies will review your average energy usage and estimate your potential savings from going solar. If your energy consumption or electricity rates are too low, a solar panel system won’t be recommended.
Homeowners can use solar incentives, credits, and rebates to save money on their solar panel system. For example, the federal solar tax credit provides a tax reduction equal to 30% of your solar installation costs. Additional state tax credits and incentives may be available in your area. Your local utility company may also offer one-time rebates.
Additionally, your state may have net-metering programs. These programs allow customers to sell extra energy back to the grid for credits on future electricity bills or payouts at the end of a calendar year. Alternatively, you can install a solar battery to store excess energy for use during a blackout, low sunlight days, or periods of high electricity rates.
We recommend checking the Database of State Incentives for Renewables and Efficiency (DSIRE) to find solar incentives and rebates in your area.
Solar photovoltaic (PV) systems work best in areas with ample sunlight. Solar panels will work in inclement weather but won’t generate their maximum power levels. If you live in an area with year-round cloudy or rainy weather, your solar system may not reach its peak energy output, and your long-term savings will be reduced.
Your home should also be free of any obstructions that could cast shadows on your panels, such as surrounding trees and nearby buildings. Blockage for even a few hours a day could reduce your panels’ energy output and lower your potential savings. Homes in the northern hemisphere that face south, southwest, or west receive the most direct sun exposure, resulting in optimal solar energy production.
Any home improvement project can boost your home’s property value, including solar panel installation. The U.S. Department of Energy’s National Renewable Energy Laboratory (NREL) found that your home value increases by $20 for every $1 you save on your utility bills. If your solar panel system saves you $800 per year, that translates to an added $16,000 to your home value.
Your increased property value may not necessarily result in additional property taxes. Several states have laws protecting homeowners from paying additional taxes for clean energy upgrades. These laws vary by state, so we recommend researching exemption laws in your area.
Your home’s roof design and angle are crucial to your solar panel installation. You’ll need enough roof space to install an adequate number of solar panels. How many panels you need depends on your energy usage and which type of solar panels you select.
High-quality solar panels are more efficient, so you’ll need less of them to power your home. These panels help to conserve space when additional roof obstructions, such as chimneys or skylights, reduce your available area. Choosing inexpensive solar panels with lower power output will require more panels and ample roof space.
Panels should be installed at an angle between 15 and 40 degrees for peak sun absorption. If your home has a steep pitch, your solar installer will need to use special mounting equipment to adjust to the correct pitch. This is a more complicated installation and will increase your labor costs.
Your total solar system cost will include more than the panels themselves. You’ll also have to pay for labor and additional equipment, plus ongoing maintenance and servicing fees or add-ons such as a solar battery or electric vehicle (EV) charger.
The good news is that solar panel prices have dropped by 60% over the last 10 years, according to the Solar Energy Industries Association (SEIA). An average solar energy system now costs around $20,000, though pricing varies based on your system size, local rates, and your chosen solar installer.
Your final price also depends on your selected financing option. Homeowners who pay for a solar system up-front will see a higher return on investment because you’ll avoid interest rates and get access to solar incentives. You’ll also qualify for solar incentives if you choose a solar loan. However, the interest rates will add to your total cost over time.
Additional options, such as a solar lease or power purchase agreement (PPA), allow homeowners to lease their system rather than committing to ownership. These options cost less up-front but disqualify you from incentives and won’t increase your property value.
Solar panels aren’t beneficial for everyone. Several factors, including local weather conditions, available incentives, and electricity rates, impact whether a solar system will be worth it for your home. In ideal conditions, a solar system offers long-term energy savings and increased home value. Homeowners installing solar panels should select the right financing options and take advantage of state and federal tax credits to maximize their return on investment.
Some benefits of solar panels include lower energy bills, a reduced carbon footprint, and increased property value.
Solar panels tak an average of six to 10 years to pay for themselves. The exact payback period may vary due to your chosen solar provider, panel quality, and selected financing option.
Yes, getting a solar panel system is worth it for the excellent financial benefits and cost savings. However, solar panels aren’t suitable for everyone. Residents with low energy needs, low electricity rates, or year-round inclement weather may not save money from a solar system.
According to the Solar Energy Industries Association (SEIA), the average solar system costs around $20,000. However, this cost varies according to your installation company, selected equipment and panels, energy needs, and the size of your local solar market.
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