Solar ROI – Is Solar Worth It?

It’s important to evaluate the cost-benefit analysis of any investment, solar panels included. In this guide, we’ll break down the ROI on solar panels, and explore multiple ways to find a solar solution that works best for you!

You know solar can bring countless benefits to your home. But before you plonk down that amount of money for an installation, there’s one thing you probably want to know about more than the environmental benefits: the return on investment (ROI). Is solar worth it? 

There’s a reason solar is growing at an annual growth rate of 33% in the United States! Here’s what you need to know about solar ROI.

The Short Answer: Yes! (If You Can…)

We can easily go on and on about the pros and cons of solar installation, but the short answer is yes, solar is definitely worth it. However, it’s only worth it if your home or property is considered “solar ready,” meaning it’s suitable for a solar installation.

Solar panels might be expensive, but if your property is considered solar ready, you can easily recoup the cost of the initial installation and actually earn money over time with a solar installation.

You should also know that buying solar panels for your own home is only one of many ways to go solar. Many states have Community Solar programs, which allow you to switch your energy supply to a local solar farm for free, and pay less in energy each month!

But for those of you looking to make the investment into panels yourself, let’s break down the financials, and show you how it’s done!

How Much Do Solar Panels Cost?

Before tax credits and incentives, the average cost of materials and installation for a 5-kW residential solar system is between $15,000 and $25,000 in 2022, according to the Center for Sustainable Energy. Priced by watt, it’s $3–$5 per watt.

The number can fluctuate based on location, electricity rates, state incentives, and the quality of equipment you choose. Before you make any decisions, read our full breakdown of why solar panels are so expensive.

Either way, it’s a hefty investment, but it’s important to remember that owning your own panels is an investment, not a cost.

How Solar Panels Pay You Back

The second you flip the switch on your new solar array and it starts generating clean energy from the sun’s rays, it will start to pay you back. Here are the 5 main ways that solar panels pay you back over time:

1. Energy Savings

According to the US Energy Information Administration, the average household spent $1,500 per year on electricity in 2020, and that was before the recent surge in prices. With solar panels on your roof, that money will go straight into your pocket!

When you’re powering your home with solar energy, you don’t have to purchase power from the utility company. Your electricity bills will all but disappear, depending on the size of the solar system you install. Over time, those savings will add up and eventually pay for the installation costs. 

2. Net Metering

If your solar array generates more power than your household uses, you can sell the excess energy back to the utility company with net metering. That’s right, you can have a negative energy bill every month!

Net metering isn’t available in every state, so do your research before installing solar. If your utility company does offer net metering, it’ll give you even more solar return on investment and help you reach your breakeven point faster. 

3. Tax Incentives

Solar installation might be a serious upfront cost, but the government wants people to swap to renewable energy, so they offer several tax incentives to lessen the blow.

For example, the U.S. government offers a Federal Solar Investment Tax Credit (ITC) that gives homeowners a 26% tax credit on their solar system installation with no maximums (until 2023, when it goes down to 22%). 

Solar tax incentives are always changing, so make sure you do your research to find out which incentives you qualify for. It’ll help you get the highest returns on your solar investment.

4. Local Incentives

The federal government isn’t the only entity that wants to see people switch to renewable energy. Your state or local government may also offer incentives to make purchasing solar even more affordable — and help you get the most solar ROI possible. 

If you really want to get the maximum return on your investment, do your research and take advantage of any local and state incentives available to you. It’ll be worth it in the long run!

5. Increase Home Value

Not only will you get great tax incentives and energy savings, but solar panels will also make your house increase in value! According to data from Zillow, homes with solar panels sell for 4.1% more on average.   

If your home is worth $300,000 and you install solar panels, you instantly earned a $12,300 return on your solar investment just with the increase in property value.

How Long Do Solar Panels Take to Pay for Themselves?

With all the savings and incentives, it doesn’t take long for solar panels to start paying for themselves. Over time, they’ll completely pay for themselves and start to even put a little cash back into your pocket every month. But how long do solar panels take to pay for themselves?

The average solar owner breaks even on their initial investment cost in about 8.7 years. This figure varies depending on your energy usage, incentives, and location. In some areas, most solar owners complete their solar payback period in as little as six years. 

If you want a more exact figure for your solar payback period, you can calculate your break-even period with this formula:

Combined system costs / Annual benefits = Solar payback period

For example, if your system cost the average $20,498 and your energy savings per year were around $2,400, the formula would look like this:

$20,498 / $2,400 = 8.5 years

Considering most solar panels last up to 30 years, an 8.7-year solar ROI is fantastic! Then for the remaining 21.3 years, all the energy bills you don’t have to pay and the net metering payments you receive are just money in your pocket.

Considerations Before Purchase

All these solar ROI numbers look fantastic, so why isn’t the answer to “Are solar panels worth it” a resounding “Yes, yes, yes!?” Unfortunately, solar isn’t available or right for everyone. 

If you’re not sure if solar is the right option for you — despite the incredible solar ROI — here are some considerations to help you make the decision:

• Your Home’s Location – Different states offer different incentives. Check your local incentives and regulations to help you determine if installing solar will be worth it. 
• Your Household Energy Needs – If your household uses a ton of power every month, solar panels might not be able to keep up. While you will be able to save some on your monthly energy bills from the utility company, it could affect your breakeven period, hurting your overall solar ROI.
• Roofing and Property – The ideal roof for solar should face south and be pitched between 30 and 40 degrees for maximum solar efficiency. Your roof also needs to be large enough to hold all the panels necessary to supply your household’s energy needs. Direct sun is ideal (obviously), so if you live around a lot of trees or mountains, solar might not be ideal.
• Property Ownership – Solar is best for people who own their home. You don’t want to make such a large investment for your landlord’s benefit. 
• Longevity – The solar payback period is usually around eight years, so if you plan on moving within the next ten years or so, you might not have enough time to enjoy the full solar ROI. Plan on staying in your current home for at least eight to ten years if you want to install solar. 
• Budget – Although there are plenty of incentives and rebates, solar installation is still quite expensive. Make sure you have the funds to make the initial investment before installing solar on your home. Solar ROI is great, but if you can’t swing the initial investment and have to sell your house in the process, was it really worth it?

Bottom Line: Is Solar Worth It?

Is solar worth it? Absolutely, yes! However, it’s only worth it if you have a suitable property. 

Solar is an investment. And just like any investment, it’s important to do your research first. Before investing in a major solar installation, take into account all the considerations to make sure you’ll earn the best solar ROI possible. You don’t want to put down that much money only to find your payback period will be 20 years because of the wrong roof pitch. 

If your home is solar ready and you’ve thought about the considerations, solar is a great investment that offers clear and near-guaranteed returns. However, if you’re a renter or your home isn’t suitable for solar, there are alternatives that can offer decent solar ROI without the property requirements or upfront costs.

Solar Alternatives That Offer Great ROI

While a full rooftop solar installation will offer the best long-term solar ROI, there are plenty of alternatives for people who rent or live in a home that’s not suitable for solar installation. One of the best alternatives that still offers a great solar ROI is community solar.

Community solar is when people in an area (typically an area serviced by a utility) support a public solar array built in a suitable location. The members all chip in to pay for the installation and maintenance costs of the array — typically with a monthly subscription — and the solar farm sends clean, renewable energy back into the grid, helping the subscribers reduce their energy bills, even if they live in homes unsuitable for solar installation.

Although community solar won’t give you the massive solar ROI of a rooftop installation, it can still offer long-term returns on your investment.

Most community solar projects are subscription-based. You pay a small monthly fee and receive cheap solar power to help you reduce your energy bills by between 10 to 25% on average. 

To calculate the solar ROI of joining a community solar project, simply take the subscription fee and subtract the savings on your energy bill. For example, if your subscription is $50 per month and you’re saving $100 every month on your utility bills, your solar ROI will be $50 per month. Over time, that will really add up! 

The best part of community solar is that there aren’t any upfront costs. You don’t have to invest tens of thousands of dollars to start seeing a return on your investment. Once you subscribe to a community solar project, you can start earning back — no payback period required. 

If you’re interested in clean, local energy that saves you money and requires no upfront costs or property requirements, let Community Solar Farm help!

Use our community solar farm locator to find a project near you and start saving right away. You’ll be glad you did!