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Written by Lisa Iscrupe /
Edited by Hannah Hillson /
Last updated 12/7/2023
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A residential solar system is a large financial investment that is not suitable for all homes and budgets. Understanding your current electricity expenses compared to your anticipated cost of solar will help you determine if solar makes financial sense for you.
Solar systems are designed to fit your individual electricity needs. The average 8.6 kilowatt (kW) residential solar panel system costs around $31,558 before any tax credits or rebates, according to the Lawrence Berkeley National Laboratory. However, your total installation cost depends on local solar prices and system size. The number of solar panels you need depends on your home’s energy consumption and roof size. Other factors, including system components, will impact your total solar cost.
You can significantly lower your energy costs by investing in solar panels. Enter some basic information below and we’ll provide an instant, free estimate of solar cost and savings for your home.
Understanding different financing methods and eligible solar rebates and incentives is crucial when determining if solar energy has financial benefits for you. Start by comparing your average monthly energy bill to your prospective energy bill after installing solar. The difference between the two monthly expenses is a good starting place in determining if solar panels make sense.
In 2022, Congress passed the Inflation Reduction Act, which includes the Residential Clean Energy Credit. The federal tax credit is a 30% credit for any solar systems installed through 2032. The following table shows the amount of savings from the solar tax credit for the average cost of the U.S. solar system. Check with your state and local governments for additional solar incentives or rebates.
| Average U.S. total solar system cost (8.6 kW) | $31,558 |
| Federal tax credit (30%) | $9,467 |
| Total solar cost after tax credit | $22,091 |
You need to compare the total cost of solar to your energy bill. Your savings will vary based on where you live, the type of solar financing you choose, and solar panel financing rates.
The current average electricity bill in the U.S. costs $138.57 per month for 886 kWh of usage. This amounts to $1,662.84 per year, which you could reduce by relying on solar to power your home. Review your 12-month energy consumption and bills through your utility. This information will help drive your decision. Traditional electricity prices continue to rise each year. Solar can offer stability on your monthly electric expenses.
If you decide to pay for a solar system with cash, you will have the largest upfront expenses but will reap the greatest savings over the life of your solar panels. You’ll essentially have free electricity after about 13 years of solar generation. Once you’ve saved $22,000 in electricity bills, your only expenses will be solar panel maintenance unless you’re covered through a solar panel warranty. Since solar panels can last up to 30 years, you could save over $11,000 over the next 20 years after recovering your installation costs, making solar panels well worth the initial investment. If you have the savings to purchase your system outright, solar makes financial sense.
Solar loans work a little differently than paying in cash. You have to factor in interest rates, which can make paying off your panels a longer process. If you take out a loan for your solar system, there is still a financial upside — it just takes on average five years longer to experience the financial benefits than paying in cash due to interest rates.
Loans are still a great option for many homeowners who don’t have the financial means to pay in full. With a solar loan you still qualify for the lucrative local and federal incentives and net metering programs that can decrease the net installation costs.
If you choose a solar lease or power purchase agreement (PPA), you can anticipate paying anywhere from $50 to $250 a month. These leases typically last for 10 to 25 years, and your monthly expenses may be lower than a loan — at least up front.
However, solar leases and PPAs are likely not worth it because they’re not eligible for the 30% solar tax credit. You also don’t get ownership of the solar panels, so you’ll indefinitely pay for the cost of the lease. Solar leasing can still help you save on your electricity bills, but if you need to move or break your contract, you may encounter fees or have trouble finding a party to take over your lease payments. While the low monthly lease payments may seem like an attractive option, you will not reap any financial benefits.
Are there circumstances in which solar panels are not worth it? Yes, sometimes solar panels may not make financial sense depending on your energy consumption. Instances in which solar panels may not make sense include:
Solar energy is worth your investment depending on the type of solar financing you choose and your monthly energy consumption. If you’re ready to get started with solar, consider exploring our resources to find the best solar panel company and choose an installer that best fits your needs. You can speak with a solar energy expert by filling out the solar estimator on this page. We’ll help you connect to a local installer and discuss your solar options.