Are Solar Panels Worth It?

One of the more interesting investments you can make in your home is to install solar panels on your roof to replace your reliance on the power company. There’s no doubt that there is an environmental benefit to installing solar panels, but what about financially? Will they pay for themselves over time or should it be considered an investment in protecting the planet.

My wife has been really interested in buying solar panels for a few years now after we saw the neighbors get them. I always thought it would be an interesting thing to do, but I knew the up front cost was fairly large and we are not necessarily planning on staying in our current home for more than 10 to 15 years. We finally decided to have a company give us the pitch. So let me walk you through how it works for us and things for you to consider.

Basics of Solar Panels

The idea is pretty simple. A company will come out and install solar panels on your roof and then hook them up to the power grid. Then through the concept of net metering you produce power when the sun is out and still draw power from the power company when the sun is down.

Net Metering Explanation

  • When the sun is out and the solar panels are producing peak performance you are usually producing more electricity then you need.
  • This electricity is used by the power company to power houses around you and it actually causes your electric meter to go backwards.
  • At night or on days when it is not sunny you go back to using the power company’s grid
  • The goal is to create a system where throughout the year through net metering you can pay nothing to the power company or maybe even get some money back

The amount of electricity you can produce will be based on a few different things. First of all, what is the size and direction of your roof. Obviously the more solar panels you can fit, the better. We found that the shape and direction of your roof has a big impact as well. Luckily our roof is south facing and one big rectangular. Our neighbor’s roof is not one big rectangular and because of that they can’t fully offset their power needs.

Google actually has a really cool website that allows you to estimate your power and how much solar could help you offset. It gives you an initial projection on the cost of the system as well. (Although we found it to be on the lower end) The website is Project Sunroof.

You can see it shows you how the sun actually hits your roof, how much sunlight you actually get and how much room you have for solar panels. It then estimates a savings based on an average electricity bill and the average cost of a system. That’s where I found it to be a little cheaper than the quotes I actually got. The savings are also interesting because it depends on a multitude of factors. I will dive into those details for our system later.

Cost of the System

The main driver of the cost of the system will be how big it is. This is measured by the system size (DC). This will usually be put in a kW number for you. Between our two different systems we saw a range of 9.28 kW to 10.95 kW. What they try to do is get you within 97% of your current power usage. Different companies may get different outputs depending on the type of panels that they use.

The other complication right now is there are some tax credits and solar rebates that you may be able to get from your power company. Finally, whether you decide to finance it or not could end up changing the price. Let’s break down each component.

Turnkey Price – The price of the system itself. I saw ranges from $30,000 to $40,000 for the 9.28 to 10.95 kW system. Project Sunroof estimated $33,000 so this was in range.

Federal Tax Credit – Right now there is a massive 26% tax credit if you install them in 2020. You receive this as an actual tax savings when you complete your 2020 taxes. For us that will be $8,000 to $11,000 that we will get back next year. This does drop to 22% in 2021, so you still have time to get a massive savings!

Electric Company Rebates – Our electric company will pay us a rebate for using solar based on our usage. This should be worth $1,000 a year until we get to $4,000 total.

Cost of Financing – Most of us cannot afford $20,000 to $30,000 out of the gate. The one company came out of the gates pitching a loan with a 4% interest rate for 10 to 25 years. The other company showed that option as well, but it increased the price by $3,000 dollars. So make sure you fully investigate your options and what works for you.

Here’s the system we ended up going with:

Turnkey System Cost – $40,368

Federal Tax Credit – $10,496

Electric Company Rebates – $4,000

Total Cost of the System – $25,872

As of now we have decided to finance the system at the 4% interest rate. It’s a 20 year plan with a monthly payment of $187. That’s a total cost of $44,880. The electric company rebates are not a part of the financing, so technically if we use those to lower our balance, it will cost $40,880. Now, there’s no prepayment penalty. So if down the line we decide to fully pay it off early, we can. As readers of this blog know, we are trying to keep cash reserves up as we enter stage one of our #FIRE journey so I don’t want to take out $25,872 right now. That is almost $15,000 in interest though!

Energy Savings

OK, so can we save almost $40,880 in energy costs over the next 20 years? Also, what if you are going to move before those 20 years are up? Let’s take a look at projected savings.

There are three main factors:

  • Amount of energy your system will offset
  • How much will energy prices go up
  • Will your power company pay you for any excess

Amount of Energy Your System Will Offset

If you have enough sunlight and a big enough roof, they will quote this at 97% of your power usage. They all claim this is a conservative estimate to take into account degradation of your system over 30 years. Given that we average $1,800 in annual electricity costs, solar should save us $1,750 dollars a year. That buy itself would save us $34,920 over the 20 year span of our loan.

The company we have guarantees the panels for 30 years now. Once you are past that 20 years you will have no loan payment and bank an extra $17,460 dollars. That brings you to $52,380 in savings over the 30 years. So at the 20 year mark we may still be slightly in the hole, but those last 10 years would make up for it with a net savings of $11,500.

How Much Will Energy Prices Increase

Here’s another key point to watch on the presentations. The great thing about solar energy is once you install these, your energy prices won’t go up. The graph above gives you a good representation though of how your solar payments stay the same as inflation drives up energy costs. It’s a lot like locking in that 30 year mortgage on your house. We will continue to pay 187 dollars dollars a month no matter what happens to energy prices. What happens to your power company rates over the same time? The companies I talked to predicted anywhere from 3% to 8% on an annual basis. In Minnesota the average has been 3.6% over the past 20 years. Let’s look at the two extremes.

3% Rate Increase

It would take us 9 years for our monthly payment on the loan to match what our electric bill would have been. In those first 8 years we are paying an additional $2,000 dollars for the panels. (The $4,000 rebate from the power company more than offsets this) Over the 20 year life though is where this starts to pay off. With a 3% increase the 20 year electricity costs would be $48,367 and over 30 years they would be $85,636.

So even at the low end of a 3% increase we are now saving $8,000 over 20 years and $45,000 over 30 years.

8% Rate Increase

At an 8% rate increase we would equal out at year 4. The 20 year cost of electricity is over $82,000 and the 30 year cost would be over $200,000 dollars! Obviously this is the extreme side of things, but by installing the solar panels we are protecting ourselves from the risk of electricity inflation.

Now you can see that we are saving a minimum of $8,000 dollars over 20 years to $40,000 in the extreme situation.

Will Your Power Company Pay You For Excess?

We have also been told that the power company will pay us back 8 cents per kW that we generate over what we need. I told you they said our system would generate 97% of the power needed, but that was after degradation. It sounds like they actually think we could get closer to 105% to 110%. This could equate to an extra $100 bucks on an annual basis. Nothing major, but that adds up to over $2,000 dollars assuming the rate stays at 8 cents.

You can see down below that our estimate shows we will over produce for most of the year other than when we need to really use that AC and when snow covers our roof. Welcome to Minnesota. 🙂

So add that $2,000 dollars to the equation and we have now saved $10,000+ over the 20 years.

House Value Increase

The last big component of all this is an increase in your house value. Obviously if you can market your house as having no energy costs, that’s a pretty big deal! A study in 2018 showed that the value of your house would increase by 3.74% with the addition of solar panels. On our $500,000 dollar house that is an extra $18,700 in house value.

This makes sense because you would be saving a minimum of $1,800 a year in energy costs. That would pay itself back if you lived in the house for just 10 years assuming no energy increases.

I also did clarify that we would just pay off the loan if we move out before the 20 years. So we would take that increase in house value and pay off the net balance of the solar panels. So there is a slight risk if you would move 2 or 3 years after installing them. Since we plan to live here for 9 years I feel OK about it.

Other Questions to Ask

We rushed into this a little bit, but there are some other key questions you should ask the company before signing up.

  • What solar partnerships are they a part of
  • Are they local and able to fix issues fast
  • What happens if a panel breaks
  • How long is the warranty – sounds like 20 years is standard, we got 30
  • What will the panels look like – we were told ours would look “sexy” – I kind of doubt that
  • Get at least a couple of quotes and look at the google resources provided. They will ensure you are getting a fair price

Environmental Factors

Our sales rep asked us why we wanted to look into solar: financial or environment. I laughed and said that it was mostly financially driven, but the environmental impacts were a nice bonus. 🙂 (side note: I was one of only three people that actually knew what their average monthly bill was…)

This is all a great bonus on top of actually saving some money!


We officially signed the contract last week and should get our panels installed this fall yet. The other cool aspect of all this is that we will eventually get an app that shows us how much the panels produce and how much electricity we use. It will give us a little more incentive to turn off that bathroom light that we always leave on. I’m hoping we can cut our electricity use by 5% to 10% to drive even more savings out of the gate.

I do think we have an ideal situation with our roof size and the fact that it is south facing. I also think we use a lot more energy than the average household. I’m hoping that by providing all of the facts and the process we went through will help you make your own informed decision.

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