One of the initial queries that you may ask yourself when you are thinking of going solar is: How do solar panels impact my electric bill? Solar is not only becoming the number one option of many homeowners because of its ability to help them cut their carbon footprint but because it is also a cost-effective option. In this guide, we will deconstruct the workings of solar panels, how they affect your electric bill and what sort of savings you can anticipate.
Understanding How Solar Panels Work
What Are Solar Panels?
Photovoltaic (PV) panels, also known as solar panels, are devices that make electricity out of sunlight. When the panels are exposed to the sun, electricity is produced as direct current (DC) when the sun strikes the solar cells in the panels. A device called an inverter then converts this into alternating current (AC) electricity that is what your home uses.
How Solar Energy Powers Your Home
After conversion to usable electricity, the solar energy then becomes used to supply your lights, appliances, and devices. Excess electricity your panels generate that you are not using at the moment can be returned to the electric grid depending on your utility and local policies.
How Solar Panels Affect Your Electric Bill
Reducing the Amount of Electricity, You Buy
As soon as your solar panels go into operation, they begin to cut down the number of electricity you have to purchase at your local utility company. This directly lowers your monthly electricity bill.
As an example, your home may be accustomed to using 1,000 kilowatt-hours (kWh) of electricity a month. If you have a solar system that produces 700 kWh, you will only have to buy 300 kWh of electricity on the utility grid.
Net Metering: Getting Credit for Extra Energy
Net metering is one of the greatest advantages of going solar in the U.S.
What is Net Metering?
Net metering is a billing agreement that you receive credits on your electric bill, the extra electricity your solar panels generate and feed back into the grid.
These credits can be thereafter utilized to counterbalance your night or cloudy day electricity consumption when your panels are not generating power.
Example of Net Metering:
- Your panels generate 900 kWh in a month.
- You only use 800 kWh.
- The extra 100 kWh is sent to the grid.
- You get a credit for 100 kWh.
Note: Policies of net metering differ by state and utility company. Your excess energy may be valued in full retail by some states and less by others.
Types of Electric Bills with Solar
Zero or Near-Zero Bill
In case your solar system is big enough and your energy consumption is not very large, your panels can supply the majority or the entirety of your electricity demands. Your electric bill in this situation may be zero or very nearly so. Yet most utility companies charge a nominal monthly connection fee (usually between 5 and 15 dollars) even when you do not purchase electricity.
Reduced Bill
Even most homeowners will continue to receive an electric bill but it will be much reduced in cost. This is the exact figure and is determined by the amount of energy you consume, the size of your system, local weather conditions and the utility rates.
Bill with Solar Loan Payment
In case you took a loan to finance your solar system, you should have a monthly loan payment. However, when you compare your loan payment+ reduced electric bill to your old electric bill, the sum might be less than you were paying previously.
Utility Charges You May Still See
Most of the homeowners in the U.S. remain on the grid even with solar panels.
This means you might still see:
- Basic service or connection fees
- Minimum usage charges
- Demand charges (for some rate plans)
- Time-of-use charges (electricity is more expensive at peak hours)
These fees are subject to wide variation among states and utility companies.
Long-Term Electric Bill Savings
How Much Can You Save?
Based on the statistics provided by the U.S. Department of Energy and energy analytics sites, the majority of American residential owners save between 10,000 and 30,000 in the lifespan of their solar system (which is typically 25-30 years).
The exact savings depend on:
- Your location and solar incentives
- Size and efficiency of your system
- Your electricity rates
- Whether you bought, leased, or financed the system
Payback Period
The payback rate of a residential solar system within the U.S is 6 to 10 years. Thereafter, you have practically free electricity as long as the system lasts.
Federal and State Incentives Help Lower Costs
Federal Solar Tax Credit (ITC)
The Federal Solar Investment Tax Credit (ITC) enables residents to deduct 30 percent of the expense of putting in a solar system on their federal taxes. This incentive is available through at least 2032.
State and Local Incentives
Most states, cities and utility companies provide other incentives including:
- Cash rebates
- Performance-based incentives (PBIs)
- State tax credits
- Property tax exemptions
These incentives will lower your upfront cost and this will shorten your payback period and maximize your long-term savings.
Can You Eliminate Your Electric Bill Entirely?
Yes, but it depends. A properly sized solar system can fully cover your electric bills should you have good sun exposure. You will however remain on the grid unless you are off grid whereby you will still be billed monthly even though it is a small service charge.
When you are pursuing full energy independence, then you may want to consider adding battery storage (such as Tesla Powerwall or Enphase IQ Battery). This will enable you to save surplus solar energy and utilize it during the night or when there is no power, to further make you less reliant on the grid.
