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What is the ROI on Residential Solar?

As the country grapples with rising energy costs, many homeowners are turning to residential solar power as a way to lower their energy bills. 

At Exact Solar, we’ve worked with thousands of homeowners who’ve switched to solar power for a variety of reasons. Some were looking for a guarantee that their power wouldn’t go out during bad weather. Others wanted to join the green energy revolution and have more control over their energy bills

Another couple we served wanted to ensure they could still power part of their home if the power went out – without building a battery backup system

Regardless of why you choose to “go solar,” residential solar systems offer an enticing return on investment. Federal and state solar tax incentives are available for homeowners who install solar panels to help them maximize their residential solar system ROI. With over 19 years of experience serving Pennsylvania and New Jersey customers, Exact Solar knows these incentives back-to-front. 

In this article, we’ll explore how a solar system delivers a ROI to homeowners. We’ll break down: 

  • The initial investment 

  • The average solar system payback period
  • Financial benefits of owning a solar system

  • Federal and state-level incentives that boost your ROI

  • Pitfalls to watch out for that could prevent you from getting the ROI you deserve 

The Initial Investment in Solar Energy

The journey to energy independence begins with installing solar panels—an investment that pays off over time. 

The cost of a residential solar system varies based on factors like location, energy needs, and installation size. As of 2023, the national average cost to install a solar system is between $20,000 and $50,000. 

Many factors like panel quality, roof shading, house orientation, and your energy production needs affect the final price of a solar system. 

As a homeowner, you’ll only be able to find the price and system size that will best meet your needs by booking a consultation with a reputable solar installer

The Average Payback Period of Solar

The best part of owning a residential solar system comes after the payback period (the time it takes for your solar investment to cover its initial cost through electricity savings). 

The solar panels on your rooftop will likely generate enough energy in a decade or less to offset installation costs, but depending on where you live, there are several influencing factors that affect the total payback time. 

On average, homeowners in the United States can expect a payback period of 6 to 12 years. In PA and New Jersey, the state incentives are vastly different, so payback periods will differ.

The average home solar system we build in Pennsylvania pays for itself in 8 to 11 years (and produces power for 25 to 30 years, offering homeowners almost 20 years of power bill savings).

We’ve seen New Jersey homeowners who invested in solar systems hit their payback period in as little as 5 years. New Jersey has a very favorable SREC program (more on SRECs below), so systems pay for themselves faster in the Garden State. 

We’ve written comprehensive articles on going solar in New Jersey and Pennsylvania that lay out state-level incentives, SREC programs, and the process of going solar. If you’d like to read about your state’s residential solar plan, you can access them here:

Your Guide to Pennsylvania Home Solar in 2024
Your Guide to New Jersey Home Solar in 2024

When you schedule a consultation with Exact Solar, your sales engineer will work with you to generate a quote for your unique home that will lay out what length of payback period you can expect.

If you’re a PA homeowner, don’t let the longer payback period discourage you! New Jersey is an extreme outlier, but just because Pennsylvania’s payback period is a bit longer doesn’t mean that solar is not a great investment in the Keystone State. 

The Financial Benefits of Solar

By investing in a solar system, you are likely to begin saving money from day one. On average, a residential solar system can lead to significant savings on electricity bills, with most homeowners reporting a 70% to 100% reduction in their total energy costs.

If you finance your solar system, you’re exchanging your monthly utility cost (which can be raised anytime at the whim of your power company) for a fixed-rate bill payment that won’t go up until your payback period has been met. You’re opting out of 25 to 30 years of rising utility bills. 

If you pay for your system outright, you get an immediate reduction or elimination of your utility cost that will last for the life of your solar system (25 to 30 years). 

If your monthly electricity bill is $300, a solar panel system covering just 80% of your energy needs could save you $240 monthly (after your payback period has been met). Over a year, this saves you $2880. Throughout your system’s 30-year lifespan, you could save $86,400 or more. How would you spend that extra money? 

As if that weren’t enough, going solar can even increase your property value.

As the owner of a residential solar system, you generate your own electricity, ultimately reducing or eliminating dependence on utility companies. This energy independence shields you from volatile energy prices and allows you to contribute to a sustainable future.

Going solar is more than just financial savings; it’s a declaration of self-sufficiency and a commitment to reducing your carbon footprint.

Once the payback period has been met, homeowners enjoy the true financial rewards of their solar investment! 

Regardless of whether you choose to finance your solar system or buy it outright, you can claim 30% of the total system cost back on your taxes the next year. This is given to you as a credit, greatly reducing your tax liability. Read on for a more in-depth summary of the Investment Tax Credit and other incentives. 

Incentives that Boost Your ROI

There are several incentives in place to encourage solar adoption, including:

  • Federal Investment Tax Credit (ITC): Thanks to the Inflation Reduction Act, homeowners can claim a 30% tax credit on the overall cost of their system until 2032. This tax credit is only available for homeowners who purchase or finance systems outright; it does not apply to leased solar panels.

    Important Note: Eligibility for this credit is based on your financial situation, so it’s wise to consult with your tax professional before exploring the best solar panels for your home.
  • Net Metering: Picture net metering as “banking” your home’s solar energy output. When the sun shines with the highest intensity in the summer, your solar system will probably generate more energy than your home needs. Your utility company will automatically “buy” this additional energy.

    During periods of low solar intensity, such as wintertime or at night, the utility company will “sell” the additional energy your home generated back to you.

    In the summer, when you use your AC, you might consume more energy than you produce. During the winter, you might generate more energy than you require.

    Homeowners who invest in a system that replaces their entire energy usage often discover that they only need to pay their utility company’s $10 service fee every month!
  • Solar Renewable Energy Credits (SRECs): These credits are automatically produced per 1000 kilowatt-hour (kWh) a solar system produces. 

    The price fluctuates based on supply and demand, and this is where Pennsylvania and New Jersey differ. Because Pennsylvania doesn’t require that a high percentage of its total energy be solar power, SRECs aren’t as valuable as in neighboring New Jersey. 

    A Pennsylvania home solar system owner can expect to earn a few hundred dollars yearly from their SRECs if their solar system produces more energy than they use. A New Jersey system owner can expect to make a few thousand dollars from their SRECS. 

Factors that Could Hinder the ROI on Your Solar System 

  • Not choosing a reputable installer.
    One of the key factors influencing your return on investment (ROI) is your choice of installer.

    Opting for an installer without an established reputation or solid experience can significantly hinder your solar system’s efficiency and longevity.

    Reputable installers work with high-quality panels and equipment. They ensure correct installation, which is vital for peak energy production.

    An inefficiently installed system will underperform, lowering energy output and increasing maintenance costs. Even worse, an unreliable installer may go out of business, leaving you with no way to claim the warranties on your new solar equipment.

    Established installers offer better warranties and after-sales service, safeguarding your investment. Choose an installer that’s been around for a long time that you know will be there when you need them.
  • Not Getting a System That Provides Per-Panel Monitoring

    Investing in a solar system without per-panel monitoring is a significant oversight for homeowners looking to maximize their ROI. 

    Per-panel monitoring allows you to track the performance of each panel, ensuring that all parts of your system are working correctly and that each panel is providing precisely the output it should be.

    One of the biggest national installers working in the residential space currently doesn’t offer per-panel monitoring. They provide a low upfront price, but homeowners can’t check how their system performs over time, so the homeowner loses money in the long run. 

    Per-panel monitoring allows homeowners and anyone troubleshooting the system to quickly identify and address issues like shading, dirt accumulation, or technical malfunctions.

    Underperforming panels often go unnoticed without per-panel monitoring, reducing the system’s energy output and efficiency. 

    If each panel functions exactly as it should, it translates to higher energy production, lower electricity bills, and a more robust ROI on your solar investment.
  • Not using per-panel monitoring after your system is installed

    Per-panel monitoring is only beneficial if you actively use it. 

    Even if it’s just ten minutes that you check in once per month, you must check in once in a while to ensure your system functions to its potential. 

    Neglecting to check in can lead to lost energy savings. 

    Regularly checking your system’s per-panel data allows you to make informed decisions about maintenance and adjustments. Identifying a consistently underperforming panel could indicate potential issues like shading, dirt, or equipment failure. 

    These are easy to fix and will be included in your maintenance agreement if you work with a reputable installer. But letting them go for too long can compromise your system’s efficiency. 

    Additionally, monitoring can reveal patterns in energy production, helping you understand and manage your household’s energy consumption more effectively. Active engagement with per-panel monitoring enhances your solar system’s productivity and ensures maximum ROI

Are You Ready for Energy Independence?

There’s only one way to find the best possible information for your unique home: schedule a consultation!

With 19 years of service behind us, the Exact Solar team is dedicated to educating customers about how solar energy systems function. Our team of solar experts will provide you with a custom proposal for your own home, ensuring that you receive the most accurate information available.

You will never get any high-pressure tactics from our team – just good information, a helpful evaluation of the economics, and a helping hand to guide you on your solar journey! Contact us to get started on your solar energy journey today!

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