The great solar energy debate continues to rage. The prevailing opinion is that while it's ok in theory to attach solar energy panels to our roof, the upfront financial costs render it impossible for the average family. At first glance and without bothering to research the matter further, there seems to be more than a ring of truth to it. However, this does not take into account the various different scenarios including Federal tax credit and tax rebates. At the moment, there are still some states in America that make it difficult financially for residents to purchase and install solar panels while states like California offer huge incentives.

Installation Cost

Let's tackle the first issue which is of course the cost of installation. This depends on a host of factors which are about to be explained. These factors are:

  • The amount of energy generated in your home. The national American average is estimated at 920 kWh or Kilowatts per hour.
  • What % of your power you want the solar panel to use. It is possible to purchase a system that accounts for just 10% of your system or you could install a system designed to completely rule your energy output.
  • Energy generated by kWp of system. KWp is peak Kilowatt output. This figure depends entirely on where you are located. An area with a high level of sunshine is more cost effective because more energy is generated in the sun than during cloudy conditions.
  • The above factors decide the size of the system needed which is measured in kWp.
  • Solar panels are priced per watt. If you install them yourself, expect to pay around $3 per watt. However, installing them can be difficult. It may cost anywhere between $5 and $9 per watt to have the panels installed.

Using the above information we can estimate the cost of installing solar energy in an average home for example:

  • Average household energy used - 920 kWh
  • % of power created by solar - 100%
  • Energy per 1 kWp - 135 kWh per month (would be less in other areas of the country)
  • System size needed - 6.8 kWp using the above data
  • Rate of installation - $6 per watt because it was installed for you

Too Expensive?

When all this data is included, the total cost of installation is $40,800. It seems like opponents of solar energy are correct, it is far too expensive. Citizens of this country cannot be expected to pay almost $41,000 up front for a system. Such a system would be designed to deal with your electricity needs for up to 21 years. So how does this compare to the cost of regular electricity over the same period?

The average cost of normal electricity in the United States is approximately 12 cent per kWh. However, we also have to factor in the rising costs of energy. Using an ultra conservative increase of 4% per annum, the cost of energy for this home would be $27,821 over the next 21 years. But wait a minute? That means our example home will still be paying $13,179 extra. Helping the environment is one thing, losing such a large amount of money is another.

This is exactly what state governments are starting to realize and this is why they are offering incentives. The state of California for example are offering rebates of up to $2.50 per watt. Texas offers a tax rebate of up to $4.50 with Colorado also offering rebates up to this amount. The US government has also got in on the act by offering a Federal tax credit which is 30% of the cost of your system after any state rebates have been subtracted from the total.

The True Cost

All of a sudden, solar power has become a whole lot cheaper. Going back to our example above, the $40,800 soon becomes dramatically reduced. Using the $2.50 rebate offered by California, $17,000 automatically is taken off the price (size of system 6.8 kWp * $2.5 per watt or $2.50 * 6,800). This reduces the price to $23,800. Now we also have to take into account the 30% Federal tax credit. Unlike a tax deduction which simply reduces the amount of tax on your income, tax credit is taken off your taxes so is essentially a windfall.

30% of $23,800 = $7,140.
$23,800 - $7,140 = $16,660.

Now compare our new figure to the cost of a regular energy bill over 21 years (remember, this is the estimated life expectancy of your solar energy system). This figure was $27,821.

$27,821 - $16,660 = $11,161.

Suddenly, solar energy is saving you a total of $11,161 over 21 years. This works out at just over $531 per annum. If you are the conscientious type, perhaps you would like to put an extra $531 into a savings account each annum to maximize your profit from going green.

The above is just one example of the money that can be saved on solar energy. Some states are offering the option of rental which ensures solar energy panels are affordable for everyone. The savings may not be obvious but if you're patient, they will gradually creep up and bolster your bank account. You also have the added satisfaction of knowing that you're doing your bit for Mother Earth.