After many researches and calculations, here’s the basics understanding of solar panel and its financial impact. I have set up a calculation to show you how many years it will take to break even, and you can use this to decide whether it is worth it.
1. Figuring out how many kwatt you will need
You can use this estimate tool PVWatts. After entering your zip code, you should be able to see ”SOLAR RESOURCE DATA” on the next page. Click on “go to system info” on the right hand side and get more details on your zip code.
Based on this analysis, I use 5,665 kwatt a year, and a solar panel producing 4 kwatt will be sufficient cost cutting. Installing enough solar panels for 5 kwatt may be harvesting more electricity than I use and result in me helping the utility company collect energy for free as the utility company only “return” how much is used and does not give you cash for collecting extra energy in a year. Side note: this analysis is surprisingly accurate based on my monthly electric bills.
2.How much does it cost to put in solar panels?
Mr. Money Mustache built his systems around $1.08 per watt – which is super cheap. By his dollar per watt ratio, I should be looking at spending at least $1.08 * 4,000 watts = $4,320.
But reality check hits me like a giant frying pan on the head. I called one of the local companies here, and they gave me a quote of a wapping $21,000 for a 4 kwatt system, claiming that I only have to pay $87 a month and pay it off in 25 years. WOW! Maybe they think I am made of money, or stupid, or BOTH! 25 years of paying the solar company instead of the utility company? Why would I ever do this and dig myself a giant hole and be buried in debt?
I followed Mr. Money Mustache’s link to a DIY website where you can purchase the solar panel kits and install it yourself. The panels for 4 Kwatt is $6,300 and I am estimating labor cost (of hiring a handyman to install this panel with me) will probably cost me between $500 – $2,000 which brings my dollar per watt close to $1.50.
($6,300 + $500 installation) * 70% (tax break 2019*) = $4,760 / 4,000 watts = $1.19 per watt
($6,300 + $2,000 installation) * 70% (tax break 2019*) = $5,810 / 4,000 watts = $1.45 per watt
*Pro tip: There is a tax credit of 30% of the solar credit. IRS form 5695 for residential energy credit. This credit will be phasing out from 2020 onward. Tax credits are “dollar for dollar” off the tax bill you owe to the IRS, so it is correct to think that 30% of the solar installation and material costs per IRS instructions.
How many years of using solar panel would break-even
This is where the important part of calculation comes in to decide whether it is worth it for you.
Cost of the system / annual electricity bill = Break-even years
In my example, it will break even in $5,810 / $908 = ~6.4 years.
6.4 years to earn the money back I spent on the solar panel sounds reasonable to an average household planning on spending 10+ years. Since I am not planning on staying in this area for more than 3 years, it is not likely I will benefit from the solar panels. Once this house becomes rental property, the tenant will be responsible for the utilities. Therefore, I would be investing this money into saving someone else’s utility bills.
Of course, the house you buy may be a permanent resident of yours. In that case, I think solar panels are a great idea this year considering the tax credit is phasing out.
There are other steps to be considered if you decide to make this a DIY project (and it will be cheaper and more rewarding I am sure). Here’s more details from MMM on obtaining a permit, and you may need to hire an electrician at the end to connect the power harvested by solar panels back to the city grid.
Overall solar panels are a great way to reduce electricity bills (just electricity, nothing else!). There are many other ways to conduct an audit of electricity usage in a house. It is not the only way to save money and conserve energy. By just looking at my electricity bill trend, it is very easy to notice that I have spikes in the summer and winter for using my A/C and Furnace. If we set the thermostat a little lower in the winter and a little higher in the summer, it will also save utilities.
After the calculations above, I realized that solar panels aren’t for me at the moment, even with the enticing tax credit in 2019. It certainly is a great way to long-term energy efficiency. It makes me happy to go green and save the planet, but for now, I will stick with my space heaters and recycling efforts.
For the rest of you who are considering installing a solar panel, I hope this is helpful to evaluate whether solar panels are right for you. And happy sunbathing 🙂