How much money can I save with solar?
A step-by-step guide to calculating your solar savings, starting with understanding your electric bill.
You can probably save money with solar. I say probably, because whether or not it’s a sound financial decision depends on a lot of local and personal factors.
The first thing you should do is find out how much electricity you use and what you’re paying for it. Get a copy of your latest electricity bill. It’s a good idea to become familiar with your electric bill in general, because your seasonal usage patterns can help you identify opportunities for you to save money. Also, if you end up working with a solar installer, they will want to see a copy of your bills.
Once you have your bill in hand, there are a few things you want to learn:
How much electricity you use in a year, in kilowatt hours (kWh)
Your utility bill will tell you how many kilowatt hours you used in the previous month, but what you really want to know is how much you use in a year. This is because most people have large seasonal patterns in their electric usage, and as a potential solar homeowner, you want to understand what your costs over the entire year are.
A lot of bills display a little chart like the sample above that show your electric usage in the previous 12 months. Sometimes it will list the actual kWh numbers as well, but this one doesn’t. If this is your case, you’ll need to go back through your billing history to sum up your total kWh for the year if you want an accurate number. However, if you’re good at reading charts, you could just estimate your year total using the chart alone. It won’t be as accurate, but a good estimate is fine for this exercise.
This is because your electric usage isn’t the same every year. Your air conditioning or heating usage changes with the weather, or maybe one year you decide to add or upgrade appliances.
Solar generation varies from year-to-year with the weather as well. So, it’s not really possible to size a photovoltaic system to match exactly 100% of your annual electricity needs every year. You’re aiming for the average, so your best estimate here is fine for now. If you do work with a solar installer, they may ask to review the actual numbers.
How much you’re paying for electricity per kWh (variable costs)
Next, you want to know what you pay for electricity. Reading this part of your bill can get confusing really fast, because the price is often broken down into many components, including separate charges for electricity generation and electricity delivery. Taxes are also listed separately, as well as any miscellanous surcharges.
In addition, you might be on variable time-of-use pricing that charges you different rates for on-peak and off-peak hours. This becomes important if your utility company has a solar net billing scheme. Net metering is covered in the next article.
Except for variable pricing, the sub-components of the price aren’t important for this exercise, because you just want to know the overall variable cost portion of your bill, which is usually broken down into line items that are a mutiple of your kWh usage like in the sample below.
Every electric bill looks different and has different labels for the individual components of your pricing, but none of those matter in the big picture of understanding what your overall costs are. In this sample, you can see many line items that include “260 kWh x” (your number will be different each month). These are the parts of your bill that increase or decrease with your electric usage. Taxes are also part of this, because the more electricity you use, the more tax you pay.
On this bill, the numbers are added up and summarized as “Total Electric Service”. Your bill will label this differently, but it will have a similar summary.
Take that number and divide it by your total kWh usage. Here, that would be $52.78 ÷ 260 kWh. This gives you $0.20 per kWh.
You want to understand this part of the bill because it’s the money you can save by going solar. For example, if you have solar panels that generated 260 kWh in that month, this portion of your bill would be zero. If you generated more, under net metering you would actually earn a credit.
Now that you know your cost of electricity, you can use it to help decide whether you should go solar. This is because having a high cost of electricity makes every kilowatt hour of solar electricity you generate more valuable.
In 2019, the average residential rate for electricity in the United States is $0.12 per kWh. This can vary wildly from state-to-state, and even within different utilities in the same state. The most expensive electricity is in Hawaii, which relies heavily on expensive oil burning power plants. Meanwhile, Arkansas and Louisiana tie for the cheapest electricity, where residents pay only $0.09 per kWh. (That incredibly high cost of electricity in Hawaii, coupled with plummeting costs, is behind an explosion of solar in the Aloha state, where solar now provides 11.24% of the electricity.)
Next, let’s understand the parts of your bill that cannot be eliminated with solar. Those are your fixed charges.
Your monthly fixed service charges
There are parts of your electric bill that you pay every month, no matter how much or little electricity you use. It’s often called a “basic service charge”, or something similar. It’s the basic fee you pay for having electric service hooked up to your home.
Having photovoltaics will not eliminate this part of the bill, so whenever you are doing the math to determine your solar payback, factor this part of the bill into your calculation.
Now that you understand your electric bill and how much electricity you’re using, you can start to think about how big a photovoltaic system you want. It’s common to size your system to produce 100% of your average usage, but you don’t have to do that. If you want to get a less expensive system that reduces your bill by 50%, that’s still a great benefit.
What you can’t do with a grid-connected system is generate significantly more than 100% of your average yearly consumption. Utilities don’t permit that, and some incentive programs have an explicit rule against that too.
How do you figure out how many panels you need? Unfortunately, it’s not as simple as looking at the rated output of a panel and multiplying by the number of hours in a year. For example, my home has 18 panels with a rated output of 260 Watts each. If the sun was shining brightly 24 hours a day, 365 days a year, those panels would produce 40,997 kWh.
But of course, the sun doesn’t shine continuously or always directly overhead, but instead follows an arc across the sky. Clouds roll by, trees grow leaves in the spring and shade your house, snow falls in the winter, birds poop on your panels, pollen settles and mottles everything a little orange. Also, the inverters that convert DC power from the panels to AC power that your home can use aren’t 100% efficient, so a little power is lost in the conversion.
Because of all that, instead of producing a theoretical maximum of 41 mWh, my system gave me 5,841 kWh in 2016.
All these different variables make the calculation quite difficult for the average person. One way to get the numbers is to contact a solar installer, who will examine your home (sometimes just from Google Maps satellite images) and run the numbers through modeling software that takes into account many local variables such as the pitch and direction of your roof, the average climate and cloud cover for your city, electrical losses, and shading from trees. For this, many companies use an open source software package from the National Renewable Energy Laboratory called SAM.
This same software is behind our solar cost calculator. To use it, enter your zip code, which allows it to factor in the local climate and angle of the sun. Decide which part of your roof you want your panels mounted, then enter the angle and direction of the roof. It also asks you to enter a system size in kilowatts. If you’re not sure, just select the middle value.
After you hit calculate, you will see an estimate of how much electricity you could produce, what the system would cost, and how long it will take for you to recoup your investment.
If the estimated annual electricity production is more or less than you want it to be, go back and choose a different number for the system size. Adjust it until the system configuration is producing how much electricity you want. Just remember that you don’t want to go very far over 100%.
This takes into account federal, state, and local direct incentives and tax credits so you can get a pretty good estimate in just a few seconds. It uses the most recently available data on the average solar installation cost by state, but the price you get from an installer could differ significantly. There are important choices that go into designing a system, especially the panels and inverters. Labor costs also differ from company to company.
The Solar Nerd Calculator is not intended to replace a consulation from a solar professional, but the rough numbers it gives are good enough to help you find out if a photovoltaic system might be a good investment for you. If the projected payback period seems like a reasonable time frame for you, then definitely work with a professional installer to get a true quote and a more accurate projection. (We can help with this too.)
Even if the payback period is longer than you would like, for many people there are non-financial factors such as contributing to a cleaner environment, helping your community to be energy independent, and supporting local jobs are as much a part of the decision to go solar. Ultimately, it can come down to a decision that is based on your personal values and the things that you believe are important to your community.
Once you understand your electricity costs, the next step is to figure out how solar can help recoup that investment. The next articles in this series are about net metering and the many types of incentive programs available to the solar homeowner.