Broker Check

Investing in Solar

| January 30, 2023

With home electricity prices still elevated in many states, more and more people have considered solar panels as a way to reduce their monthly costs. Some people choose to install solar as a matter of principle as they seek to reduce their carbon footprint. Others are more concerned about the financial cost/benefit of paying for solar panels.

The truth is that the financial benefit from installing solar panels can differ from person to person depending on the cost of solar installation in their area, the cost of electricity in their region, and the benefit they may receive from tax credits.

The typical equation used to determine the cost/benefit of installing solar panels is to take the estimated cost of installing solar which includes the cost of materials and labor and subtract 30% for the federal tax credit. Of course, this assumes that the taxpayers’ estimated tax liability is large enough for them to get the full tax benefit from the credit. This determines the net cost of installing solar.

Next, take the amount of savings that is expected based on the reduction in the monthly electricity bill. Divide the net cost of solar by the monthly savings to determine the period required to breakeven.

 Finally, an analysis must be done to determine how long the solar panels are likely to last. In this case the warranty period may be used. Today, many solar panel manufacturers offer 25-year warrantees. Then compare the breakeven period to the warrantee period to compare the short-term costs and long-term savings from installing solar.