How Are Solar Savings Calculated?
If you've ever considered having solar panels installed for your home or business, you've undoubtedly had questions. How much will the system cost? Will I have to pay anything out of pocket? Will solar actually save me any money on electricity? And likely many others. Enter World Wide Web. So, you go online and attempt to find the answers to your questions, only to end up with more questions than when you started. There is a lot of information on the web, and, unfortunately, quite a bit of misinformation out there as well. The purpose of this article is to address one of the more subjective areas of solar – the highly touted estimated solar savings.
‘The average solar home will save $26,000 over the life of their agreement – that’s while still making payments on the system. That number will increase significantly after the system is paid off, and it will continue to produce clean, renewable energy at virtually no cost for years to come.’
That’s a pretty bold statement. Is it true? Let’s look at how that number, $26,000, is calculated. Let’s say, for the sake of this example, that Bob uses 2,000 KWH each month. Assuming he pays a fixed rate of $.12/KWH, his electric bill would be $240.00 ($.12 x 2000 KWH = $240) plus taxes and other fees. But Bob didn’t used to pay that much for electricity. He’s been in the house for 20 years and he clearly remembers paying just $140.00 before tax for the same 2,000 KWH. That means that he was paying $.07 per KWH ($140.00 / 2,000 KWH = $.07/KWH) in 1999. Bob went from paying $1680.00 per year for electricity to paying $2880.00 before taxes and fees – a $1200 difference! As it is, the cost of energy increases subtly (about 3% per year) over long periods of time, making it difficult for consumers to quantify the changes. Energy prices have increased very consistently over the past 30 years and there is no reason to believe they won’t continue to climb. Below is a chart showing how much energy prices will rise in the future, assuming they continue to rise at a consistent 3% per year.
As you can see from the chart above, if your average electric bill is $300.00 per month, or $3600.00 in a year, then 20 years from now, in 2040, you will be paying $6502.00 per year, or $541.83 per month on average. Furthermore, over the next 20 years you will pay over $103,000 for electricity! Let’s take this one step further by looking at a different chart. The next chart will show you how electricity prices would look if energy costs were static, as with solar payments.
To continue with the example, if your cost of electricity remains static, paying $3600.00 per year, then rather than pay a whopping $103,000 over the next 20 years, you would only pay $75,900.00 – that’s over $28,000 in savings. By going solar, homeowners can insulate themselves from rising energy costs. Solar payments are consistent and easier to budget, since the bill is the same every month. Simply put, by going solar you’re able to save the money that you otherwise would be spending on electricity as the price continues to rise.
Of course, the biggest savings will come after the system is paid off. When the solar payments disappear, you’re left with only a tiny fraction of what you used to pay. If your solar system can offset 100% of your energy consumption, then you will only be paying the utility company a very small fee for grid maintenance, since you’re still tied to the grid. How much you will be charged varies from company to company, but generally it is about $15.00 and rarely more than $50.00.
The truth is these numbers are all educated guesses based on real-world historical data. There is always the possibility that technology or other factors could lower the cost of electricity, just as it’s possible that legislation could drive costs upwards. Historically, the cost of electricity has risen consistently, year after year. The price per KWH has rarely ever gone down, and the few times when it did decrease were followed up by a steep correction the following year, erasing any of the savings for consumers. This trend is likely to continue, if not escalate. How much will electricity cost in 20 years? Nobody really knows for sure. If the past 20 years are any indication, prices will nearly double.