At Solar Power Rocks, we love three things: people, solar power, and data. If we had to make it five things we’d probably add music and “foodbeerwineliquorbookstravel” to the list. That’s just two more things, right?
Anyway, we believe in sharing information with homeowners about what they can expect if they add solar panels to their home, and we do that by telling stories. Some of our stories involve practical things, like how solar panels are attached to your roof and how to negotiate with a solar installer. Others, like our famous financial estimates, involve lots and lots of data.
We pride ourselves on “telling it like it is,” and making accurate estimates for the financial return of installing solar. We hold ourselves to a high standard of honesty and transparency in those estimates, so it’s only right that we play cards-up, and tell you about the sources we use to make them.
If you’re interested in whether solar panels are right for you and your home, we hope you find our estimates to be accurate and honest. But we don’t have a crystal ball.
Note: Every home and every homeowner is unique, and how much you can save with solar depends on that uniqueness. The only way to get a 100% accurate estimate for home solar panels is to get quotes from local installers. Compare at least three, if you can, and choose the one that’s right for you based on that comparison.
If you’re ready to proceed with getting solar quotes, fill out our form, and we’ll have our expert solar installer partners reach out to you.
How We Calculate Solar Power Savings
Solar Power Rocks maintains a huge wealth of information about home solar power in the USA, including our state pages, annual State Solar Power Rankings Report, Frequently Asked Questions about solar power, and articles about solar policy and incentives nationwide.
On every state page, you’ll find solar power savings calculations that show the expected 25-year returns for an investment in solar power. We run the numbers for 3 ways to pay for solar: cash purchase, solar loan, and power-purchase agreement (PPA). The charts we make look like this:
The green bars in that chart above show that a cash purchase of a 5.2-kW solar installation in California will cost you $10,732 in the first year, pay itself back in 7 years, and earn you a 25-year return of $45,225. The orange bars represent a loan, which earns you a net benefit in year 1 because of the federal solar tax credit. Finally, the blue bars show what happens if you sign up for a solar PPA and pay for the electricity produced by the panels.
It’s great to be able to look at a chart and quickly compare 3 different ways of paying for solar, but why should you trust that chart? What special knowledge do we at Solar Power Rocks have that makes us an authority on this calculation?
Well, the rest of this article is an answer to that question. Buckle up, because it’s going to get mathy!
The Numbers We Use
Here’s what goes into our solar savings estimates:
|The Number We Use:||Measured In:|
|The upfront cost of solar panels, before incentives||Dollars per watt|
|Average household electricity usage in each state||Kilowatt-hours (kWh) per year|
|How much electricity a solar panel can produce, in each state||kWh per kilowatt of solar panels, per year|
|Available solar incentives by state, and the federal solar tax credit for all states||Dollars per watt, cents per kWh, percentage of total costs|
|The average cost of electricity in each state, including the average rate of increase||Cents per kWh, percent per year|
|The dollar amount solar owners can expect to be credited for energy produced and sent to the grid||Cents per kWh, years in contract|
|How long solar panels last, and by how much they degrade over time||Percent per year|
|The cost of financing solar panels over time and terms of PPA contracts||APR (financing), percent per year (PPA escalator)|
Let’s look at each of these numbers in order.
The upfront cost of solar panels
The first step in figuring out how much you can save with solar panels is figuring out how much the dang things cost in the first place. But that’s not easy. As we always say, “every home and every family is unique and your ability to save with solar panels depends on that uniqueness.”
Lots of factors can change the price you pay for solar: Easy roofs vs. complicated roofs, the price the installer paid for the modules they’ll use, the cost of labor in your state, the cost of filling out all the paperwork, the number of jobs the installer has scheduled, and more. That’s why we use averages.
Unfortunately, the average cost of solar panels is the absolute trickiest number to get right, because it’s what’s known as a “trailing indicator.” That means the data we have about past home solar prices is just that: “past.”
Another complication is the way many of the sources we use measure that data. Some report it using skewed that include lowball solar quotes rather than accepted final contract prices. Some report the data absent any profit for solar developers, which would add a bit to the final price. Finally, some use numbers from developers that install solar under PPA contracts and enter artificially high cost-to-install numbers into their paperwork in order to maximize their federal solar tax credit.
Our solar cost data sources:
- The Lawrence Berkeley National Laboratory’s annual Tracking the Sun reports
- Wood Mackanzie’s quarterly U.S. Solar Market Insight reports
- California Distributed Generation Statistics NEM Currently Interconnected Data Set
- Other databases, from New York, Massachusetts, Connecticut, and the Open PV project
- EnergySage’s biannual Marketplace Intel Reports™
- Various: Industry trends, installers, anecdotal reports, etc
We consider all these sources and fold them into our price estimate process. We can’t get into the magic behind exactly how we use these data sources to determine our final numbers, but you can see our current average cost of solar panels by state.
Average household electricity usage in each state
One of the best places to get data about how Americans use, produce, and transmit electricity is the U.S. Energy Information Administration (EIA). The EIA is a government agency that maintains gigabytes upon gigabytes of data about the energy systems in our country.
The specific information we need from EIA for this step is simply average annual electricity use by state. It’s one of the two numbers we use to determine the number of solar panels the average family needs; first you find out how much electricity they need, then you find out how much electricity each panel can make in the next step.
The numbers we use come from EIA’s “Household Energy Use” reports, like this one for Texas. They can generally be found near the bottom of the page on a state’s energy profile, under the heading “Summary Reports” like this:
These numbers are excellent, because they tell you the average usage, which is helpful for our estimates. But not every home is average, and other than insolation, all the other variables in our estimates depend on how much energy you use.
For example, if you have an electric oven, stovetop, water heater, and/or clothes dryer in a state where most homes use natural gas, your usage will likely be significantly higher than the average. That’s why it’s critical to get a quote for your actual house.
Note: Not every state has this kind of energy profile from the EIA, but you can source these numbers for all states from EIA’s Electric Sales, Revenue, and Average Price reports.
How much electricity a solar panel can produce, in each state
This is by far the simplest number we use, because data about solar production has been tracked by the National Weather Service (NWS) for the past 60 years. The national solar radiation database has all the data you could ever want about average insolation in the United States, down to tiny little 4-km² areas.
We don’t use the tiny 4-km² areas in our state page estimates, however. We use this map, which was produced by NREL based on the NWS data:
The map has segments that represent how many kWh can be generated by a kW of solar panels. Some states contain multiple segments, and in this case, we choose the average or the segment with the largest population. For example, California has segments from 2000 kWh/kW-yr all the way down to 1600 kWh/kW-yr, but most of the people in the state live in the 1900 region, so our estimates for CA assume an average annual production of 1900 kWh/kW-yr.
Putting it together: With the last two numbers, average electricity usage and production per-kW of solar panels, you can determine average solar system size by state. This number is the beginning of all the other numbers, because incentives and electricity production depend on system size, and cost also adjusts based on system size (cost per watt generally goes down as system size gets larger).
Available solar incentives by state, and the federal solar tax credit for all states
Here’s the next-most complicated category of numbers we need, not because the data are so unclear (as with system cost), but because they’re absolutely specific, but different for every single state, sometimes within states as well, by city or utility company.
There are 3 kinds of solar incentives that we include in our financial estimates:
- Solar rebates, which usually applied as dollars-per-watt.
- Solar tax credits, which are usually applied as a percentage of total costs, and are sometimes, but not always, calculated after any rebates are taken out.
- Performance-based incentives and SRECs, which are paid out on a cents/kWh or $/MWh basis.
Additionally, there are solar sales tax exemptions (which we bake into our final cost of solar $/W number) and solar property tax exemptions, which we don’t account for at all, because they’re pretty nebulous in terms of dollar value.
Where we get incentive data
The place we, and most of the renewable energy world, starts looking for incentive data is the Database of State Incentives for Renewable Energy, aka DSIRE. DSIRE started as part of the NC Clean Energy Technology Center at North Carolina State University, but has since had some trouble with funding and keeping the lights on and has turned to the industry to support their mission.
Most of the data DSIRE maintains is updated regularly, and its database can be queried by using numerous filters to find exactly the kind of programs you’re looking for, in the state you’re interested in. But legislative and utility policy is by nature always changing, and DSIRE doesn’t always have current information.
In those cases, Solar Power Rocks staff do exhaustive research by seeking out incentive information on utility company websites, state PUC public filings, incentive program dashboards, and more. We do our best to update our state pages at minimum once per year, unless something big changes.
How incentive data is used in our calculations
As we mentioned above, incentives are very complicated, and require a flexible calculation to factor them in.
Rebates are generally the easiest, because they are usually paid directly to installers to reduce the up-front cost of solar for their customers.
Tax Credits generally represent a percentage of the total cost, but some states restrict the maximum amount you can take to a certain percentage of your income or a certain dollar amount per year. In these cases, we apply the credit as appropriate based on average income in a state and factor the credits in over as many years as necessary.
Performance-Based Incentives are based on actual solar production, and often have contract terms for a flat rate per kWh over a certain number of years. SRECs can be sold either for a contract dollar amount or for variable prices on marketplaces, with a value that fluctuates based on the cost of Alternative Compliance Payments (basically, penalties assessed to utility companies if they don’t prove they bought enough SRECs). In the first case, we base our estimates for these incentives on the current contract price for generation; in the second case, we estimate the future price changes based on ACP schedules and historic SREC prices from SRECTrade.
Finally, when only certain utility companies within a state offer incentives, we tend to base our estimates for the state on people served by those utilities, unless the utilities in question serve very little of the state’s population. We note within the details of our estimates where we’ve chosen a specific utility upon which to base a state’s numbers.
The average cost of electricity in each state, including the average rate of increase
The first half of this number is easy. U.S. EIA maintains numbers on the average retail electricity prices in each state. Check tables 5.6a and 5.6b, which contain monthly and year-to-date electricity prices for every state in the union.
Again, these tend to be trailing indicators, and don’t represent actual electricity prices, but we can use historical data to predict what changes might occur in the future. We use historical numbers from the same EIA reports, as well as EIA’s short-term energy outlook to set expected future rate increases for our estimates.
Past performance may not always equal future results, but looking at electricity prices over the past 25 years can give us a relatively stable picture of how they’ll change in the next 25 years.
The dollar amount solar owners can expect to be credited for energy produced and sent to the grid
This is where things get really tricky, because many different utilities in many different states give credit for excess solar energy in many different ways. Of course, the best and most simplistic payment arrangement is net metering—also called net energy metering or NEM for short— which ensures that every kWh of solar electricity earns the owner 1 kWh off their bill at the end of the month.
In states with NEM, the calculation is easy, but many states and utility companies offer modified NEM, under which certain fractions of the retail price of electricity from the utility is not paid to homeowners for solar kWh. Other states allow utilities to pay “avoided cost” or wholesale rates for excess solar energy, which are calculated based on the utility’s average cost of buying wholesale energy from big power plants.
We’re not going to get too into the woods here, but in the absence of NEM, Solar Power Rocks staff searches through utility rate schedules and state PUC rulings to determine how much utility companies in a state are paying for net excess generation (NEG).
In the case that utility companies differ in how much they pay for NEG within a state, we tend to base out estimates on the policies of the utility that serves the most people. When this is the case, we note our choice within the estimate write-up.
How long solar panels last, and by how much they degrade over time
When it comes to how long solar panels last, the answer is fairly easy. Nearly all solar panel manufacturers provide a 25-year warranty for energy production, with some premium brands extending that warranty out to 30 years for workmanship and energy production.
Additionally, during those 25 years, solar panel warranties from Tier 1 manufacturers say the panels will degrade by only 0.5% or less per year of their ability to generate electricity. That lines up with a study showing a median degradation rate of 0.5% among all silicon solar panels tested.
The cost of financing solar panels over time and terms of PPA contracts
If you’re looking for take a loan for solar panels, it can get really complicated. Every financing company offers every installer different terms, and on top of that, installers can choose whether to pass on dealer’s fees or not, meaning they offer every homeowner different terms.
In order to level the playing field, all of our solar savings estimates rely on the simplest kind of financing: a home equity line of credit, or HELOC, with a fixed APR of 4.5% and a 15-year repayment term. That keeps our estimates consistent and simple. Even though a HELOC is not always the easiest loan to get, it is the gold standard when it comes to financing solar panels.
When it comes to PPAs, we assume a standard contract of 20 years, with an escalator clause that increases per-kWh cost by 2.5% per year; pretty standard in the industry. If you’ve been reading since the section on electricity prices above, you can see that 2.5% annual increase is pretty close to the average annual increase in electric prices, too (which means PPAs kinda suck, to be honest).
No generic solar savings estimate is as good as a professional solar quote.
The final word on our estimates? They’re just estimates.
As you’ve read above, we work hard to find applicable data to be as accurate as possible in our estimates, but we rely on averages and likely scenarios, and not specifics. The specifics matter.
So, when you’re ready to talk specifics, fill out our form to get in touch with our expert solar advisers in your area.
Last modified: April 10, 2020