Does Switching to Solar Energy Save Money?

by Annabella Gualdoni, Demand Media
    Solar panels can save homeowners money over the long-term.

    Solar panels can save homeowners money over the long-term.

    Solar power is a renewable source of energy and helps prevent the use of fossil fuels. It's friendly to Mother Earth, but there are question marks over whether it's friendly to your wallet. There is strong evidence that switching to solar saves money in the long run, but the initial costs are high and prohibitive for many homeowners.

    Uses of Solar

    Home heating, hot water systems, swimming pool heating, and indoor and outdoor lighting can all be powered by solar. Solar works most efficiently in geographic regions with a lot of solar energy, like the Southwest. If you're lucky enough to generate more electricity than you personally use, in some areas you can even sell energy back to the electric grid.

    Photovoltaic Systems

    Residential solar power comes through photovoltaic (PV) systems. Initial installation costs depend on factors such as size, equipment specifications, permits and labor. Though prices have declined as technology has improved and become more widespread, you can still expect the price of installation in an average home to hover in the $20,000 range. You can calculate your average annual electrical costs to determine how many years it will take for you to see a return in your investment, keeping in mind that solar panels will also increase your home value. If you spend $150 per month on electricity, it would take more than 11 years to recoup an original cost of $20,000. After the payback period you are bound to reap financial benefits.

    Hot Water Systems

    Solar water heating systems can potentially save you money, but they only work if you have an unshaded, south-facing location on your property. Installation costs range from $1,000 to $4,000 depending on the type of system. You must compare costs with conventional water heating systems to determine if switching is right for you. Solar water heaters quickly earn back their costs if you're converting from an electric water heater. If you're changing over from a more efficient gas system, however, the savings will not be as great.

    Incentives and Alternatives

    Federal, state and local governments as well as utility companies periodically offer rebates and tax incentives for switching. These can take the sting out of costly installation, but programs vary greatly from year to year. A handful of states allow lease programs and power purchase agreements (PPAs) which let consumers lease equipment or use equipment installed by a private company, which then sells the solar power back to its customer. These are options for homeowners who want to use environmentally friendly energy but cannot afford the high costs of owning their own system. PPA and leasing companies generally sell energy at a cost lower than that of the local utility company, and many offer guarantees that costs will not rise.

    Harnessing the Sun for Free

    Don't forget a few simple and old-fashioned ways to harness the power of the sun for free energy without fancy panels or special gizmos. Electric or gas dryers are some of the biggest energy hogs in the house, so line drying your clothes will save you money on your power bills. Some communities and homeowners associations prohibit line drying, so make sure yours doesn't before you hang anything outside. The U.S. Department of Energy also advocates "daylighting," which is using windows and skylights to bring natural light into the home and reduce the need for artificial lighting.

    About the Author

    Annabella Gualdoni has written newsletters and reports for corporations and nonprofits since 1994. She is a real estate professional and also teaches subjects including international cooking and travel, dating/relationships and personal finance. Gualdoni has a Bachelor of Arts in international development from University of California, Berkeley, a Master of Arts in international relations from Boston University, and a Juris Doctor from Boston College Law School.

    Photo Credits

    • Jupiterimages/Photos.com/Getty Images