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How to Calculate Your Projected Solar Savings

August 1, 2023

Many property owners wonder how to calculate solar savings before they invest in a solar array. This is a fair question, as you want to ensure you’ll enjoy a healthy return on that investment. Calculating your solar savings can also help you budget more accurately if you’re not paying cash for solar panels.

How to calculate solar savings:

  1. Assess your energy consumption.
  2. Estimate a solar system size and how much energy it might generate.
  3. Note electricity rates. Determine your annual solar offset.

Obviously, this is just a quick overview of how to calculate solar savings for your property. For added details and help in walking through the process, keep reading! Also, don’t hesitate to contact a solar panel installation contractor near you. In many cases, they can help determine your expected savings after a solar investment.

how to calculate solar savings

How to Calculate Solar Savings in Detail

First, it’s helpful to understand what is meant by calculating projected solar savings. Second, you can then walk through the steps noted above in more detail.

Calculating solar savings means estimating potential cost savings with a solar energy system on your property. Your projected savings depend on various factors, including your location and the size and efficiency of a solar system.

Also, you’ll need to consider local electricity rates, available incentives, and your energy consumption patterns. Here's a step-by-step guide on how to calculate solar savings:

Assess your energy consumption

Review your electricity bills to determine how much energy your household consumes on average over a year. Note, this isn’t just your cost but your actual energy usage, usually listed in kWh. You'll need this information to estimate how much energy those panels must generate to offset your consumption.

Check solar potential

Assess the solar potential of your property’s location. For instance, some areas receive more sunlight than others. This affects how much energy your solar panels can produce. Online tools and solar maps can help you estimate the solar potential at your location.

Based on your energy consumption and the solar potential of your location, you can determine the solar array you'll need. Solar panels are usually rated in kilowatts (kW) or kilowatt-hours (kWh). Your solar installer can explain how this relates to your energy needs.

Once you know a solar system’s size, you can estimate its energy production. The standard measure is kWh per year. This takes into account average sun hours, system efficiency, and other factors.

Determine your energy offset

Now, it’s time to compare the estimated solar energy production of those panels to your average energy consumption. The more energy consumption covered by solar production, the more you'll save on your electricity bills.

While going through these steps, remember to take into account electricity rates in your area. The higher those rates, the more savings you’ll enjoy with solar panels. Also, consider if that rate is likely to increase over time. To calculate your annual savings, multiply the estimated solar energy production by your electricity rate.

Also, you’ll want to consider financial incentives that will help lower your solar installation costs. This includes tax credits, net metering, or rebates to encourage solar adoption. Research the available incentives in your area and factor them into your calculations.

Account for system cost

Once you have some numbers in hand, you’ll want to consider the upfront cost of solar. This allows you to figure out your payback period, or the time it takes to recoup your investment through savings.

For instance, suppose you might save $1000 per year by installing solar. If the system costs $5000 to install, it takes 5 years to simply recoup that cost.

Once you’ve figured this payback period, you can apply your savings to all the years after that. In other words, you’ll actually start saving that $1000 after your sixth year of solar ownership.

installing new solar panel system and batteries

What Is the 20% Rule for Solar?

The 20% rule for solar is a general guideline used to estimate potential savings a solar system might provide. According to this guideline, a properly designed solar array should offset at least 20% of a household's annual electricity consumption.

First, determine your household's average annual electricity consumption, measured in kilowatt-hours (kWh). Second, estimate the size of the solar energy system needed to offset approximately 20% of your energy consumption.

While going through these calculations, remember that solar potential of your location varies based on climate, shading, and roof orientation. Also, the 20% rule assumes average panel efficiency. However, actual system efficiency may vary.

Once you estimate the solar system size required to meet 20% of your energy needs, calculate your savings. Multiply the estimated solar energy production by your current electricity rate. This is your annual savings, which should be 20% or more of your current energy costs.

Lastly, note that the 20% rule is a guideline and not a strict requirement. Your savings from a solar energy system also depend on several factors. These include local solar resources, system efficiency, electricity rates, and incentives or rebates.

How Much Money Does Solar Actually Save?

There is no “one size fits all” answer about how much money solar actually saves. Solar energy savings varies significantly depending on several factors, including:

  • The size and efficiency of the solar system
  • Local electricity rates
  • Solar potential, meaning sun exposure for those panels
  • Available incentives such as tax credits and rebates
  • A property owner’s energy consumption patterns

Consider these key factors in more detail. In turn, you’ll know more about how much money solar can actually save:

  • The larger the solar system you install, the more energy it can produce. Consequently, you’ll probably enjoy greater energy cost savings. However, larger systems also come with higher upfront costs!
  • Regions with more sunlight mean increased solar energy production and more potential savings. On the other hand, areas without much sun mean less efficient panels.
  • The higher your local electricity rates, the more you save by offsetting your consumption with solar energy.
  • Households that use more electricity benefit more from solar. Those panels allow them to offset a larger portion of their electricity bills.
  • More efficient panels convert a higher percentage of sunlight into electricity. This increases the system's overall performance.
  • Many governments offer financial incentives, tax credits, or rebates for installing solar systems. Together with federal tax credits and other incentives, these reduce your upfront costs and enhance savings.
  • Net metering allows you to sell excess solar energy back to the grid. This reduces your electricity bill or allows you credits for future use.

solar panels on a house rooftop

Does Solar Really Pay for Itself?

In short, solar energy systems can pay for themselves over time through electricity bill savings. The timeframe for a solar system to pay for itself is commonly referred to as the "payback period."

During the payback period, your savings from reduced electricity bills gradually offset your initial investment. Once you’ve surpassed that payback period, any savings you enjoy after that go right into your pocket!

Typically, residential solar systems have payback periods ranging from 5 to 12 years. In some cases, it may be even shorter with favorable conditions. This includes areas with lots of sunlight or with higher energy costs.

After the payback period, solar panels continue to produce electricity for many years, often for 20-25 years or more. As a result, the savings generated over the lifetime of a solar energy system can greatly exceed its cost.

Is Solar Really Worth It?

When figuring out how to calculate solar savings, you might wonder if their investment is really worth it. The short answer is yes! In addition to reducing your energy costs, solar panels offer excellent benefits for property owners, including:

  • Solar panels harness energy from the sun, which is a virtually limitless and renewable resource. As long as the sun continues to shine, solar panels will continue to generate electricity.
  • Solar panels provide a degree of energy independence, allowing homeowners and businesses to generate their electricity and rely less on utility companies and their rates.
  • Solar power produces electricity without emitting greenhouse gases or other harmful pollutants. By choosing solar panels, you can reduce your carbon footprint and contribute to mitigating climate change.
  • As electricity rates tend to increase over time, installing solar panels provides a hedge against rising energy costs, providing predictable and stable electricity costs for years to come.
  • Solar panels can increase the value of your property, making it more attractive to potential buyers and providing a competitive edge in the real estate market.
  • The solar industry creates jobs in manufacturing, installation, maintenance, and research, contributing to economic growth and employment opportunities.
  • Distributed solar generation can enhance the stability and resilience of the electricity grid by reducing strain during peak demand periods and minimizing transmission losses.
  • Solar panels enable electricity generation in remote areas where connecting to the grid is challenging or expensive. They are ideal for powering cabins, boats, RVs, and other off-grid applications.

A Word From Our Solar Crew

Solar Savings Calculator is happy to help explain how to calculate solar savings. Hopefully you’ve found this information useful! Also, you can contact our solar panel installation contractors when you’re ready to move forward with a solar installation. We’re happy to answer your questions and get you started with clean, green solar energy.


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