A Sunny Day is A Money Day

Both because it’s the right move for our planet and my pocketbook, we recently installed rooftop solar photovoltaic (PV) panels to generate essentially 100% of our electricity needs. In this note, I’ll describe the economics of installing rooftop solar panels.


For those who don’t want the details, the “TL;DR” is that for my situation a switch to PV cells for electric generation makes good financial sense. I expect the breakeven payback period to be +/- 7 years.

And, if you have an electric car, use heat pumps to heat and cool your home, consume a lot of electricity, or pay high electric rates, rooftop solar power makes even more economic sense with a shorter payback period.

To make this switch, circumstances matter.

  • My roof is well-positioned, including no shade obstructions from trees, chimneys, or nearby buildings. It also has enough room to fit all the panels and didn’t need to be replaced or strengthened before installing them.
  • Federal and state tax credits provide a significant subsidy.
  • “Net metering” as well as other utility incentives add more subsidies.
  • Energysage.com, a solar installation marketplace that consolidates proposals from multiple installers, was a big help to enable comparison shopping — pricing, gear, and installers — as well as getting educated in the complexity of solar power generation.
  • The timing is good. Clearly, the cost of electricity is currently going through the roof (sorry) and higher electricity prices make PV generation more attractive.

PV Panel Basics

PV systems are sized based on kilowatts (KW). I have 18 panels on my roof, each of which is 400 watts, so my system capacity is 7,200 watts or 7.2 KW. Solar installers typically price their installations on a cost per watt basis and in my case, the price was $2.80 per watt or ~$20,000 in total (before tax credits). I received 6 different quotes and they were all in the range of ~$3.00 per watt.

The amount of electricity you use over a period of time is measured in kilowatt hours (kWh). The installer reviews your past electric usage and does a complicated calculation to size the system so that the power generation of your PV panels should cover a bit more than 100% of your energy usage (kWh) over a year.

The engineering is above my pay grade but depends on factors such as the efficiency of your panels, the direction and angle of your roof, the amount of shade that covers any of your panels during the day, your latitude, etc. If you over-estimate your necessary capacity, you’ll pay for panels that you don’t need and if you under-estimate, you’ll pay for electricity from the grid when your panels come up short of your full requirements. A good installer will have experience in sizing the system to be 105+% of your electricity usage over a year.

Net Metering

On a sunny spring afternoon, your panels should generate more energy than you’ll use at that time. You’ll send this unused energy back to your utility and your electric meter will essentially spin backwards, crediting you for the excess energy you’re contributing to the grid. This is what’s known as “net metering” and it helps make the economics of PV panels work. At night or on cloudy days, you’ll draw energy from the utility grid and get credit for the previous energy you contributed.

The goal is for your system to balance out over a year so that your net electric bill is $0.

If you had to pay for all the electricity you used at night and on cloudy days and didn’t get credit for your excess energy on sunny afternoons, the economics of the system wouldn’t be as attractive. The details of net metering vary across states and utilities but essentially that’s the crux of it — you sell energy back to the utility at the same retail price that you pay for it.

Energy Sage

Now a quick plug for Energy Sage, the online marketplace I used to receive and compare multiple installation proposals. It’s a clever and free service (to homeowners, I don’t know if installers pay to be listed on it) where you essentially upload your address and your electric usage (typically in the form of recent electric bills).

By using satellite maps of your house and your location, they can create a proposal without ever visiting your house. You’ll receive detailed proposals from multiple installers (I received 6) that among other things, specify the:

  • total cost (and cost per watt)
  • system capacity and equipment used — the panel and inverter manufacturers
  • warranties
  • estimate percentage of annual household electric usage they’ll generate — typically 105 to 110%
  • financing options
  • reasons why they’re the best option

It’s hard for a layperson to sort through these proposals as they contain technical jargon, differing gear, and claims that are not easily differentiated among the proposals. The installers all have lots of ratings on Energy Sage but like any product rating system, it’s unclear how useful these ratings really are.

Energy Sage provides a human contact to help you wade through all of this and the person with whom I spoke was helpful and knowledgeable. I found Energy Sage to be a better approach than any other way of selecting an installer.

The Incentives

A quick explainer on the incentives:

  • The feds offer a 30% tax credit for solar PV installation. A tax credit is a dollar-for-dollar reduction in your federal taxes; this is significant and is the primary impetus to make these projects viable. This was increased from 26% with the “Inflation Reduction Act.”
  • Massachusetts (where I live) offers a $1,000 state tax credit. It also waives sales tax on the gear.
  • In addition, there is the net metering that I already discussed.
  • Lastly, there is a utility-funded set of ongoing payments that the homeowner receives for 10 years. It’s unclear how much these may be worth and I estimated $250 per year.

The Numbers

My analysis was simple — I assumed I would reduce my monthly electric bill to $0. Thus, I only needed to answer a basic question:  how many years would it take to recoup my investment (net of incentives) from the savings of not paying for electricity?

The cost of my system, net of the federal and state tax credits was:  $13,500.

At my current price of $.27 per kWh, my annual electric bill is ~$1,750. To that, I add the utility cash incentives of $250 per year. (My total savings would be $2,000 per year.)

At first glance, my breakeven is 6.75 years (13,500 / 2,000). If you prefer a return on investment framework, it’s ~13%, using a 20 year horizon.

Astute readers may have two criticisms of my simple analysis. I ignored:

  1. the time value of money — I put up the $13,500 now (or borrow it and pay interest) but I reap these savings slowly over many years. That’s correct and it makes the true breakeven longer than my estimate.
  2. the likely increase in the cost of electricity over time. This would mean that my future electric bills will be greater than the current $1,750 per year. That’s also correct and it would make the true breakeven shorter than my calculation.

On balance, I assumed they roughly cancel out each other.

I consider a 7-year break-even or a 13% ROI to be financially attractive, especially given that the installation effectively has a 20-year warranty so I should expect it to generate power for many years.


There are three ways to pay a solar panel installation. Similar to purchasing an automobile, you can:

  1. pay cash
  2. take out a loan
  3. take out a lease

The lease option is a bit unusual. Essentially, the installer owns the panels on your roof and is responsible for them. They pay for any electricity use from the utility (up to some level) and, in lieu of an electric utility bill, you make a monthly lease payment to them that is based on your usage and should be somewhat less than your old electric bill. After some period of time (let’s say 20 years), your payments to them stop and in all likelihood, you can keep the 20 year old gear.

The lease option has two big allures for the homeowner — you do not commit any capital to the project and the risk of the project construction and future maintenance mostly accrues to the installer.

But, there are also drawbacks. First, the savings are limited as the financial benefits mostly accrue to the installer of the panels. Second, selling your home becomes more complicated as the new owner would need to inherit the lease or you’d need to make a financial settlement with the installer. Third, if your electric usage goes up over time, your lease payment could also rise.

Generally, as with a car, leasing your solar panels may seem attractive at first blush but in the long run, it’s less financially beneficial to you than either a loan or cash payment for the installation.

A loan seems a better option than leasing. If you were to finance 100% of the cost at a rate of 5% and you set the monthly payment to roughly equal your old electric bill, then you would pay off the loan in ~9 years. If you assumed your cost of electricity was going up over time and your loan payment matched those increases, then the loan would pay off sooner.

The Timing

My project was a slow process and I’m guessing that it may be even slower given the new Inflation Reduction Act with its increased tax incentives. Be prepared for it to take the better part of a year from your first move forward until your panels are turned on.

Here’s how it went with me:

February:  Posted my requirements on Energysage.com, received six proposals and worked my way through them.

March:  Selected my installer and they fell through after they came to my house for an in-person inspection. I then hired a second contractor and moved to signing a contract.

April:  Signed the contract with installer #2. They then finalized the design, submitted the plans, pulled the necessary permits, and scheduled the installation.

August: They installed the system in one day. Not sure why there was such a delay from signing a contract in April.

September:  Inspection (electrical and building) by the local authorities. It took many weeks from the installation to the inspection and I’m not sure why this took so long. The inspection failed and had to be repeated multiple times.

November: The inspections finally passed and it awaited the utility hook-up as the final step.

December:  Interconnection with the utility was completed and the system is now in service.

It’s crazy that a one-day installation project took the better part of a year to complete but that was my experience. The timing may get worse with the increased tax credit and improved economics. For example, on my street 5 of the 11 homes have solar panels installed. It’s becoming more popular by the day.

Final Summary

Converting your electricity generation to PV panels can make good financial sense. The 30% federal tax credit, state incentives, net metering, and any other utility subsidies deliver a solid return on your investment. If your roof is suitable (i.e., size, direction, pitch, strength, shading) and you expect to remain in your home for a period of years, consider a solar PV panel system to cover 100% of your electricity needs.

If you own an electric car, have electric appliances, or use heat pumps for heating and cooling, then a solar system makes even more financial sense. The sun would cover 100% of your household electric needs, including your electric vehicle charging, heating, cooling, and cooking.

That’s pretty cool. After a significant upfront investment, your entire electricity usage — charging the Tesla, as well as running your heat, hot water, dryer, range, and A/C — could cost you $0 every month.

This sounds crazy but is within the capability of the current technology and the suite of government incentives.

Besides saving money, you’ll make our earth a bit greener and have a conversation starter at any cocktail party or office gathering if you ever go back.

If you’re thinking of going solar and have questions about how to analyze your home economics, get in touch.

PS: I previously chronicled how we tried — but failed — to shift from oil-based heat to heat pumps and you can read that here.

Questions?  Get in touch

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