Are Solar Panels Worth The Investment

Are Solar Panels Worth The Investment?

You’ve likely noticed that solar panels have been popping up on scores of homes and businesses in recent years. The rising popularity has been driven by the fact that the costs to get started with solar have plunged in recent decades to the point that they have finally become cost competitive with fossil fuels. In fact, in many cases choosing solar can save literally save homeowners thousands of dollars over the long-term.

Last year I made the plunge and decided to put solar panels on my roof. I liked the idea of driving down one of my fixed costs as low as possible while simultaneously lowering my carbon footprint.

I recently crossed the one year anniversary of putting solar panels on my roof. Here’s a review of our experience with solar thus far.

My initial options

I started out by calling a few vendors to give me detailed quotes. Two vendors showed up and took all of our measurements from our roof and then presented us with numerous options.

The first choice was called a “Net Metering” program. Using this option our utility meter would spin forwards like normal when we were a net-user of electricity (at night or on rainy days) and backwards when we were a net-producer of electricity (when the sun was shining).

Under this program, the value of the electricity that we generated would have been equal to the retail price that we purchased it at (which in Rhode Island is quite high at $0.172 per kilowatt/hour).

Choosing this option would have qualified us for a tax-incentive through our state’s “Renewable Energy Fund.”

Here’s how that math would have worked out.

Solar Panel Purchase Price:           $26,100

Renewable Energy Fund Grant:    ($7,308)

Net Metering Price:                        $18,792

30% Federal Tax Credit:                ($5,637)

Net Upfront Cost:                         $13,154

If we signed up for this program then our electricity bill was estimated to drop from about $1,450 per year to $330 per year.

That’s a $1,120/year savings, which works out to a cash-on-cash return of 8.5% ($1,120 yearly savings / $13,154 net upfront purchase price).

Overall, this was an attractive option given then low up-front costs to get started with solar.

The second option that was presented to us was called the “Renewable Energy Growth Tariff Program”. If we signed up for this program then all of our solar production would be fed back into our local grid to be used by us and our neighbors. While we wouldn’t use all of our electricity ourselves, our utility agreed to buy the electricity from us at a price of $0.3475 per kilowatt/hour for 15 years. That’s nearly double the price that we paid to consume electricity on the open market.

However, if we choose this program then we wouldn’t qualify for the state’s generous upfront grant.

Here’s how the proposed math worked out for option 2:

Solar panel purchase price:             $26,100

30% Federal Tax Credit:                  ($7,830)

Net Upfront Cost:                           $18,270

Our system was estimated to produce more than 6,500 kilowatt/hours of electricity per year. When multiplied by the price that we would get to sell our electricity back to the grid at ($0.3475 kilowatt/hour), the value of the energy that we were expected to produce was over $2,200.

That works out to a cash-on-cash return of about 12% ($2,200 / $18,270)

While the lower upfront costs from the Net Metering program was highly attractive, we ended up going with the Renewable Energy Growth Tariff program because of the higher ROI.

Once we signed all the paperwork we had to wait about six months for the panels to be installed, inspected, and turned on.

The actual numbers

Our solar panels went live a little over a year ago. Here's the actual math shook out in the first year:

Purchase price:                           $26,130
30% Federal Tax Credit:            ($7,830)

Net purchase price:                 $18,270

Actual Electricity Production:    6,129 kilowatt/hours

Reimbursement rate:                 $0.3475 kilowatt/hour

Actual Production Value:    $2,130

Cash on Cash Return on Investment: 11.66%

Benchmarks (at the time of this writing):
1.75% <— Best Savings Account Rate
2.75% <— Best 1-Year CD Rate
9.71% <—Total Stock Market Index Return

If anyone else knows an almost guaranteed way to earn double-digit returns on investment, I'm all ears!

Why does the Renewable Energy Growth Tariff Program even exist?

You might be scratching your head as to why my local utility company would be willing to pay nearly double the going rate for electricity. I asked my local solar rep to explain why this program even existed.

Here’s what he stated:

  • National Grid is required by law to prove that a certain percentage of its electricity comes from renewable sources. Paying an above-market rate incentivized homeowners to make their own power and helps National Grid to meet this regulatory requirement.
  • When homeowners add solar to the grid it eliminates the need for them to produce additional power and minimizes the need for high-cost “peaker plants”, which are generally only turned on (at great cost) during periods of maximum demand (such as a heat-wave).
  • Residential solar turns one of the utilities fixed capital costs (building a new plant with a high upfront expense) into a variable cost (with no upfront cost). They only pay for the electricity that is produced so the ‘risk’ of non-production is transferred to the homeowner.
  • Utilities are monopolies that are heavily regulated. They usually operate on a “cost plus” model. They have a built-in profit margin and all costs are passed along to consumers. National Grid still comes out ahead financially by using this program.
  • Producing and consuming power in a local microgrid lowers National Grid’s transmissions costs. It also reduces the stress placed on long-haul equipment and lowers vampire losses.
  • Having said all of that, my rep told me that the reimbursement rate has been falling as solar becomes more popular. A few years ago they were paying homeowners as much as $0.44 per kilowatt/hour. I signed a contract at $0.3475 per kilowatt/hour. The current rate is under $0.30 per kilowatt/hour and falling.

Other benefits of solar

Beyond reducing your electricity bills and enabling a solid return on investment, there are other benefits of going solar:

  • Solar panels increase the value of your home (wouldn’t you pay more to own a home that featured a negative electricity bill?)
  • Solar creates local jobs even if you use a national installer
  • Solar protects you against rising energy costs
  • Solar reduces your carbon footprint
  • Solar is a great conversation starter with friends & family

Is Solar right for you?

Here are a few questions that you can ask yourself to figure out if solar is worth investigating.

How high is your electric bill? The higher it is, the higher the likelihood that you’ll save big over the long run. As a very rough rule of thumb, you should investigate solar if your average monthly electric bill exceeds $75.

What are your costs of electricity? Electricity prices vary widely from state to state. In the Northeast, Hawaii, and California, they are very high. However, costs tend to be much lower in the Midwest and Southern U.S.

How much sunshine do you get and what is the slope of your roof? The more sunshine you get and the more southern exposure your roof has, the more productive your panels will be.

How are you going to finance the system? Do you have the cash on hand to pay for the system up front (ideal), or will you need to take out a loan or (gasp!) lease them? As a member of the FI community, you know that paying cash is the best option, but other financing methods can still be worth investigating even if you don’t have a chunk of cash to invest up front. In fact, with many leasing options, you can literally have solar installed on your house for $0 upfront.

How old is your roof? If you need to replace your roof in less than 5 years then choosing solar won’t make sense since the panels will have to be uninstalled during the roof replacement.  We moved into a house with a 25-year-old roof so we decided to replace the roof before we put on solar panels. However, it is worth pointing out that companies like Tesla are now starting to offer solar roofing options that might be worth checking out so you can kill two birds with one stone.

How to get the best deal:

Just like any other major purchase, it pays big time to shop around.

As a Tesla shareholder and huge fan of Elon Musk, I initially assumed that Solar City (which is owned by Tesla) was going to be the no-brainer choice. Solar City is the largest solar installer in the country, so I thought they must also be the lowest priced option.


Thankfully, I decided to let a local solar installer named Newport Solar compete for my business just so I could have a point of reference. It turns out that Newport Solar provided me with a better deal and they were much more knowledgeable about the state’s current incentive program. In fact, when I called the state’s energy department to get more information they told me that they had done hundreds of installations with Newport Solar and only a handful with Solar City. They actually recommended that we choose Newport Solar.

When you’re shopping, make sure you get multiple bids for your business. Ask local friends or family members who have solar about their experiences or get in touch with your state’s energy department to see if they have an approved list of vendors. You can also check out the Database of State Incentives for Renewables and Efficiency

If all else fails, shopping portals like can help you get multiple bids.

What I’ve learned after a year:

Here are my key takeaways from this experience.

It’s a lengthy process: From start to finish, it took us about seven months to get the panels installed on our house. Scheduling time for multiple roof inspections took about a month and then after we placed an order we were told that it would be a six to seven-month wait because of the backlog. Even after the panels were installed on our roof we had to wait for our utility to come and inspect the panels before they could be turned on.

Curb appeal is not much of an issue: My wife and I were very concerned that the panels would look ugly and subtract from the curb appeal of our house. We asked the installers to put them in the most inconspicuous spot on the roof to minimize the loss of curb appeal. However, more often than not, we have to tell our guests that we have solar installed on our house. We’ve found that very few people look at our roof directly when they pull into our driveway, so the panels do not detract from the curb appeal of our house at all.

Take productivity assumptions with a grain of salt: We were told that our panels would generate about 6,500 kilowatt/hours of electricity in any given year. Our actual production in the first year was 6,100 kWh, or about 6% less than projected. This didn’t alter the math too badly, but the solar company obviously wanted to present me with the best possible scenario data to make choosing solar as compelling as possible.

I wish I started sooner: The math would have looked even better had I been able to sign a contract with National Grid above $0.40 per kilowatt hour.

If you've ever thought about solar I’d highly recommend starting today by giving your local solar company a call. Panel prices have continued to drop since we had our installation, so it's possible that you could even get a better deal than we did.

Also, the 30% tax credit is set to start phasing out in 2019. If you’re on the fence about researching solar, get started today!

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13 thoughts on “Are Solar Panels Worth The Investment?”

  1. i think the biggest piece overlooked here is the time to recoup just the initial investment. if you were able to generate the same level of electricity year over year with the same payout rate, it would still take 8.5+ years just to get your initial costs back. how long does your contract guarantee the higher payback rate?

    this is also presuming that you stay in the house for that entire period of time without selling.

    additionally, there is also no factoring in of maintenance costs, from my understanding solar arrays are much more prone to issues as they age.

    to me the solar game is heavily tilted towards the enjoying the perceived environmental / clean energy aspects, rather than something that can be considered an investment.

    • Hi Chris,

      An 8.5 year ROI is actually a fantastic payback period. Using the rule of 72, that translates into a cash-on-cash return of ~9% annually. It’s also basically guaranteed — if you know of any other investments that earn that high of a rate guaranteed, please share them!

      It is also worth considering what the money would return if it was just left in a bank account? The best rate I see on is 2.25% in a savings account. If you flip that around then it would take you 32 years to double your money.

      That’s also completely ignoring the potential house appreciation from putting the panels on your house. In theory, the value of your house goes up by the same amount of the panels. If you factor that in then the initial payback period is instantaneous! However, I understand that is a theoretical gain versus a cash-on-cash one, but don’t you think that a house should be worth more if it came with a reduced/negative electric bill?

      As for maintenance, to my knowledge homeowners do not have to do a thing. The panels will gradually become less productive as time goes on, but they should still be producing electricity 15+ years from now.

      Either way, solar is not a good choice for everybody, but the returns can be terrific in some circumstances.


  2. Don’t forget the roof penetrations and future roof repairs. If you need a new roof those panels and supports need to be removed. Solar people need to remove them and replace them. After replacing what happens to that roof warranty? GONE! Really haven’t included those costs have you. Sharpen your pencil and give the true cost.

  3. We covered that in the show — you shouldn’t get them if you need a roof within 5 years. Otherwise, you’ll have to pay for them to be removed & reinstalled.

    Your point about the warranty is valid — you should investigate that before signing on.

    However, if choosing solar regularly caused roof leaks then I hope that you would agree that no one would be using them. If so, then why has usage of residential panels exploded in recent years? There are ways to install them without compromising the roof.

    There’s also an argument to be made that they increase the structural integrity of the roof AND provide passive cooling. That could potentially save on cooling costs in the summer.

    Thanks for commenting John.


  4. Brian, I’m having a hard time following the cash-on-cash math here. Option A (from the podcast) – you pay $13,000 (after credits/incentives) to install the panels. You are now out that $13K (cash on cash). You then save $1,100 per year on electricity. Putting those numbers into a financial calculator, assuming a 15 year time horizon, the rate of return is about 3.14%. To get an 8% return on a $13K investment paying $1,100 annually you’d have to hold it for about 37.8 years.

    I do get an 8.5 percent return over 15 years if you get the $13K back at the end of 15 years. Is that the case? Do you get to sell the panels back to the provider/electric company after 15 years for the original purchase price? I’m guessing that you do not.

    Unless I’m missing something, cash on cash I don’t think it can be said that Option A gets you an 8.5% return, unless you are very comfortable solar panels last somewhere between 35 to 40 years, which I don’t believe is the case today.

    Happy to hear I’m missing something.

    • One additional thought – cash-on-cash, as a literal, I invest $100 now, I get $10 of income from that asset in Year 1, so cash-on-cash I’m at 10%, is appropriate when we know the asset will likely sustain most of its value (i.e., I can sell the asset in the future for a price approximating its purchase price or more). That seems to be the missing link here.

      Thispoints to using net present value, not “cash-on-cash” as the measure of returns. On an NPV basis, over 15 years the return that is relevant for homeowners is 3.14%, not 8.5%. That said, if it can be established that after 15 years the panels can be resold for a substantial sum, or that the solar panels will around 35-40 years, then I think you could say there is an 8.5% cash-on-cash return and have it be relevant.

      Illustrates just how much math you need to do, and how many estimates you need to make, before you determine whether solar panels are appropriate.

      • I was about to make a similar comment after listening to the episode. Hopefully Brad and Jonathan monitor these comments and can correct the error in the next Friday episode. Don’t want everyone rushing out to make a marginal investment based on faulty math. If people care about green energy, then this presents a great method for contributing to those efforts in an efficient way. However, it should NOT be advertised as a double digit return opportunity based on the 15 year example given in the episode.

  5. Solar has come a long way in the last few years. About 3-4 years ago I ran the numbers and it just didn’t make sense to add solar. Now though? It’s a no-brainer. In fact, we’re having it installed this January, contract and loan documents all signed.

    We’re a single story home in California. Family of 4, PG&E electricity bill averages $195/mo. Home built in 2012 with energy efficient specs, low-E windows, full LED lighting, smart thermostat, you get the point. We did what we could to reduce our bill as much as possible within reason (two kids four and under).

    Anyone who know’s about PG&E and rate increases, I probably don’t need to say more. For those that don’t, it’s same to assume at minimum 5% increase YoY, most likely more after the avalanche of impending lawsuits from the fires here. But I digress, you get the point, we’re sheltered from rate increases because we’re more than offsetting 100% usage. We’re on a NEM system, which means we pay and get paid the same rate, tier for tier, based on time of day. PG&E is basically our virtual battery bank with unlimited storage.

    This past October I decided to shake the tree again and did my homework. Visited (also mentioned in the podcast), contacted half a dozen authorized installers, studied different panels, specs, efficiency guarantee, feedback of installers, bank issuing the loan and of course SunPower (U.S. based). Last but not least, the 30% federal tax credit and the property tax increase waiver (in California) sweetened the pot considerably.

    After some back and forth between offers I chose a local authorized installer of SunPower panels. Them being authorized means that the bumper-to-bumper “complete confidence warranty” covers not only the panels but also the installation for 25 years. This all but locks in the investment and the assumption that I won’t have to pay anything extra for the 25 years that it’s generating power.

    Relevant info:
    – 7.1 kWp consisting of 22 SunPower panels
    – Estimated to offset 126% of usage.
    – $26,546 10 year loan at 3.99% fixed through Mosaic. No early payoff penalty, no hidden fees.
    – $7,963 federal tax credit (which can be carried forward and split between years)
    – $18,582 net cost spread out over 10 years and $196/mo payment.
    – Will cost nothing upfront, only $196/mo, one dollar more than the $195/mo we average with PG&E. Have 18 months to pay the $7,963 tax credit to Mosaic (to keep payments at $196) otherwise monthly payment will increase.
    – Payoff point (break-even) is slightly less than 6 years. This assumes 5% PG&E rate yearly rate increases. Honestly in hindsight I probably should’ve filled the roof as much as possible but I didn’t want to get overly greedy because PG&E has to approve it, and 126% of current usage seemed like I was pushing it already.
    – Will save us over $100,000 over the 25 years.

    We were going into this thinking we’d just pay in cash, but at 3.99% I really don’t feel any pressure to. We want to buy our first rental property in the next year or two and would love to keep that extra money liquid, all at an APR that’ll probably be close to what savings accounts will generate in 1-2 years and not that far above inflation. Getting carried away here, but in general 4% and lower and I’ll take the “debt” and say thank you.

    We look forward to having 19 years of PG&E cutting us a check once a year (they use NEM) all while paying nothing for electricity. How’s that for house hacking? We make them live on the roof and they’ll commit to 25 years and pay us over $100k.

    I made a post about this five weeks ago on the Choose FI Facebook group if anyone wants to read more. In summary, I highly recommend everyone look into Solar. If you have but it’s been a while, definitely reevaluate your situation as it’s likely to be a cash producing asset that’s out of sight, out of mind.

  6. Solar is pretty awesome with all of the incentives. I live in a rural part of central NY and got solar panels about 2.5 years ago and coul not be happier. I have a fair amount of land and have shingle roof that should be good for 5 to 10 years.

    I want get get white metal roof in a few years that will have 50 year warantee. So I got ground mounted panels that are about 100 yards from my house. I paid more than if they had been roof mounted.

    Up front costs were $40k, minus a $3,500 upfront rebate from NY. At tax time I got a $12K return for the 30 percent federal incentive. I also got $5K back on my state tax return as NY gives you 25% back capped at a max of $5K. I only paid about $18,500 or less than half.

    They have performed as advertised and had a 25 year warranted with about 22.5 years still left.

    I was only given one option with national grid that seems to be a combo of yours. I have a net metering system and once a year they compare what I used versus made.

    My panels make more than I can use over the course of the year. So far national grid has paid me a little each year. National grid pays me back at a rate the same as they would charge me minus the delivery charge. They end up paying at rate of half what they would charge me as they do not chart themselves for a delivery fee.

    Geothermal basically the same tax incentives so I am going to get some quotes this spring. If they look good I am going to do it. I have a well so I would basically have no utility bills.

    If you get a good contractor and do research solar is usually a no brained will all of the incentives.

  7. I want to bring up a point. My city provides, among other things, my electric service. My city bill is around $150 per month. The thing is, electric only comes to a total of $16.77 per month. Make sure to look at your bill and note how much electric is actually costing you. I live in one of your “high cost” areas, in California. I also recommend newer, energy efficient appliances and all LED lighting for the home.

  8. I searched a lot on the internet for solar panels. This is the first post that puts numbers in so you can really do the math if it is worth it. Great article thank you.

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