Cost Benefits of Switching to Solar: A State-by-State Guide

The advantages of solar power and other renewable energy sources are colossal, and arguably necessary for our survival. On solar, the electric grid becomes more efficient and resilient to natural disasters (including hail) and disruptions — not to mention scalable to the 1.3 billion people on our planet living without electricity. On solar, power becomes cleaner, moving us that much closer toward the net zero goal advocated by climate researchers. But the benefits don’t stop there.

Solar costs are falling. In fact, the installed price for residential solar systems is less than half of what it was in 2009 (due in large part to technological and manufacturing advances from cleantech leaders like Tesla, SolarCity, and SunEdison). After installing an 8kW (8,000-watt) solar system, the average American stands to save over $23,000 on electricity in 25 years, which is the average, ever-increasing lifespan of a residential solar system.

A chart shows the potential savings of using a solar system after 25 years. Without solar, a customer might spend $35,000 on electricity after 25 years. With an 8 kilowatt solar system, that  cost could be reduced to $11,550.

The average cost for an 8kW system is $17,700. You might think, “Why should I bother investing that much money if I will only profit around $7,000 over 25 years?” First off, a study by the NC Clean Energy Technology Center found that solar’s value can be a better investment than the stock market. Secondly, these numbers are based on national averages. The cost of installing a system in your area could be lower, possibly thousands lower. Your roof might get way more sunlight, too, which means more power. These are just a few of the many factors to consider.

Most importantly, more and more states are offering their own variety of rebates, tax exemptions, and other incentives that make systems even more affordable — and buying one isn’t the only way to go solar, either. Keep on reading for a complete breakdown of how you could save money with solar and reduce greenhouse emissions, even if you can’t afford a system.

Table of Contents

  1. How can I save on a solar system?
  2. State-by-state solar breakdown
  3. You don’t have to buy a system to go solar
  4. Other alternative energy sources
  5. A list of state incentive programs

How can I save on a solar system?

It’s a great time to invest in solar. Residential solar systems are more affordable than they’ve ever been, and prices are still dropping. And depending upon where you live, there are several types of incentives that you might be able to take advantage of. The first is something called the solar investment tax credit, otherwise known as the ITC.

How the solar credit works

The ITC is a 30% federal tax credit for residential and commercial solar systems. It’s a dollar-for-dollar reduction in income taxes that would otherwise be paid to the federal government. For example, if you purchase an $18,000 solar system, you’ll get a $5,400 credit on your tax return.

But the benefits aren’t going to last forever. The federal solar tax credit will be reduced in 2020, and by 2022, there won’t be any federal tax credit for residential solar systems at all. Here’s the current ITC timeline:

YearFederal credit for residential systemsFederal credit for commercial systems
202026%26%
202122%22%
2022 and onNone10%

As long as you own your system, you can claim the ITC. To do so, complete IRS form 5696 then add your renewable energy credit information to your regular individual income tax return (IRS form 1040).

Many states offer their own line of incentives, too

Only a handful of states currently offer their own tax credits for a solar system (like the federal ITC), but many more offer a variety of incentives that come in a few common formats:

  • Feed-in tariffs (FiT)
    A feed-in tariff is a payment that you receive for the solar power that your system produces. That might sound a lot like net metering, but it’s not. FiTs have a separate meter, and the energy produced goes directly into the grid. (In a net metering situation, you’re paid for the excess power produced by your residential system.)
  • Rebates
    Solar rebates are awarded by local utility company to help you purchase energy efficient technology or a renewable energy systems. For example, the average rebate might award $400/kW. So if you purchase an 8kW PV system, you’d receive $3,200 to offset the cost of your system.
  • Property tax and sales tax exemptions
    Some states offer property and sales tax exemptions for renewable energy systems.

Chart shows the ranges for solar costs and payoff in the 10 most affordable states.

Let’s not forget about SRECs

Every state has a Renewable Energy Portfolio. And in that portfolio is something called a solar carve out: an outline of the state’s goals for the amount of energy produced by solar every year. Utility companies have to meet those goals — let’s say 500MWh a year — and if they don’t, they’re charged a hefty fine for every MWh they’re short.

That’s where you come in. Every time your solar systems produces one MWh (the average 5kW system produces around 5-6 a year), the state will award you one SREC, which you can then sell to utility companies that are running short on their solar quota. As long as there’s a market, SRECs can bring in anywhere from $200 to $400 apiece.

What about net metering?

Net metering is a process that allows homeowners to earn a little cash for excess power produced by their solar panels. Here’s how it works: Your local power company installs a “net meter” on your property that tracks both the electricity consumed by your home and the electricity generated by your solar system. Then, the excess energy produced by your panels is fed directly into the grid. At the end of the month, you receive utility credits that can be applied to your next power bill.

The problem is that net metering is facing a lot of pushback due to market forces and well-funded lobbying campaigns that have convinced many state capitols to cripple their solar incentives and programs. The primary argument is that allowing homeowners to sell excess energy back to the grid at retail price is unfair to homeowners who can’t afford a solar system. In fact, Arizona, Maine, Nevada, Hawaii, and Indiana have killed net metering altogether.

As policies continue to change, the future of net metering looks bleak. But if you live in an area that still offers the program, it’s a great opportunity for you to turn excess sunlight into extra cash in your wallet.

State-by-state solar breakdown

There are quite a few variables that come into play when you try to predict how much money you can save on solar, including roof size and shape, state incentives, sunlight potential, and inflation in electricity costs, just to name a few. We evaluated several of the most important data points to find out how much money the average home in each state might be able to save over 25 years with an $10,990 5kW (5,000-watt) solar system. (That’s the national average price for a 5kW solar system after applying the 30% federal solar tax credit.)

Remember: Our calculations are based on state and national averages, like the cost of electricity and amount of direct sunlight available. Your state may offer incentives that shave off costs even more!

Solar Savings Breakdown by State

Potential Energy Savings with a 5kW Solar System

StatePotential Monthly SavingsPotential Yearly SavingsAverage Annual Electric BillYears until payout*
Alabama$72.94$875.32$1,70413
Arizona$90.90$1,090.83$1,48811
Arkansas$59.97$719.65$1,32016
California$126.07$1,512.78$1,1288
Colorado$74.17$890.03$99613
Connecticut$116.74$1,400.92$1,8368
Delaware$76.42$917.06$1,57212
Florida$71.29$855.52$1,58413
Georgia$72.89$874.67$1,54813
Idaho$59.92$719.03$1,14016
Illinois$72.38$868.54$1,06813
Indiana$57.73$692.72$1,33216
Iowa$77.80$933.60$1,17612
Kansas$81.97$983.69$1,32012
Kentucky$60.91$730.91$1,36816
Louisiana$58.11$697.38$1,44016
Maine$73.78$885.31$1,03213
Maryland$81.10$973.18$1,66812
Massachusetts$86.56$1,038.69$1,42811
Michigan$75.98$911.75$1,11613
Minnesota$65.28$783.42$1,10415
Mississippi$63.72$764.58$1,64415
Missouri$60.45$725.44$1,38016
Montana$58.87$706.44$1,06816
Nebraska$70.16$841.86$1,21214
Nevada$69.04$828.48$1,39214
New Hampshire$94.95$1,139.46$1,36810
New Jersey$91.02$1,092.26$1,32010
New Mexico$87.19$1,046.23$94811
New York$85.64$1,027.66$1,33211
North Carolina$65.66$787.91$1,50014
North Dakota$59.12$709.40$1,24816
Ohio$62.14$745.71$1,34415
Oklahoma$63.66$763.89$1,32015
Oregon$56.31$675.68$1,15217
Pennsylvania$67.90$814.84$1,39214
Rhode Island$95.30$1,143.59$1,36810
South Carolina$74.54$894.48$1,72813
South Dakota$67.39$808.64$1,29614
Tennessee$49.87$598.42$1,53619
Texas$72.56$870.69$1,63213
Utah$73.33$879.94$96013
Vermont$82.22$986.60$1,14012
Virginia$62.49$749.88$1,56015
Washington$34.05$408.57$1,04427
West Virginia$54.67$656.03$1,33217
Wisconsin$65.23$782.79$1,12815
Wyoming$69.64$835.62$1,09214

*We used the national average cost for a 5kW solar system after the federal solar tax credit ($10,990) to calculate the year of payout assuming that the system was purchased upfront, not leased or financed. | Data involved in our calculations was sourced from: U.S. Energy Information Institute, Centers for Disease Control and Prevention, National Renewable Energy Laboratory, EnergySage.

Note: If you want to explore all the data that went into these calculations, go here.

Next steps

If you’re ready to reap the benefits of sunlight, it’s time to talk with a solar provider. You should be prepared to answer questions about your average monthly utility bill and your energy consumption, but the most important thing to remember is that you shouldn’t stop at just one provider. The more quotes you get, the better. In fact, a study conducted by the National Energy Renewable Laboratory found that solar shoppers who get multiple quotes can save up to 10% on the cost of their system.

We asked Ronald Roedel, the director of the professional science masters graduate program in Solar Energy Engineering and Commercialization (PSM-SEEC) at Arizona State University, for some tips on finding the right solar provider. Here’s what he had to say:

“Basically one asks the same kind of questions of any building contractor. How long have you been in business? Do you have all the appropriate licenses? Are you familiar with all the local and NEC building codes? Are your installers certified (NABCEP, for example)? Can you show me examples of your installations? Can I get reviews from your customers?”

According to Roedel, the process differs when it comes to ensuring compatibility between the solar system and the local utility: “The real difference is that the system must meet all electrical requirements for interacting with and connecting to the local utility, and the provider must show the potential purchaser that the system design and construction does this.”

You don’t have to buy a system to go solar

There are a number of reasons that you might not be able to install a solar system on your roof. If you rent or live in a townhome, you probably don’t have control over your roof. Perhaps your roof’s shape or material components aren’t compatible with a solar system. Or maybe your roof gets far too little direct sunlight to justify the investment. Community solar gardens are a solution to this problem, and they’re popping up across the U.S. thanks to new policies and incentives.

How do community solar gardens work?

The average solar garden (or solar farm) includes several thousand solar panels that cover two to three acres, enough to produce power for over 100 homes. Each homeowner who wants to be a part of the community buys or leases some of those panels (usually ten to 20).

The power produced by those panels doesn’t go straight to the home, though; it’s purchased from the local power company and fed into the grid. Homeowners then get a credit for the electricity produced by their panels, which is applied to their monthly power bill.

Contact your local energy provider to find out whether there’s a community solar garden near your home.

Other renewable energy sources to consider

America’s renewable energy boom has only just begun, and relatively few Americans have access to large-scale renewable energy, like wind farms and solar gardens. If that’s you, don’t give up hope — you still have a few options.

Live in a windy area? Why not integrate a residential turbine into your home’s grid? The average system runs about $2,000 and produces up to 2,000 watts — as long as the wind is blowing 20 mph or more. Similar to solar panels and sunlight, turbines are very dependent on the wind, though some can continue to produce power in just 7 mph winds.

If enough water flows through your property, you might be able to utilize a micro-hydropower system. These systems need an exceptionally good flow of water to compete with solar panels, but they have one distinct advantage: They continue to produce power when the sun goes down. (Systems cost anywhere from $400 to $3,000.)

Solar is still one of the best options

Roedel explained to us that one of the most economic alternative energy choices for homeowners is a high-performance battery system: “With the cost of high performance batteries dropping dramatically, the best economic decision for additional alternative energy will be to convert the solar energy system to an integrated solar and battery storage system.”

Nega-watts. Get it?

One of the simplest, but often difficult ways to reduce your carbon footprint is to use less power. Investing in eco-friendly appliances; utilizing a smart thermostat; driving a hybrid; insulating your home; becoming more conscientious about your water consumption — all of these things are great steps in the right direction. For more ways to become a better steward of your environment, visit climatecare.org.

A list of state solar tax credits

Check this list to see if your state offers its own solar tax credit. Remember: State tax credits can be applied in addition to the ITC.

StateState Residential Solar Tax Credit
AlabamaNone
Arizona25% of net costs (up to $1,000)
ArkansasNone
CaliforniaNone
ColoradoNone
ConnecticutNone
DelawareNone
FloridaNone
GeorgiaNone
HawaiiNone
IdahoNone
IllinoisNone
IndianaNone
Iowa8% of net costs (up to $5,000)
KansasNone
KentuckyNone
LouisianaNone
MaineNone
Maryland$0.0085/kWh on 20kW systems and up
Massachusetts15% of net costs (up to $1,000)
MichiganNone
MinnesotaNone
MississippiNone
MissouriNone
MontanaUp to $500 per individual taxpayer and $1,000 per household
Nebraska$0.0005 per kWh for 10 years
NevadaNone
New HampshireNone
New JerseyNone
New MexicoNone
New York25% of net costs (up to $5,000)
North CarolinaNone
North DakotaNone
OhioNone
OklahomaNone
Oregon$1,500 per kW (up to $6,000)
PennsylvaniaNone
Rhode IslandNone
South Carolina25% of net costs (up to $3,500) or 50% of tax liability
South DakotaNone
TennesseeNone
TexasNone
Utah25% of net costs (up to $2,000)
VermontNone
VirginiaNone
WashingtonNone
West VirginiaNone
WisconsinNone
WyomingNone

Source: Database of State Incentives for Renewables & Efficiency (DSIRE).

Andy Bowen

Senior Editor

Andy Bowen joined The Simple Dollar in 2014 to help people in every state find the right car insurance. Now, he writes about everything personal finance while aggressively paying off his student debt with side hustles, trimming his budget, and racking up rewards points for family trips to Disney. You can find his work on Engadget, AOL, Bankrate, Reviews.com, and AskAudio.