electricity rates and solar

How electricity rates impact solar savings

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Have you heard that solar panels only make sense in sunny states? Well, don’t believe it for a second – while it’s true that solar panels typically produce more electricity in sunnier areas of the country, how much you can save from installing solar panels rests heavily on one major factor: the costs you avoid paying your utility company for electricity. 

People all over the country–even those that live in cloudy areas–can reap solar savings. Generally speaking, the higher your electricity rates, the more money you can save by switching to solar.

High electricity rates lead to solar savings

Any electricity you use from your solar panel system reduces the number of kilowatt-hours (kWh) you need to draw from the electricity grid. Because of this, your avoided costs are a function not only of how much your system generates but the cost of the electricity your solar panel generation replaces.

The chart below illustrates how this works across the country. We used PV Watts—a tool developed by the Department of Energy’s National Renewable Energy Laboratory—to estimate the amount of electricity a solar panel system will generate in various states, and how that correlates to annual savings based on current electricity prices.

Annual solar savings by state

StateAnnual Savings*Approx. cost of electricity ($/kWh)Avg. Annual Solar Radiation (kWh/m^2/day)Estimated Electricity from a 5kW System** (kWh)Production Ratio***

*Annual electric bill savings = cost of electricity x electricity produced
**Assumes 30 degree tilt on a fixed rooftop mount and 14% system losses
***Production ratio = electricity produced / system size (kW)

The states most of us would consider the sunniest are spread out in the rankings. For example, solar panels in Colorado will produce the most electricity out of all of these states and will result in savings of $1,060 per year. That’s similar to savings in New Jersey, even though a system located in the Garden State will produce about 2,000 fewer kWh per year. 

Keeping up with that trend, the states with the highest estimated annual savings (California, Massachusetts, New York) are also the states that pay the highest rates for electricity. Neither Massachusetts nor New York experience as many sunny days as Arizona, but as far as solar savings are concerned, they make up for their cloudy days with high electricity costs.

Savings potential with solar will continue to climb

Solar panel systems generate electricity for more than 25 years; when thinking about the opportunity for savings with a solar panel system, you not only need to consider how much you’ll save in year one, but also throughout the lifetime of the system.

That brings us to another important factor in solar savings: electricity rate inflation. While the chart above takes into account variances in electricity rates across different states today, it’s not representative of the potential for annual savings to increase as time goes on. 

The cost of residential electricity has increased 30 percent over the last 10 years, and some states are bearing the brunt of these rising rates more than others. As solar electricity rates continue to rise, so too will your avoided utility costs and, consequently, solar savings. When you generate your own electricity with solar panels, you’re essentially locking in the price of electricity and protecting yourself from unpredictable–and undoubtedly higher–rates in the future.

Other factors than impact solar savings

Besides electricity rates and sunshine, what other factors impact solar savings? Here are a few of the most important ones to pay attention to:

  • Electricity bill offset: how much electricity do you use, and will your solar panel system generate enough energy to meet these needs? The more you can offset your electricity usage with solar, the more you can save.
  • Upfront system costs: the cost to install a solar panel system depends on many factors, including your system size, state, equipment quality, and more. When comparing quotes, keep in mind that cheaper doesn’t mean better, nor does it necessarily mean more savings: a smaller system will cost less upfront, but if it’s not producing enough electricity to cover the majority of your energy needs, you’ll continue paying your utility company more money than you need to.
  • Financing: if you have a mortgage or have taken out a car loan, you won’t be surprised to hear that the solar financing solution you move forward with can impact your savings over time. Take a look at our article that compares solar loans to leases/PPAs to learn about how this all plays out.

Incentives: governments and utilities often provide financial incentives that can help reduce your solar costs – sometimes up to as much as 50 percent! Solar incentives come in all shapes and sizes; depending on where you live, you may be eligible for tax credits (like the federal ITC), rebates, or performance-based incentives.

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Categories: Cost Benefit

About Kerry Thoubboron

Kerry has worked in solar for more than 6 years, starting her career as an Energy Advisor dedicated to helping customers compare their options and make well-informed solar decisions. She graduated from Boston University with a degree in Environmental Analysis and Policy. Outside of work, you can find Kerry snowboarding, watching The Office, or having passionate debates about which New England state is best (spoiler: it's Vermont).

One thought on “How electricity rates impact solar savings

  1. Stefan Robert

    This is very true. Generally, we heard that solar panels make sense in sunny states. Well, don’t believe it for a second – while it’s true that solar panels typically produce more electricity in sunnier areas of the country.


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