The biggest question regarding solar is not “How does it work?” or “How does it look?” Still the million dollar question is “How much will it cost?” and for good reason. Not only is solar a hefty investment, but depending on where you live, there may also be a beneficial but confusing web of state tax incentives and rebates. There is nothing bad about these savings but it is often frustrating for a homeowner to accurately calculate up-front costs and payback periods. Even the most green-hearted homeowner wants to be sure before diving into such a huge pool. So let’s see if I can help.

Up Front Costs

Most solar contractors charge by the watt, much the same as building contractors charge by the square foot. So determining how many watts or, more likely, kilowatts you’ll need is an important first step. This in itself is rather complicated but there are several online calculators that will easily help you figure out your system size.

Okay, let’s say an average system is 3 kW in size and that the going price for installation is $10/watt. Some quick math will leave you with a base cost of $30,000 for equipment and installation.

Now that is a fairly daunting price tag and, if it were the end of the story, I probably wouldn’t be writing this right now. But it’s not. There are typically several state incentives to help recoup these costs as quickly as possible (although incentives vary widely from state to state). In some states, rebates are actually calculated up front and then paid to the contractor, who is then required to pass those savings on to the customer.

Rebates for solar electric systems are typically between $2 to $4 per watt. So I’ll go with $3/watt to make it easy and average. At that rate a 3kW system, with a $3/watt rebate, would reap $9,000 in savings, dropping the up-front price to $21,000. Add in the current federal incentive, capped at $2,000, and the price becomes $19,000. Okay, we’re looking better already.

Getting Your Money Back

So how will these up-front costs be returned to you? In a few ways. First off, several states have tax credits excluding solar systems from any property or sales taxes…so that’s less money spent. Secondly, there are electricity savings from producing your own power. These are harder to guess at because they will vary based on your electricity consumption. With your electric bills and one of those online calculators mentioned earlier, you can figure out your monthly savings fairly easily. Just as an example, if you live in sunny California you can count on saving about $90 per month.

The third and biggest way your money can come back to you is through an increase in assessed property value. It is widely accepted that a solar system is worth 20x your first year energy savings. This will vary, of course, but it gives a good idea. So take that $90 and multiply it by 12 to get $1,080. Now multiply that by 20 to end with a property value increase of $21,600. With an up-front cost of $19,000 not only have you, in just one year, recouped all your costs, but your actually making money. Furthermore, the more years you enjoy the savings (which will only grow as electricity costs rise) the more money you make!