The amount of time it takes for solar panels to pay for themselves varies from state to state. It can take as little as four years in states like Hawaii, or as long as 18 years in states like Arkansas. The national average is roughly 7 ½ years. The reason there is so much variance in payback time is that incentives and tax credits vary from state to state.
How does it work? Participating utility companies pay you per kilowatt your solar power system produces. Your system makes a lot more power than your house uses during the day, and that makes up for the nighttime when your system isn’t producing power. In states with Net Metering policies, utility companies have to pay a state-mandated amount to homeowners for every kilowatt their system produces. In states without net metering, consumers are often at the mercy of utility companies that can make their own rules about how much they will pay homeowners for the electricity they produce. Some states that don’t have net metering, such as California, have alternatives in place. California has a program called Net Energy Metering 2.0 (NEM 2.0). It provides for compensation to home solar power owners that is based on the times of day that the system owner’s solar panels are supplying power to the grid. Even in states without net metering, you can still make money on solar by playing it smart.
3 ways utility companies erode your solar savings
Time-of-Use billing – Time-of-Use (ToU) billing allows utility companies to charge you more for electricity during peak times, usually 4 PM to 9 PM. This type of billing affects all utility customers, not just solar panel system owners. ToU peak rates are higher than off-peak rates and occur mostly after the peak power production hours for your system. Because of this, you sell power to the utility at off-peak rates. They later in the day sell you power at a higher peak rate.
If your utility company uses ToU billing, you can minimize its impact on your monthly bill by minimizing your use of electricity during those peak hours. Homeowners who go solar in areas with ToU billing will want their solar panels to face west/southwest to maximize power generation in the afternoon.
Non-bypassable charges – The rate you pay for electricity comes “bundled” with many fees, which are often expressed as fractions of a cent per kWh. For example, utilities add on fees for maintaining the transmission lines, for public assistance, and for decommissioning old infrastructure. Yes, the utility company wants you to pay for everything! A most egregious example of this is how San Diego County taxpayers got stuck with a $30 billion dollar bill for decommissioning the San Onofre Nuclear Power Plant. That plant got shut down because the plant owners, Southern California Edison and minority owner San Diego Gas and Electric, made attempts to cut regulatory corners when replacing turbines at the plant. The turbines they used failed, and the plant was shut down as a result. It was SDG&E’s an error, but San Diego ratepayers got stuck with the bill. Sadly, that includes ratepayers with home solar power systems.
Demand charges – Like ToU billing, demand charges are a way for utilities to charge ratepayers more during peak usage times. The difference between ToU and demand charges is that a demand charge is based on a household’s highest use of electricity during peak hours. This means that if you use a lot of electricity at once; say running the AC, washer/dryer, TV, and other appliances all at the same time; you pay a higher rate based on that peak demand. Just like ToU billing, you can minimize your exposure to demand charges by minimizing your use of electricity during peak hours. Solar power system owners can generally fight demand charges by having their solar panels installed facing south/southwest.