Residential solar is not the easiest concept to understand for someone that has not investigated it before. If you think about it, all that most people know is that electricity is generated at a plant somewhere and transported along wires through a complicated grid. The electricity then gets sent to our home from the pole on the street. Then when we turn on a switch, we have power. For this convenience we pay an electric company each month for the rest of our lives. Our parents did that, and so did our grandparents. We know nothing different. So, when a solar salesperson or a social media ad tells us that solar can replace our electric bill, it is a difficult concept to grasp. So, how do solar panels work with your electric bill? Basically, what are the financial benefits of having solar installed on your home?
How Solar Panels Work
When exposed to the sun, the photovoltaic cells inside solar panels release electrons which create an electric current. This current is initially direct current or DC energy which cannot be used by our homes. So, it is converted to alternating current or AC energy that our homes can use in one of two ways. Micro-inverters are attached to each solar panel to convert the DC energy to AC on the roof and send the converted energy to the home. Or the DC current is sent to one central inverter installed on the side of the home or in the garage which converts the current to AC energy. There are opinions on which method is better. But for our purposes here, the result is the same.
How Does Electricity Generated by Solar Lower an Electric Bill?
Solar panels create electricity that can be used to power a home. This reduces the need to buy that same amount of electricity from the power company.
Scenario- A family uses an average of 1,000 kWh’s per month of electricity from their electric company. They install a solar system that produces an average of 1,000 kwh’s of electricity each month. One might surmise that there is no longer a need for the electric company but that is not true.
We must keep in mind that solar panels only work during daylight hours. They do not generate any power at night. Yet we need power at night. So, one of two options must be implemented to provide power to the home at night.
Option 1 - Send Excess Energy to the Grid
The home is powered by the solar system during daylight hours. And because the solar panels are generating more power than the house can use throughout the day, the inverter sends the excess power out to the grid. The amount of kwh’s sent to the grid each day is registered by the electric meter on the side of the house. The electric company gives the homeowner credit for the electricity generated by their solar system because they are going to sell that electricity to homes without solar. Then at night when the solar panels are not working, the home uses power from the electric company as before. The cost for this is offset by the credits for the energy sent to the grid each day.
Given that the credit per kwh is the same as what the homeowner pays the electric company per kwh, which is not always the case, they have no charge for kwh’s that month. However, they will still have to pay for the hook up fee to the electric company, taxes, fees, and other miscellaneous charges. So, they will still have an electric bill albeit for a very small charge.
Option 2 - A Self-Consumption Battery
The home is powered by the solar system during daylight hours. And because the solar panels are generating more power than the house can use throughout the day, the inverter sends the excess power to a self-consumption battery located on the side of the house or in the garage. Please note that a self-consumption battery has a different purpose than a backup battery that is used in power outages. Instead of using electricity at night provided by the electric company, the home uses the power stored each day in the battery. The home uses little to no electricity from the electric company throughout the month. However, they will still have to pay for the hook up fee to the electric company, taxes, fees, and other miscellaneous charges. So, they will still have an electric bill albeit for a very small charge.
No Two Homes or Solar Systems Are the Same
The above scenarios are for example purposes to show how solar panels can lower electricity consumption and will not work out exactly as described. Each home is different, and each family uses a different amount of electricity. Each utility company provides a unique value associated with kwh credits. Only with a solar system design prepared by a professional, can a homeowner determine the specific scenario for their home and energy consumption.
We can help you with that. We provide a no cost, no obligation solar system design and proposal specifically for your home. Click 'Book an Appointment' at the top of the page, or call direct 619-252-9670.
Solar Systems Do Cost Money
We have not yet completely answered the question, “How Do Solar Panels Work with Your Electric Bill?” The reason is that solar systems cost money to install. The good news is that there are many ways to finance a solar system that allow for your monthly solar cost to be the same or lower than what you’re paying your electric company. And, when realizing that electricity rates are going to continue to go up, it’s a smart move to go solar even if it costs a little more initially. Over the 25-year life of a solar system, homeowners can save $20,000 to well over $100,000 by going solar.
Cash Option
Cash is the most economical way in the long run to purchase a solar system because there is no interest being paid. The typical break-even period is 6 to 7 years. After that, the system has paid for itself, and the homeowner is now putting what used to be their electric bill payments into their own pocket. 30% of the solar system price may be taken as a federal tax credit.
Finance Option
There are many interest rates and loan terms available when financing a solar system. However, there is never a down payment unless a homeowner wants to put money down. 30% of the system price may be taken as a federal tax credit. The first payment on a loan is typically due 30 to 45 days after the solar system is installed. Which means that the solar panels are already lowering the homeowner’s obligation to the electric company before they make their first payment. In certain markets, solar may initially cost a bit more monthly than the old electric payment. But as electric rates rise, savings occur. However, in many markets homeowners may have initial payments lower than their old electric payment and, in some cases, significantly lower.
Third Party Owned Options - Lease Option or PPA
If lowering the monthly payment is a homeowner’s primary objective, a lease or Power Purchase Agreement (PPA) is typically the way to go. Leases also consider the 30% federal tax credit into the calculation of the lease payment, so the homeowner doesn’t need to worry about filing for that with their tax return. There are other advantages to a lease or PPA also such as a production guarantee over the life of the contract.
Conclusion
You now have the long answer to the question, “How Do Solar Panels Work with Your Electric Bill? The short answer is that solar produces power that you would otherwise have to purchase from your electric company at a rate that is either lower immediately or will be in the very near future.