By Sam Wasson
Updated Dec 28, 2022
With the cost of electricity skyrocketing and inflation hitting record highs, it’s no surprise that solar energy is becoming more popular than ever. Solar energy systems allow you to lower your carbon footprint and save money on energy bills. Unfortunately, not everyone can afford the steep installation costs of a home solar system.
Thankfully, programs like the Federal Solar Incentive Tax Credit (ITC) can help you dip your feet into the solar sphere. But with the increasing need for solar batteries and the recent changes to the ITC from the Inflation Reduction Act, the future of solar seems unclear. Furthermore, with a potential economic recession looming in the not-so-distant future, it’s time to address the burning question: Will solar be a good investment in 2023? In this article, we aim to answer that question and provide useful information on the economic forecast for solar energy in the coming year.
There’s a reason why solar panels and solar energy use have taken off in recent years. Until the mid-2010s, solar energy wasn’t economically viable for most homeowners and businesses.
Panels were difficult to produce and install, making them expensive. Their comparatively lower efficiency ratings meant it took panels longer to help recoup their high upfront costs. However, innovations in solar technology, combined with hefty federal and state subsidies and initiatives, have revolutionized the solar industry landscape.
A 2021 study showed that solar panels have seen a cost reduction of over 82% since 2010, combined with an increase in average efficiency of about 250%. As a result, solar power systems are cheaper now than they were a decade ago and take less time to pay for themselves.
However, even with drastic price drops, solar panels still have a considerable upfront cost. In today’s climate, the average homeowner should expect to pay just over $20,000 for a solar system. That’s just under half the average cost of a new car and is well beyond the price range for many households. But thankfully, there are plenty of federal incentives, like the Federal Solar Investment Tax Credit, as well as statewide programs that can help homeowners recoup the steep upfront costs.
According to the United States Government Energy Information Administration (EIA), the average American Household uses about 886 kilowatt-hours of electricity per month.
The average photovoltaic rooftop solar system produces between 250 to over 400 kilowatt-hours of energy per month. As a result, you can expect your solar savings to be about one-quarter to one-half of your electric utility bill. Additional devices, like energy storage (solar batteries) and inverters, can increase these savings. Remember, location and sun exposure determine the total energy your panels produce.
Once installed and operating, you can typically save around $1,500 yearly with solar panels. That means, once rebates and tax incentives are applied, it takes most solar arrays about 10 years to pay for themselves with the savings they earn you — this is often referred to as a solar PV system’s “payback period.”
One thing to consider with these numbers is that they apply to the average American household. The cost efficiency and saving from solar panels are highly dependent on numerous factors like region, panel type, home type, system size, etc. For example, in a sunnier region like the Southwest, you’ll save more money as you have more sun hours and less intense winters.
Most estimates say yes, depending on where you live and available local incentives. Numerous signs point to 2023 being a strong year for solar. Here are some of the most important reasons why we believe 2023 will be a worthwhile year for solar power investments.
The first and most impactful factor in solar’s investment value in 2023 is the extension and revamp of the Federal Solar Investment Tax Credit. On August 16th, 2022, the Biden Administration passed the Inflation Reduction Act of 2022. This bill was designed to fight rising inflation but carried several other secondary benefits, like continuing and expanding the ITC.
Until the implementation of this bill, the ITC was set to expire in 2024, but after the Inflation Reduction Act, this tax credit was extended through 2035. Even better, the previous credit amount was set to decrease from 26% to 24%, but this was reversed. Now any solar panel system installed after 2022 is eligible for a 30% tax credit.
Currently, the next significant barrier to solar power is effective energy storage systems. Solar batteries allow homeowners and businesses to store excess energy, which can then be used to offset times when the solar cells absorb less sunlight. With these batteries and an inverter, houses can receive solar energy at night, creating a hybrid solar system. These hybrid systems allow homeowners more independence from the power grid, as they don’t need to rely on utility companies to supply them with electricity during the evening.
The only downside to solar batteries is their price. Currently, you can expect to pay between $8,000 and $15,000 for a solar battery. These high costs present an additional financial barrier that keeps many from being able to utilize solar energy.
Thankfully, the changes to the ITC mean solar batteries are now eligible for the tax credit. Since this change is also retroactive, batteries installed before 2022 also apply. State incentives are also beginning to include options for solar batteries, presenting long-term financing that’s more accessible.
Another positive for solar batteries is that their cost is going down. Prices are even projected to decline further as time goes on. Like solar panels, as energy storage options advance and become cheaper to produce, their price lowers. Even the most conservative studies predict the cost of energy storage devices will drop by 30% from 2030 to 2050.
Beyond the federal level, one of the most important factors to consider going into 2023 is access to state-level solar incentives. While many states continue to incentivize clean energy sources, many states, like the Dakotas and West Virginia, make adopting solar panel systems difficult.
Unfortunately, some states lack notable solar incentives, like a Solar Renewable Energy Certificate (SREC) market, effective net metering laws, and rebate programs. In rare cases, some states, like Oklahoma, allow local utility companies to charge additional fees to homes with solar panel systems. Even if the push towards solar energy continues throughout 2023, it probably won’t be a sound investment if you reside in a state that doesn’t incentivize solar energy.
Thankfully, these states are in the minority. On average, most states embrace green energy, and solar installations are increasing yearly. From 2020 to 2021, solar installations across the U.S. increased by 34%, from 2.9 gigawatts to 3.9 gigawatts.
Beyond curbing climate change and helping with energy usage, evidence shows that solar panels are a sound investment real estate-wise. According to Zillow, the average home with solar panels sells for approximately 4.1% more, with states like New York seeing the highest return on investment. Even better, some states, like Florida, also offer valuable property tax exemptions for those who go solar.
Most projections see solar energy continuing to grow in 2023. While solar energy is an excellent investment that can help you save money on your utilities, the returns you can expect will depend on several factors.
The first factor is the development and price adjustment of solar batteries. While the tax break provided by the ITC applying to battery systems helps more households afford batteries, they’re still a steep investment for many. As it stands, solar batteries are extremely helpful in allowing households to go off the grid, increasing the monetary value of their panels.
The second solar investment factor is the incentives your local government offers. While the federal solar tax credit can help offset the system cost in the long run by reducing the amount you owe on your taxes, it doesn’t reduce the upfront cost of panels. As a result, you can only profit from panels by combining state-level incentives (if your state offers these) and rebates with federal credit. Other programs like SREC markets and net metering programs are also a must, so any state that curtails or limits these will impact the long-term value of your panels.
In 2023, we predict solar panels will be a substantial investment for homeowners with the available capital to overcome the upfront costs. With rising electricity rates and further increasing monthly electricity bills, more homeowners each year will be drawn toward solar panel systems to offset monthly utility bills.
If homeowners want to see a return on investment for their solar panel installation, they’ll need to take advantage of the federal tax credit and local programs. Our only cause for concern is the short-term cost decrease for energy storage systems. While solar batteries are predicted to significantly decline in cost towards 2030, the immediate cost reductions are still slow.
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