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MoneyGeek Analysis:

Electricity Bill Got You Down? Solar Panels in Your State Might Not Be as Expensive as You Think

Last Updated: 11/4/2022
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Climate change-induced monster storms. Rising inflation. Overstressed, aging electrical grids. All these factors may contribute to the sticker shock many Americans feel when they open their electricity bills in 2022.

However, consumers looking for ways to lower electricity costs may find hope in the new solar incentives that are part of the recently passed Inflation Reduction Act (IRA). The IRA includes a 30% federal tax credit that will cover the installation of residential solar panels until 2034. This, combined with robust state-level incentives in some states, makes solar power an attractive way to lower electricity costs.

But would an upfront investment in solar "pay off" in your state? MoneyGeek analyzed factors like solar panel installation costs, state-level incentives, home solar power production and more to find the best states for solar. Our full methodology and analysis limitations are discussed below.

Some surprising findings? Some states are making it very attractive for homeowners to go solar, and the average rate of return on investing in solar overall is high — 14.6%, to be exact.

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States Where Homeowners Benefit Most From Solar Power at Home

Badge that reads "Best States for Solar in the US, 2022"

MoneyGeek analyzed the average costs of installing a 5 kW solar panel system at home by state and explored federal and state solar incentives to find the states where homeowners get the highest rate of return for their investment in solar energy. Using the average number of peak solar hours, average energy consumption rates and the cost of electricity per watt by state, as well as both the costs and incentives for installing solar panels, MoneyGeek calculated the annual cost savings for solar power.

While it might seem like the states with the most sunshine would offer the highest ROI on solar panels, that isn’t always the case. Among the top ten states boasting the highest rates of return, Rhode Island ranks at number three for a 37.3% rate of return, with Iowa (32.2%) and New York (31.9%) close behind in the fifth and sixth spots. Keep in mind that return on investment may vary, as these numbers were calculated by looking at overall state averages.

Rest assured, you will find some of America’s sunniest states in the top ten for the highest rate of return. New Mexico, the second sunniest state in America, comes in at number one on the list for solar savings with an impressive 51.4% rate of return. Texas, America’s fourth sunniest state, is close behind at number four (33.7%). (Sadly, the official sunshine state, Florida, which ranks tenth in the nation for sunshine, is at number 26 in MoneyGeek’s list, with only a 12.5% return on investment.)

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  • State
    Rate of Return (With Tax Credits)
    Rate of Return (No Tax Credit)
  • 1.
    New Mexico
    51.4%
    7.2%
  • 2.
    Hawaii
    48.3%
    23.3%
  • 3.
    Rhode Island
    37.3%
    10.1%
  • 4.
    Texas
    33.7%
    7.4%
  • 5.
    Iowa
    32.2%
    6.4%
  • 6.
    New York
    31.9%
    7.9%
  • 7.
    Arizona
    26.6%
    13.8%
  • 8.
    Idaho
    23.7%
    4.8%

Do Rising Electricity Costs Make Solar the More Affordable Option?

MoneyGeek also looked at the states with the highest electricity costs. Hawaii is first on the list, with consumers spending, on average, $2,841 per year. Connecticut comes in at a distant second, with consumers spending around $2,170 per year. Homeowners in Alabama, California and Georgia pay about $2,000 or more annually for electricity.

Fortunately, with a 48.3% return on investment and a savings of $2,841, houses with solar in Hawaii could see the cost of their solar panels covered after only a few years.


hawaii
States With the Highest Electricity Costs:
1. Hawaii ($2,841)
2. Connecticut ($2,170)
3. Alabama ($2,032)
4. California ($1,989)
5. Georgia ($1,981)
utah
States With the Lowest Electricity Costs:
1. Utah ($1,037)
2. New Mexico ($1,137)
3. Montana ($1,195)
4. Washington ($1,220)
5. Wyoming ($1,225)

States With Best Solar Incentives May Surprise You

For those living in states with higher electricity costs, houses with solar may also benefit from state income tax credits. While you might not see your state in the top rankings for return on investment, the upfront costs of going solar are much lower due to generous state incentives.

In New Mexico, those solar savings can be up to 50%, while in South Carolina and Connecticut, two other states in the top ten for high electricity costs, solar savings with incentives amount to 26% and 22%, respectively.


newMexico
States with the Highest Value Incentives by Percentage of Cost Saved:
1. New Mexico (50%)
2. Iowa (42%)
3. Texas (41%)
4. Idaho (38%)
5. New York (38%)
wisconsin
States with the Lowest Value Incentives by Percentage of Cost Saved:
1. Wisconsin (5%)
2. Utah (6%)
3. Vermont (6%)
4. Florida (6%)
5. New Jersey (7%)

It Takes Less Time to Pay Off Solar Panels in Some Areas Than Others

For the average house with solar panels, the amount of time it takes to pay off the initial investment is 7.6 years. But this average payback period also varies by state. In states with plenty of sunlight and decent state incentives, that payback time can be much shorter.

For example, in New Mexico and Hawaii, solar panels will pay themselves off in about 2.4 and 2.5 years, respectively. For Florida, eight years is the average payback period.

At the bottom of the list, homeowners with solar in rainy Washington will see a 17.9-year delay, on average, before they recoup their initial investment.


newMexico
States with the Shortest Solar Payoff Period in Years:
1. New Mexico (2.4)
2. Hawaii (2.5)
3. Rhode Island (3.1)
4. Texas (3.4)
5. Iowa (3.5)
westVirginia
States with the Longest Solar Payoff Period in Years:
1. West Virginia (12.3)
2. Ohio (11.4)
3. Indiana (10.7)
4. Oregon (10.6)
5. Virginia (10.4)

Average Electricity Savings With Solar Is Around $1,100 Annually

The sweet spot seems to be for those who live in states with many peak sun hours and high energy costs. While the national average solar savings is around $1,100 annually, homeowners with solar panels in states like Hawaii and California can easily cover their yearly electricity costs. Arizona and Nevada, where the average electricity costs for 2022 are estimated to be around $1,766 and $1,539, respectively, will also break even.


hawaii
States with the Highest Annual Electricity Savings With Solar:
1. Hawaii ($2,841)
2. California ($1,989)
3. Arizona ($1,766)
4. Nevada ($1,539)
5. Rhode Island ($1,509)
washington
States with the Lowest Annual Electricity Savings With Solar:
1. Washington ($526)
2. West Virginia ($753)
3. Ohio ($785)
4. Kentucky ($839)
5. Arkansas ($860)

Factors to Consider When Installing Solar in Your Home

Solar panels, which are now expected to last at least 25 years, can be part of an overall eco-friendly approach toward savings. As climate events increasingly impact both the cost of electricity and homeowners insurance, solar panels can offer immediate financial benefits and reduce the strain on aging or compromised power grids.

For example, in February 2021, Texas suffered an electrical grid failure during a winter storm that resulted in five million people living without power and at least 246 deaths. The increasing number of climate events resulting in power outages make solar power, combined with solar battery storage, an attractive option for homeowners in states prone to extreme weather events.

The 30% tax credit from the Inflation Reduction Act can make the upfront cost of solar panels more affordable, while many states have exemptions that keep property taxes from rising despite the added value to your home.

So what should homeowners consider as they calculate solar savings and weigh the costs and benefits of installing solar panels? MoneyGeek explored some key factors to keep in mind.

  • This is an icon

    Increased Home Value

    How much do solar panels increase home value? As long as solar systems are owned and not leased, recent research conducted by the Lawrence Berkeley National Laboratory has found that houses with solar panels increase in value by at least the cost of the solar systems themselves.

  • This is an icon

    Green Mortgages

    Those planning to buy or build a new home may want to consider a green mortgage, loans offered by the Federal Housing Administration and banks intended to finance energy-efficient homes. Green loans are another possibility to help existing homeowners install solar panels in their current homes.

  • This is an icon

    Roof Condition

    For homeowners planning to install solar on an existing roof, it’s important to consider the roof's age and whether it will need replacing any time soon, which could raise the cost of removing and reinstalling the solar panels. In addition, whether you install your solar panels on your roof or elsewhere on your property, you should let your insurer know so that you have appropriate homeowners insurance coverage.

  • This is an icon

    NEM Program Availability

    Forty-one states have implemented net energy metering (NEM) programs, which compensate homeowners for extra energy produced that can be returned to the electrical grid. However, in some cases, traditional utility companies have attempted to restrict these programs.

    A proposal currently under consideration in California, NEM 3.0, would reduce credits that homeowners now receive for their monthly solar production and tack on added costs of about $56 per month for a 7 kW solar system. Homeowners considering solar would therefore be wise to look closely at their own utility companies’ policies.

Expert Insights

MoneyGeek sat down with industry leaders and academic experts to learn more about how federal solar incentives can help homeowners, as well as some of the barriers to solar panel adoption.

  1. Considering the federal incentives for solar technology in the recent Inflation Reduction Act, why have some states not added additional state-level incentives to make solar panel usage even more enticing?
  2. What are some of the ways that the Inflation Reduction Act will help homeowners and consumers?
  3. How can solar panels help the average homeowner to save money?
  4. What are some of the barriers to the broader adoption of solar technologies?
Deepak Rajagopal
Deepak Rajagopal

Associate Professor, Institute of Environment and Sustainability at UCLA

Maya van Rossum
Maya van Rossum

Delaware Riverkeeper & Founder of the National Green Amendment Movement

Michael Wysession
Michael Wysession

Professor of Geophysics, Washington University in St. Louis

Methodology

We analyzed the average costs of installing a 5 kW solar panel system at home by state and explored federal and state solar incentives to find the states that get the highest return on their investment in solar.

We calculated home solar power production using the average number of peak solar hours, energy consumption figures from the U.S. Energy Information Administration (EIA) and the cost of electricity per watt by state to find the amount of electricity produced by 5 kW solar panels. Annual electricity savings were calculated using the U.S. Energy Information Association's figures for the average electricity bill in each state and the cost offset by solar power production.

Solar payoff periods were determined by dividing the total cost of installing solar panels, after federal and state incentives, by annual electricity savings.

Limitations: Rate of return estimates are based on averages and the assumption that the average lifespan of a solar panel is around 25 years. ROI may vary based on factors like the efficiency and quality of panels used, the location of the solar panels, and whether or not net metering is available by state, which may increase returns on solar panel installation. Our analysis uses current energy prices and assumes they’ll stay the same for the purpose of measuring ROI over 25 years, but energy pricing is subject to change.

If you have any questions about our findings or methodology, please reach out to Melody Kasulis via email at melody@moneygeek.com.

Full Data Set

The data points presented are defined as follows:

  • Rate of Return: The internal rate of return for each state based on the calculated Annual Electricity Savings With Solar and the Cost of a 5 kW System After Federal and State Credits. See definitions of these metrics below.
  • Solar Payback Period in Years: Divides the total cost of installing solar after federal and available state solar incentives by annual electricity savings with a 5 kW solar panel system.
  • Annual Electricity Savings with Solar: Annual Electricity Bill less the calculated dollar value of the solar power produced by a 5 kW system. We calculated solar power production using the average power consumption by state, peak solar hours, the average price of electricity (cents/kWh), and power generated from a 5 kW system.
  • Cost of 5 kW System: The average cost of a 5 kW system by state, minus the 30% federal tax credit and any available state income tax credits and/or sales tax exemptions.
  • Annual Electricity Bill: Average monthly electricity bill by state from the EIA for 2022.
  • Annual Electricity Savings with Solar (5 kW system): Amount of money saved on electricity per year by supplementing electricity consumption needs with solar power.
Rank
State
Rate of Return
Solar Payback Period in Years
Cost of 5 kW System
Annual Electricity Bill
Annual Electricity Savings with Solar (5 kW system)

1

New Mexico

51.4%

2.4

$2,693

$1,137

$1,137

2

Hawaii

48.3%

2.5

$7,095

$2,841

$2,841

3

Rhode Island

37.3%

3.1

$4,696

$1,684

$1,509

4

Texas

33.7%

3.4

$3,915

$1,807

$1,153

5

Iowa

32.2%

3.5

$3,864

$1,555

$1,094

6

New York

31.9%

3.6

$4,735

$1,617

$1,327

7

Arizona

26.6%

4.2

$7,404

$1,766

$1,766

8

Idaho

23.7%

4.6

$4,100

$1,304

$883

9

California

22.8%

4.8

$9,555

$1,989

$1,989

10

Connecticut

22.4%

4.9

$6,781

$2,170

$1,392

11

Colorado

22.3%

4.9

$6,025

$1,230

$1,230

12

South Carolina

19.7%

5.5

$6,020

$1,843

$1,102

13

Nevada

18.6%

5.7

$8,820

$1,539

$1,539

14

Massachusetts

17.4%

6.1

$8,371

$1,820

$1,380

15

Delaware

16.5%

6.4

$6,530

$1,495

$1,025

16

New Hampshire

15.2%

6.8

$9,185

$1,718

$1,348

17

Maine

15.0%

6.9

$9,905

$1,657

$1,437

18

Kansas

14.2%

7.2

$9,065

$1,539

$1,259

19

South Dakota

14.1%

7.2

$8,365

$1,656

$1,154

20

Wyoming

13.9%

7.3

$8,995

$1,225

$1,225

21

New Jersey

13.7%

7.4

$8,777

$1,415

$1,182

22

Georgia

13.5%

7.5

$8,925

$1,981

$1,184

23

Vermont

13.4%

7.6

$9,184

$1,393

$1,214

24

Oklahoma

13.3%

7.6

$9,170

$1,702

$1,201

25

Alaska

13.1%

7.7

$8,435

$1,590

$1,095

26

Florida

12.5%

8.0

$8,096

$1,905

$1,015

27

Wisconsin

12.1%

8.2

$8,450

$1,345

$1,032

28

Utah

12.0%

8.3

$8,580

$1,037

$1,037

29

Missouri

11.9%

8.3

$9,065

$1,736

$1,091

30

North Dakota

11.9%

8.3

$8,470

$1,707

$1,017

31

Alabama

11.6%

8.5

$8,575

$2,032

$1,012

32

Pennsylvania

11.5%

8.5

$7,725

$1,676

$904

33

North Carolina

11.4%

8.6

$7,890

$1,478

$918

34

Tennessee

11.2%

8.7

$7,844

$1,731

$902

35

Illinois

10.9%

8.9

$9,555

$1,453

$1,072

36

Louisiana

10.6%

9.1

$8,995

$1,843

$992

37

Minnesota

10.6%

9.1

$9,940

$1,395

$1,095

38

Maryland

10.3%

9.3

$8,695

$1,685

$937

39

Montana

10.2%

9.3

$8,890

$1,195

$953

40

Mississippi

10.1%

9.4

$9,240

$1,738

$980

41

Kentucky

9.6%

9.8

$8,190

$1,691

$839

42

Nebraska

9.5%

9.9

$9,905

$1,410

$1,006

43

Michigan

9.4%

9.9

$9,835

$1,469

$992

44

Arkansas

8.8%

10.3

$8,890

$1,598

$860

45

Virginia

8.8%

10.4

$9,625

$1,778

$926

46

Oregon

8.6%

10.6

$9,100

$1,296

$861

47

Indiana

8.4%

10.7

$9,380

$1,667

$878

48

Ohio

7.6%

11.4

$8,960

$1,501

$785

49

West Virginia

6.8%

12.3

$9,240

$1,735

$753

50

Washington

2.9%

3.3

$9,415

$1,220

$526

National Average

16.3%

7.6

$8,063

$1,620

$1,141

About the Author


expert-profile

Rachel Newcomb is an award-winning writer, storyteller and professor of anthropology at Rollins College. She has over two decades of experience conducting research internationally and domestically and has published books about women's rights, migration and globalization in Morocco.


sources