Will Solar Cut Your Power Bill? 3 Factors

Yes, solar panels can cut your power bill, but only if three factors line up in your favor: your local electricity rates, your home’s solar resource (sunlight), and your net metering or buyback policy. If any one of these is unfavorable, your savings shrink or vanish entirely. Here is what you need to check before signing a lease or loan.

Formula

Annual production (kWh) = system size (kW) × daily peak sun hours (h) × 365 days × 0.8 (system derate factor). Annual savings ($) = annual production × electricity rate ($/kWh) × net metering fraction (%).

Variables: t = DC system size in kilowatts (kW), h = average daily peak sun hours for your location, r = your all-in electricity rate in dollars per kilowatt-hour ($/kWh), p = net metering fraction, where 100% means you get full retail credit for every exported kWh, and 0% means no credit at all.

Worked Example

Using the defaults: a 6 kW system, 4.5 peak sun hours, $0.15/kWh rate, and 100% net metering.

Annual production = 6 × 4.5 × 365 × 0.8 = 7,884 kWh. Annual savings = 7,884 × 0.15 × (100/100) = $1,182.60.

So that system would produce about 7,884 kWh per year and save roughly $1,183 annually at full retail net metering.

Factor 1: Your Electricity Rate

Solar savings scale directly with what you pay for electricity. If you pay $0.10/kWh, a system that produces 8,000 kWh/year saves $800. At $0.30/kWh (common in California and Hawaii), the same system saves $2,400. Check your utility bill for the “generation” and “delivery” charges – you need the total per-kWh cost, not just the generation line. Also check whether your utility uses tiered rates (higher rates as you use more) or time-of-use (TOU) rates (higher rates at peak hours). Solar can be more valuable under tiered rates because it offsets your most expensive tier, and under TOU if your panels produce during peak afternoon hours.

Factor 2: Your Sunlight Resource

Peak sun hours are not the same as daylight hours. One peak sun hour equals 1,000 watts of sunlight per square meter for one hour. Phoenix gets about 6.0 peak sun hours daily; Seattle gets about 3.5. Use the National Renewable Energy Laboratory (NREL) PVWatts calculator or your state’s solar map to find your number. Shading matters too – a single tree branch can cut production by 10-20% for the panels it covers. If you have a south-facing roof with little shade, you’ll get more production than an east-west roof with morning shade.

Factor 3: Net Metering and Buyback Policies

Net metering is the policy that credits you for excess solar power sent to the grid. Full retail net metering (1:1) means every kWh you export earns the same credit as a kWh you import. Many utilities now offer reduced net metering (e.g., 75% of retail) or net billing, where exports are credited at a lower “avoided cost” rate (often $0.03-0.08/kWh). If your utility has a low buyback rate, you’ll want to size your system to cover only your daytime usage, not maximize total production, because exported power is worth much less. Check your utility’s current net metering tariff – it may change for new customers, and some states have caps on how much solar can participate.

Other Factors That Change the Math

• Fixed utility charges: Most bills have a monthly connection fee ($10-30) that solar does not eliminate.
• System degradation: Panels lose about 0.5% output per year, so a 25-year average production is about 92% of year-one.
• Inverter efficiency: The derate factor of 0.8 accounts for inverter losses, wiring losses, and soiling – it’s a conservative average.
• Electric rate inflation: If rates rise 3% per year, your savings rise with them. If rates stay flat, your savings are lower in real terms.
• Battery storage: Adding a battery lets you store excess solar for night use, but it raises cost and may not pay off unless your utility has TOU rates with big evening peaks or no net metering.

How to Get a Real Estimate

1. Find your monthly kWh usage from your last 12 bills.
2. Divide by 30 to get daily usage, then divide by your peak sun hours to get the rough system size you need (e.g., 30 kWh/day ÷ 4.5 sun hours = 6.7 kW).
3. Use NREL PVWatts to model your exact roof and shading.
4. Multiply annual production by your utility’s buyback rate (not retail if net metering is reduced).
5. Subtract any fixed monthly fees.

Common Mistakes and Misconceptions

A common mistake is comparing solar quotes by system size alone – a 6 kW system in Arizona produces much more than a 6 kW system in Michigan. Another is ignoring the difference between gross and net metering: with net billing, you might get $0.04/kWh for exports, so a system that covers 100% of your annual usage still leaves a bill because you import at $0.15 and export at $0.04. Also, don’t assume solar eliminates your bill – you still pay fixed fees and any grid power you use at night.

Frequently Asked Questions

How much can I actually save per month? Take the annual savings from the calculator and divide by 12. For the worked example, that’s about $98.50 per month. Your actual bill savings will vary monthly because production is higher in summer and lower in winter.

What if my utility has no net metering? You’ll need a battery to use more of your own solar, or accept a low buyback rate. In that case, size the system to cover only your daytime loads – the payback period will be longer, but you still save on every kWh you don’t buy.

Does solar increase my home value? Studies show homes with owned solar systems sell for a premium, but leased systems can complicate a sale because the buyer must assume the lease. This is not financial advice – check with a local realtor.

How long until solar pays for itself? Divide your net cost (after any tax credits) by your annual savings. A $12,000 system with $1,200 annual savings pays back in 10 years. The federal tax credit (currently 30% through 2032) reduces that cost, but state incentives vary – confirm current rules with a tax professional.

Will solar work during a power outage? Only if you have a battery and the inverter supports islanding. Standard grid-tied inverters shut off during outages for safety, so you’ll be in the dark unless you have storage.

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in t | System size | kW | 6 | 0 | 100
in h | Daily peak sun hours | hours | 4.5 | 0 | 12
in r | Electricity rate | $/kWh | 0.15 | 0 | 1
in p | Net metering fraction | % of retail | 100 | 0 | 100
out annual_kwh | Annual production | kWh | t * h * 365 * 0.8 | 0
out annual_savings | Annual savings | $ | annual_kwh * r * (p / 100) | 2