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How to Calculate the Costs of Installing Solar Panels

Switching to renewable energy like solar power can substantially lower your electricity bills, potentially eliminating them altogether. However, the amount you save depends on several factors which are as follows:

  • Efficiency of your solar panels
  • Size of your solar installation
  • Local electricity rates
  • Your home’s energy usage

You can get a monthly energy usage report from your utility company to find out how much electricity you consume, usually measured in kilowatt-hours (kWh). With this data, you can calculate your current electricity costs.

For example, let’s use the U.S. national average annual energy consumption of 10,715 kWh, at an average residential rate of 13.85 cents per kWh.

Here’s how you can calculate it:

Step 1

Multiply your annual consumption by the cost per kWh:

10,715 kWh (annual consumption) x $0.1385 (cost per kWh) = $1,484 per year

Step 2

If your solar installation is expected to generate 10,000 kWh per year, subtract this from your annual consumption:

10,715 kWh (annual consumption) – 10,000 kWh (solar generation) = 715 kWh remaining

Step 3

Calculate the remaining electricity cost you’d have to pay:

715 kWh (remaining consumption) x $0.1385 (cost per kWh) = $99 per year

Step 4

With solar power, your annual electricity cost drops to $99, or roughly $8.25 per month. Comparatively, you’d save:

$1,484 (original cost) – $99 (reduced cost) = $1,385 saved each year

Keep in mind that this is a simplified example. Real-world calculations would also consider factors like rising utility rates, the amount of shade your home receives, and the degradation rate of solar panels.

Nonetheless, this basic four-step guide offers a straightforward way to estimate the financial benefits of adopting solar energy.

Once you’re done, you then have to determine the total number of solar panels you need for your property. Your first step is to understand your monthly energy consumption, usually measured in kilowatt-hours (kWh) by your utility provider.

Once you have this data, you can proceed with the following steps to determine the number of solar panels you’ll need.

Here’s a step-by-step guide to calculating your solar panel needs:

Step 1

Calculate your daily energy use by dividing your monthly energy consumption by the number of days in that month. For this example, let’s use a daily consumption of 30 kWh.

Step 2

Next, identify the average number of sunlight hours your location receives each day. This varies based on geographic location and time of year. For simplicity, let’s use an average of 5 sunlight hours per day.

Step 3

Divide your daily energy consumption by the number of sunlight hours to find the amount of energy you’ll need to generate per hour:

30kWh(daily energy use)/5hours(sunlight)=6kWperhour

Step 4

Solar inverters convert direct current (DC) generated by your solar panels to alternating current (AC), which is what your home uses. This process isn’t 100% efficient; let’s assume an efficiency rate of 80% or 0.8.

Divide your hourly energy needs by 0.8 and convert the result to watts:



Step 5

Finally, divide the total wattage you need by the wattage that one solar panel can produce. Solar panels come in various power ratings, but for this example, let’s use a 250-watt panel:

7,500W(total energy needs)/250W(per panel)=30panels

So for this example, you would need 30 solar panels to offset your electrical needs. Keep in mind that these calculations are simplified and other factors like panel degradation, shade, and increasing energy consumption could influence the exact number of panels you’ll need.

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