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Solar Power Cost vs Regular Electricity Cost

November 19, 2019

In this age, people are almost entirely dependent on electricity. Electricity powers a majority of systems in residential and commercial settings. Solar power is a promising source of energy that has gained considerable popularity thanks to its cost-cutting ability and environmental-friendly characteristics. But with so many trendy investment opportunities coming up, sometimes it can be hard to determine if something is really going to help you save tons of money. When considering whether to use regular electricity or solar power, one of the main factors to take into account is the cost. This article shows how the cost of solar stacks against electricity and why there’s an increasing acceptance of solar power systems. 

Factors that Affect the Cost of Regular Electricity

Regular electricity prices basically are a clear reflection of the cost to finance, build, operate, and maintain power plants as well as the complex system of power distribution lines. Electricity must be generated and transmitted through equipment that requires maintenance and fuel costs. Some for-profits utilities further include a financial return for shareholders and owners in their electricity prices. The cost of electricity is determined by various factors, some large, some small. The main factors that affect your costs for electricity include:

  • Cost of fuel – Electricity has to be generated and distributed, and these processes use energy supplied by fuel. As you probably know, fuel costs vary from time to time, especially when there’s high demand. So, high electricity demand can result in increased demand for fuel like natural gas which can, in turn, lead to high prices for fuel and consequently higher cost to produce electricity.
  • Weather conditions – Snow and rain are a source of water for cost-effective hydropower generation. Wind, on the contrary, can generate cost-effective electricity from wind turbines whenever wind speeds are favorable. Nevertheless, extreme temperatures have the ability to increase the demand for electricity for cooling or heating, and high demand drives electricity prices up.
  • Transmissions and distribution system – the system put in place to transmit and distribute electricity have maintenance costs, which may include repairing damage to the systems from extreme weather conditions or even accidents.
  • Regulations - In some states, public service or utility commissions entirely regulate prices. Other states have a blend of unregulated prices for producers and regulated prices for transmission and distribution.
  • Type of Consumer: Since industrial customers can be supplied a larger amount of electricity at a time, they usually pay less per kilowatt hour (kWh) because the delivery and generation are cheaper and quicker.

The Cost of Electricity in the U.S

On average, residential utility rates are approximately 12 cents per kilowatt-hour. In 2014, the average monthly electricity bill recorded was $114 before fees and taxes, and the average residential household used approximately 911 kWh on a monthly basis. Over the years, electricity utility bills have greatly fluctuated monthly, yearly, and even seasonally, but overall, they’ve significantly gone up. Retail residential electricity rates have greatly gone up at a 4% rate over the past 10 years. The rate has gone up to 40 percent in some areas such as the Northwest. According to the US Energy Information Administration, the annual average cost of electricity for April 2018 by consumer group was:

  • Commercial - 10.44 cents per kWh
  • Residential - 12.89 cents per kWh
  • Transportation -9.53 cents per kWh
  • Industrial - 6.58 cents per kWh
  • All Sectors – 10.23 cents per kWh

For the average residential household, the cost in 2018 increased by 5.5% from 2017. Over the past 10 years, this cost has risen by 3.0% per year. The average cost for commercial increased by 2.5%, transportation increased by 2.3%, and industrial average electricity cost went up by 0.2%.  The average utility cost for all sectors increased by 0.8 percent from 2017.

Electricity prices in the country vary by location due to differences in the type of fuel used in production, type of power plants, fuel transportation costs, as well as state pricing regulations. In April 2018, the states that recorded the highest average residential price of electricity were Hawaii (31.21 cents per kWh), Alaska (21.61 cents per kWh), and Massachusetts (22.34 cents per kWh). Those that recorded the lowest average prices in April the same year were Arkansas (10.00 cents per kWh), Washington (9.74 cents per kWh), and Louisiana (9.80 cents per kWh). Hawaii has the highest electricity prices because most of their electricity is produced using crude oil.

In 2016, the average residential household in the United States used 897 kWh per month, and the average electricity bill was $ 112.59 per month before fees and taxes. Electricity costs tend to be higher for commercial and residential customers compared to industrial customers. This is due to the fact that it costs more to distribute electricity and lower voltages. Industrial consumers not only use more electricity but they also have the capacity to take their electricity at higher voltages, eliminating the need for stepping it down. These aspects make the price of power to industrial customers to the wholesale price of electricity. On the surface, the cost of regular electricity seems to show how much lower the cost of solar energy is. 

The cost incurred when supplying electricity changes every minute. Nonetheless, most customers pay rates depending on the seasonal cost of electricity. Generally, the disparity in costs is a true reflection of variations in the electricity demand, fuel costs, availability of generation sources, as well as availability of power plants. Normally, prices are highest during summer when total demand as more generation sources are added to satisfy the demand.

The Cost of Solar Power

A solar energy system can incredibly protect you from the ever constant fluctuations and increases in electricity prices. From 2006 to 2014, the average solar panel module prices dropped over 75 percent from about $3.25 kWh to approximately $.72 kWh.  Over the past 38 years, photovoltaic (PV) solar cell rates have dropped by a factor of 100 and down by a factor of 25 over the last 15 years. The main reason why there was a small rise between the years 2005 and 2008 is because of a polysilicon shortage. In 2015, the average solar cell price was $.30 per watt, while the average solar module price was $.72 per watt.

Because costs after successful installation are minimal for solar electricity, the pertinent costs include purchase price, the cost of the land, and installation costs. Cost elements that make up a residential solar system include solar modules, system design, and the balance of system (BOS) which is made up of an inverter, connection devices, bi-directional billing meter, as well as installation labor. For example, in the southwest, installed residential solar costs are competing with residential electricity costs after incentives.

The average residential household in the United States, according to the National Renewable Energy Laboratory (NREL), installs a 5 kWh system and in 2017, it cost on average $2.80 per DC watt or $14,000(2.80 x 5000) before tax and fees. Commercial corporations, on the other hand, usually use systems in that record 100 megawatts or even superior range. In 2017, the average price for a fixed solar panel system was $1.03 per watt.

Current solar module prices have experienced a dramatic price drop. From 2007 to 2014, worldwide average module prices went down by approximately 78 percent from $3.25 per watt to about $0.72 per watt. The reason why crystalline silicon module prices reduced so much was due to the price of the raw material polysilicon, which contributes significantly to the total cost, experience a phenomenal drop. Suppliers of polysilicon made a lot of money and added more tons of capacity that by 2010 there was a huge polysilicon capacity oversupply. From 2008 to 2011, polysilicon prices reduced from $400 per kilogram to $25 per kilogram, which translates to a 94% drop. Furthermore, the tremendous drop was compelled by:

  • The increased efficiency of solar cells that is a ration of energy generate to sunshine energy
  • Economies of scale
  • Dramatic manufacturing technology improvement
  • The intense competition that leads to module oversupply

The 23% solar growth rate recorded yearly over a few years enabled manufacturing efficiencies that are unheard of in other industries.  Furthermore, there are many competitors contending for major contracts, which are making prices to go down quickly. Solar energy panels are becoming more reasonably priced for property owners through state, federal, and local tax breaks. In 2016, they were allowed to claim 30% of the total cost of installing a new solar system in their home as a tax credit when they bought a solar system. Considering these incentives, it’s most likely that one can recover all of his/her installation as well as equipment costs within a period of 10 years. What’s more, the tariff tax on imported solar cells will fall by five percent each year, meaning that the tariff will be at 15% in 2021. This may see the prices of solar cells significantly fall, which would make PV cells even cheaper in the following years.

Generally, the cost of going solar has gone down tremendously. Many property owners planning to sell them in the future could make a smart investment by upgrading with solar panels. Solar panels necessitate almost no maintenance because there are no moving parts that can break down. Moreover, the latest solar panels are characterized by slimmer profiles and sleek trims that blend well with traditional roofs.

Calculating Monthly Savings With Solar Power

Solar system mounted on a south-facing rooftop with no shading, and with a normal annual dessert sunlight radiance of 2,400 per square meter would generate 1,840 kWh of electricity annually per nameplate kW capacity. With a 5 kW solar system installed, the first year production will be (1,840 x 5) 9,200kWh. An average system degradation of .5% yearly times 25 years yields a net 8,050 kWh annually average electricity savings would be (0.875 x 9,200).  In 2017, the average residential electricity price in CA was $0.125 per kWh, and this would yield savings of (8050 x $0.125) $1,006.25 not considering future inflation. Therefore, the monthly savings would be ($1006.25 divided by 12 months) which is $83.8. 

If you are currently dealing with rising electricity costs, solar power proves to be your cost-efficient option. It helps get rid of your dependence on the local utility company.  If you’re worried about solar panels working on cloudy days, the sun still emits energy through both clear and cloudy skies. Unlike regular electricity, solar power offers an all year round efficiency and savings, even during colder climates. Depending on the size of the solar system you install, how your home faces the sun, and the quality of the system, some panels produce excess electricity than you would require. Some solar power systems convert 22% of their energy into electrical power. This is great news if you consider that the actual amount that you pay toward electricity every month. What’s more, you can qualify for a rebate if your solar power system generates excess power.

If you purchase and install a solar power system for your home, all of the harnessed solar electricity it generates will be free as soon as the system pays itself off. Usually, this may take anywhere between 5 to 10 years, depending on the location of your home. If you’re able to finance your system, you can start saving money from the first day your solar energy system produces power.

From the points above, solar is considerably cheaper than electricity. Energy companies are developing systems that can deliver energy at a much lower cost than regular electricity, not forgetting the impact on the environment. Solar is easily installed on the roof and harnesses an already available resource. By comparison, the cost of electricity across the nation continues to rise as the cost of solar drops.

Contact a Solar Power Installer Near Me

If you’re curious about what a solar installation and maintenance would cost, Sun Solar Electric Company can offer a personalized estimate. We can also help you find ways to finance the installation of your own solar energy system. Contact our solar panel company at 707-658-2157 to learn more about the cost of solar energy systems.

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