With energy costs on the rise and the fear of global warming, it’s no surprise that people are beginning to turn more towards renewable energy solutions.
We’ve all heard about the power of the sun and the benefits of solar on the roof of our homes. However, it also seems like no one has explained why solar could be the future proof solution to our energy.
This is what you need to know about solar costs and your energy bill.
Why Energy Rates Matter When Considering Solar
Before going solar, you’ll want to consider the costs associated with solar energy against how much you pay for energy from your utility company. Project Sunroof’s solar calculator can help you get started.
Solar makes absolute financial sense if energy costs continue to increase.
As anyone who pays an energy bill knows, your rates fluctuate from year to year and even from month to month.
So, is it actually worth it to go renewable if energy rates are fluctuating so rampantly and the financial benefits of solar rely on that price point?
According to the Energy Information Administration (EIA), residential electricity costs have steadily increased in the last decade. These rates have increased in the U.S. by about 15% in the last ten years.
And that’s on average. In some states, like Oregon, electricity rates climbed by 40% over the last decade.
The following graph from the EIA demonstrates this incline since 2009. Yes, there are ups and downs, but energy rates show an overall upward trend.
Though the trend doesn’t immediately look “bank-breaking,” these numbers add up over time. By the time a decade passes, you pay a lot more than you would have if prices stayed the same.
How Electricity Costs Fluctuate By Location Over Time
How big these fluctuations can be depend entirely on your location.
The graph below demonstrates different parts of the U.S. and how electricity costs vary by region.
In some areas, such as the East North Central region of the U.S., electricity costs increased at a steady rate. However, other regions, such as the West South Central region of the U.S., stayed quite high, decreased slowly, and then stayed about the same for the rest of the decade.
As shown in the graph above, there are some states that have had more dramatic cost increases than others. But this data demonstrates a mostly-upward-trend, and, more often than not, a large increase in costs.
We can gather that while the financial solar benefits will be more dramatic in some states, solar energy will likely insulate you from the fluctuations and the increasingly expensive growth of energy costs.
The Bottom Line Of Energy Costs
So, we know that energy costs get more expensive over time – but how do we know that electricity will continue this trend?
There are various reasons why it’s highly unlikely for electricity rates to fall rather than rise.
The EIA (Energy Information Administration) predicts, based on their years of data and research, that electricity costs are only going to continue to increase both in the short and long-term.
Climate change and extreme temperatures will also drive up the demand for energy. People who don’t make the switch to renewable energy options may be stuck paying exorbitant amounts for fossil fuels.
As for natural gas – though natural gas prices have been falling the last few years, many experts believe that it’s only a matter of time before the prices trend upwards. Why? Mainly because as export terminals (basically terminals to export and import liquified natural gas) are completed and exposed to international markets, companies can charge more. Right now Japan and Europe pay quite a bit more for natural gas than the U.S. does. We can expect the same pattern to follow in the U.S.
The takeaway is that solar can be very beneficial to a large majority of the U.S., and you can count on that for longevity – based on patterns of increasing energy costs.
Solar Costs Decline And Electricity Rates Rise; But Is Solar Still A Good Financial Investment?
If solar energy is becoming more affordable, and energy rates are becoming increasingly less affordable, going solar makes total sense financially.
A report from the investment firm, Lazard, quotes that the levelized cost per unit of electricity from new onshore photovoltaic power plants dropped 90%. Which means that the cost of generating electricity from renewable energy (especially wind and solar) is declining and becoming just as feasible on a utility scale as conventional energy generation.
Some studies suggest even though renewable energy is becoming more affordable, recent mandates that require the use of renewables actually drives up the cost of electricity.
While this may just seem like an expensive way to reduce greenhouse gas emissions, this process may be just the right way the energy industry can transform from using fossil-fuels to renewables.
Keep in mind: these costs are on a bigger scale than residential use. It’s important to know for future use as the energy economy changes. But your personal energy bill will go down (even zero out) with your own residential solar system.
Renewable Energy Is Influencing Energy Cost On A Large Scale
Renewable energy brings down the wholesale price of electricity for generators. So why do they contribute to rising energy costs?
- Economists of Energy Policy Institute at the University of Chicago wrote a paper questioning cost-effectiveness of renewable mandates. The paper questions effects of RPS programs, how they’ve raised retail energy prices, and how they aren’t doing enough to lower greenhouse gasses.
- Wholesale prices for energy are paid to generators; retail prices are paid by customers. So the benefits aren’t evenly spread.
- Generation of renewables account for about 44% of their total cost. Other parts of the cost are transmission, distribution, maintenance, depreciation, and taxes.
- Renewable energy systems cost also depends on the cost of electricity that it is replacing. This is also affected by the location of the energy system. These flexible power plants are usually expensive to operate which can raise total system costs.
- Renewables on a large scale take up a lot of land in order to effectively utilize their resources. This means they’re further away from population hubs and require much more transmission to meet the populations demand. This also drives up system costs.
- If a state allows wholesale or retail competition it could drive up costs of energy.
- Some observed RPS effects on retail may be because of older and more expensive technologies when programs first started. Updating them could even things out more.
- The National Renewable Energy Lab released a report that says a large grid system with 30% variable renewable energy (VRE) operates will without much disruption. Beyond that, it gets more problematic. The Lawrence Berkely National Lab (LBNL) also reported an annual wholesale energy price decline on average as VRE increased. But this also increased the price volatility.
- Improvements around capacity, cost of grid-scale, as well as economic and institutional fixes (like regional transmission organization) could bring generation costs down though may have higher transmission costs.
- The more we move into renewables, the more likely the whole business model for energy and it’s cost will need to change. The emphasis would be on customer pays for quality rather than quantity in order to keep renewable energy enticing and affordable.
Renewable Energy Prices Have Dropped, And That’s A Good Thing
Research and funding have improved the development, product design, and energy distribution of the different renewable energy options. We now have products with increased capacity and utilization possibilities.
Efficiency in the manufacturing process has lowered the cost of producing solar panels, which in turn makes them more affordable. As solar grows, the installation has expanded beyond single rooftops to solar farms that are hundreds of acres each.
Once upon a time, renewable energy used to be too expensive and required subsidies and mandates to even maintain them or encourage the adoption of them.
However, at this point, renewable energy, like solar, has been made more available and affordable through tax credits, feed-in tariffs, and RPS (Renewable Portfolio Standards). This makes renewables very competitive against traditional sources of power.
So even though renewable energy isn’t necessarily bringing energy costs down everywhere it’s implemented, these are necessary growing pains as the energy economy transitions to renewable energy.
Overall, the changes are good and residential solar (solar panels on your home) will bring your energy bill down and even zero it out since you have your own system.
- Residential energy costs are proven to trend upwards, getting more expensive over time. The average increase in the last ten years was about 15% but has trended as high as 40% in some states.
- Based on the data, the upward trend of energy costs is not likely to change as natural gas prices are marked to rise and climate change creates more drastic temperature/energy needs. Energy experts, like the EIA, have projected a continued cost increase based on years of data and research.
- Depending on the state/area of the U.S. you live in, your solar savings could be dramatic, moderate, or minimal. This factor is influenced by your grid utility costs. Some states will see huge savings and others will have smaller savings simply because they have lower pre-existing energy costs.
- A solar energy system can protect you from energy cost fluctuations and the increasing cost of electricity from fossil fuels.
- Purchasing a solar energy system with cash or a solar loan is the best way to reduce your energy bills immediately. In fact, most homeowners never have to pay an energy bill again. Considering the payoff time being between 5-12 years, and a solar panel system’s lifetime of 25-30 years, you can expect to be saving a lot of money over the life of your panels.
- Solar lease and PPA financing options will still almost certainly save you money over the long-term despite fluctuating energy costs and can save you money in the short-term depending on the energy costs in your area.
- Before you go solar, make sure you know everything you need to know. Budget out your energy costs over the lifetime of your solar panels. Because solar is renewable, clean energy, even if you end up saving less than you thought simply making a change to renewable energy helps reduce climate change, pollution-based diseases, and deaths caused by fossil fuel emissions.
- Gather several solar quotes before going with a company; choose the financing option that’s going to save you the most in the long run.
The Solar Takeaway: How This Information Helps You
We have seen how non-renewable energy costs have increased and why they will continue to increase. These costs will bounce around and fluctuate every year.
Solar gives you control over your energy as it reduces your power bills. The electricity generated by your solar energy system is yours. You may not be able to control how much it’s saving you month-to-month. But based on the data, it’s almost certain you’re going to be saving money – especially over the long-term.
There are a couple of financing options for going solar. And each option will influence your energy cost and savings once you’ve gone solar.
- Purchase Financing Option: Purchasing your solar energy system outright with a loan or cash is the number one way to save the most money with solar. It’s basically going to eliminate your energy bill as soon as it’s set up.
You’ll pay off your solar system in about 5-12 years on average. So you can consider your old energy bill going into paying for your solar energy for the first while. Once it’s paid off, you’re getting your “free” solar energy for the rest of its life (about 25-30 years).
Fluctuations in energy costs in your area won’t really affect you or your payoff time frame.
- Power Purchase Agreement Option (PPA): The PPA or a solar lease will most likely have you saving immediately.
These programs usually come with a contracted flat rate that you pay to use that solar system for the agreed upon time (about 20 years). A flat rate would be ideal for consistency and to keep you under your utility energy costs.
Some contracts are set with an adjustment pay rate so that it may increase by a small percentage every year.
Because of this, you may have small periods of time that you’re actually paying more for solar than you would for fossil fuel energy. The reason for this would be if the energy costs in your area went through a “drop” period in its timeline.
So considering this, you may want to only go solar if the quoted price from the solar company is quite a bit lower than your current energy rate.
However, even if you do have small periods that you’re paying more for solar, you may still expect to save plenty of money since costs trend upwards.
This option may work best in areas with high energy costs.
To illustrate this cost/benefit relationship with a solar lease and solar PPA, the example graph below shows how your solar rates could be lower than your current energy rates over 20 years.