The impact of electricity rates on solar savings
Last updated 12/5/2018
You don’t need to live somewhere sunny to enjoy the financial benefits of solar. While solar panels do produce more electricity in sunnier states, the amount you save by installing a solar energy system is primarily determined by the costs that you won’t have to pay to your utility company moving forward.
There is a strong correlation between the cost of electricity in your state and the savings you will see when you go solar. In general, the higher your electricity rates, the more money you will save by going solar.
High electricity rates, cheap solar energy systems
The chart below illustrates how this works across the country. We used PV Watts— a tool developed by the Department of Energy’s National Renewable Energy Laboratory — to estimate the amount of energy a solar power system will generate across the United States. Then we gathered key information for each city to show the annual savings benefits possible.
The following table shows the results of our calculations, sorted by annual saving from highest to lowest:
|City||Annual Savings*||Approx. Cost of Electricity ($/kWh)||Avg. Annual Solar Radiation (kWh/m^2/day)||
Estimated Electricity from a 5kW System** (kWh)
|Los Angeles, CA||$1,272||$0.17||5.62||7,480||1.50|
|San Francisco, CA||$1,250||$0.17||5.44||7,354||1.47|
|New York, NY||$1,094||$0.18||4.45||6,078||1.22|
|New Orleans, LA||$654||$0.09||5.02||6,540||1.31|
|St. Louis, MO||$649||$0.10||4.82||6,485||1.30|
* Annual electric bill savings (cost of electricity x electricity produced)
** Assumes an 80% derate factor, 180 degree azimuth, and tilt equal to city’s latitude
*** Production ratio (electricity produced/size of system)
Sunshine aside, your solar savings are guaranteed
As you can see, the cities with the highest estimated annual savings are also the cities with the highest electricity costs. Even if you don’t live in a sunny location, higher electric rates result in higher amounts of savings when you switch to solar energy.
The cities most of us would consider sunny are spread out in the rankings. For example, solar panels in Phoenix will produce the most electricity out of all of these cities and will result in savings of $900 per year. That’s similar to savings in Detroit, MI, even though a system in Hartford is expected to produce 2,200 fewer kWh per year. Again, this is a function of the electricity costs, which are 35 percent higher in Hartford vs. Detroit.