How to Calculate Your Solar Savings (Step-by-Step Guide)
Learn exactly how solar savings are calculated — system size, production, electricity rates, and incentives. Then use our free calculator to get your personalized estimate.
The Solar Savings Formula
Solar savings are calculated by multiplying your system's annual electricity production (kWh) by your local electricity rate ($/kWh). The result is your gross annual savings. Subtract any loan payments or lease fees to get your net annual savings.
| Variable | How to Find It | Example |
|---|---|---|
| System size (kW) | Based on your bill and roof space | 7 kW |
| Peak sun hours | NREL PVWatts data for your ZIP | 5.2 hrs/day (Phoenix) |
| Annual production (kWh) | System kW × sun hours × 365 × 0.80 efficiency | 10,626 kWh/yr |
| Electricity rate ($/kWh) | Your utility bill | $0.14/kWh |
| Gross annual savings | Production × rate | $1,488/yr |
| Federal tax credit | 30% of system cost | $6,300 (one-time) |
Step 1: Determine Your System Size
Your system size is determined by how much electricity you use. Divide your annual electricity usage (from your utility bills) by your location's annual peak sun hours × 365. Most homes need 5–12 kW systems. Our calculator does this automatically when you enter your monthly bill and ZIP code.
Step 2: Calculate Annual Production
Annual production = System size (kW) × Peak sun hours per day × 365 days × System efficiency (typically 75–85%). For a 7 kW system in Phoenix (5.5 sun hours): 7 × 5.5 × 365 × 0.80 = 11,242 kWh/year.
Step 3: Calculate Savings
Multiply annual production by your electricity rate. At $0.14/kWh: 11,242 × $0.14 = $1,574/year. At $0.28/kWh (California): 11,242 × $0.28 = $3,148/year. This is why location matters so much — the same system saves 2x more in California than in Texas.
Frequently Asked Questions
How accurate are solar savings calculators?
Good calculators using NREL PVWatts data are accurate within 10–15% for most locations. Actual savings depend on your specific roof orientation, shading, and utility rate structure.
What is the 80% efficiency factor?
Solar systems don't convert 100% of sunlight to usable electricity. Losses from inverter efficiency, wiring, temperature, and soiling typically reduce output by 15–25%. An 80% efficiency factor (also called a 'derate factor') accounts for these real-world losses.
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