Why Solar Power Actually Pays Off, Even in Regions With Cheap Electricity

For solar panels to make financial sense, they need to save more money than they cost. The local cost of electricity and solar installations, the amount of available sun, financial incentives and personal energy consumption all have a place on the balance sheet. While people adopt solar power technology for more reasons than saving money, it is a big one.

Homeowners in the mountain west have several things going for them in making solar power worth it. Plenty of sun and cheaper-than-average solar installation costs make solar power an attractive option. Cheaper-than-average electricity might hold some back. Knowing if solar will pay off requires a bit of raw data.

Read CNET's coverage of other regions' solar potential: New England, the East Coast, the Midwest, the South and the West Coast.

The cost of electricity

We're defining the Mountain West as Arizona, Colorado, Idaho, Montana, Nevada, New Mexico, Utah and Wyoming, based on how the US Energy Information Administration lists electricity prices. According to the EIA, Idaho has the second lowest average electricity price (9.95 cents per kilowatt-hour) in the nation, second only to its West Coast neighbor, Washington. Nearly all the other Mountain West states are in the bottom half of average prices: Arizona (12.27 cents per kWh), Colorado (12.36 cents per kWh), Montana (11.24 cents per kWh), Nevada (11.34 cents per kWh), New Mexico (12.94 cents per kWh), Utah (10.44 cents per kWh) and Wyoming (11.11 cents per kWh).

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The average monthly bill for these states, which takes into account electricity usage and cost, ranges from $80.24 in Utah to $136.70 in Arizona. The other states -- Colorado, $87.88; Idaho, $95.04; Montana, $96.49; Nevada, $110.36; New Mexico, $86.66; and Wyoming, $96.59 -- fall in between. In general, monthly bills are less here than other places in the US.

The cost of solar panels

Solar panel prices are most commonly measured in dollars per watt, a standard unit of measurement that can be used to compare solar prices in two different places. 

Solar prices vary geographically, in part, because the costs of labor and permitting do too. While the prices of solar panels and necessary hardware have fallen in recent years, the costs associated with labor and sales haven't fallen as fast.

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The national average cost for a solar panel installation is $3.28 per watt, according to the energy analysts at Wood Mackenzie. EnergySage, an online solar market place, provides state-by-state average costs. Since both organizations get their pricing data from different sources, their averages can't be compared one-to-one.

The average in Arizona is $2.33 per watt (one of the lowest in the country), while next door in New Mexico the average is $3.21 per watt. Colorado ($3.13), Idaho ($2.55), Montana ($3.03), Nevada ($2.44) and Utah ($2.63) round out the region. Arizona, Idaho, Nevada and Utah are four of the cheapest six states for solar, according to EnergySage. Meanwhile, the other three are in the most expensive third.

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Another local difference that affects solar panel prices is the incentives available. Every solar installation in the United States is eligible for the federal tax credit of 30% of the cost of the system. But states, cities and utilities often have additional incentives on top of that.

While some states have next to nothing in terms of incentives, in others you could save a significant chunk of change. Many states have exemptions for property tax (Arizona, Montana and New Mexico) and sales tax (Arizona, Colorado and New Mexico). Others offer rebates or personal tax credits. Installing solar can earn you up to $1,000 back on your taxes in Arizona and Montana. In Idaho you can deduct up to $20,000 of solar cost from your personal taxes. Rebates for solar systems from states and utilities range from 5 cents for each watt of solar capacity installed in Colorado. 

You can explore all incentives in your state by searching the Database of State Incentives for Renewables and Efficiency.

The solar potential of the Mountain West

Solar potential is a term that can mean a few different things, but no matter how you cut it, certain parts of the region have lots of it.

Arizona, Colorado, Nevada, New Mexico and Utah rank in the top 11 for solar installations per capita. Montana had the lowest ranking of the group at 30th.

One way to measure solar potential is to measure how much electricity a horizontally mounted square meter of solar panels would generate on an average day. These states have the highest rating of any region in the United States. According to the National Renewable Energy Lab, most of this region would produce over 5 kilowatt-hours a day (PDF), and much of it would produce over seven kWh.

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Another way to gauge the solar potential of a state is to identify how much of an average electric bill the average rooftop solar installation could replace. The same NREL report says that the average rooftop solar array could replace 60% to 70% of the average utility bill in Montana, 70% to 80% percent in Idaho and Utah, 80% to 90% percent in Arizona and Wyoming, 90% to 100% percent in Nevada and over 100% percent in Colorado and New Mexico. On the whole, these states have a higher-than-average utility bill offset.

The numbers in this article are statewide averages and may not be what an individual homeowner would find. Their utility bill might be higher than average and local cost of solar installation lower. The opposite might be true. As with any large purchase, buying solar panels requires individual research. That should include getting multiple quotes from local installers and confirming the incentives available to you.

From this bird's-eye view, it's apparent that the Mountain West has high solar potential. Average electricity costs are lower than normal, but so are solar costs. At the same time, solar panels can produce more electricity here than anywhere else in the US. Solar power is at least worth a close look in these states.