Do solar panels make sense in the Midwest? What do you want to know

It took about 40 years to install 1 million solar installations in the United States. The Next Million only took three years to install (PDF). It’s an acceleration that hasn’t really slowed down. Whether it’s because you’re trying to take advantage of the federal tax credit before it’s gone or for some other reason, you may be planning to go solar soon.

While the Midwest isn’t California or Arizona, that doesn’t mean putting solar panels on a roof in the Midwest is a dumb idea. In many situations, this can be a wise financial decision. Below is some key information about the Midwestern states from which you can focus on information specific to your situation. Look here if you live New England or on the East Coast.

The cost of electricity

By Midwest we mean the following states: Illinois, Indiana, Iowa, Kansas, Michigan, Minnesota, Missouri, Nebraska, North Dakota, Ohio, South Dakota and Wisconsin. This group constitutes the Central Northeast and Central Northwestern regions of the US Energy Information Agency.

Electricity prices in 2020 ranged from $10.22 per kilowatt in North Dakota to $14.32 per kilowatt in Wisconsin. Average monthly bills, which reflect the amount of electricity used as well as the price, landed quite close to $100: Illinois ($93.98), Indiana ($120.34), Iowa ($107.78), Kansas ($113.52), Michigan ($109.86), Minnesota ($102.11), Missouri ($115.35), Nebraska ($109.30), North Dakota ($113.26), Ohio ($107.30), South Dakota ($121.77) and Wisconsin ($99.42).

These bills are on average lower than those in other parts of the United States, but still amount to more than $1,000 per year. Electricity rates and bills are probably higher now. From 2020 to 2021, the average cost of electricity increased by 4.3%, the largest increase since 2008.

The price of solar panels

The cost of solar panel installations varies from state to state, roof to roof, and contractor to contractor. In order to compare costs between projects, the solar industry talks about installation cost in watts per dollar: the total capacity of a solar installation divided by its cost. Solar panel costs are falling, but for uneven reasons. While hardware costs have dropped by approximately 40 cents per watt per year, costs associated with sales, labor and installation have only dropped by 10 to 20 cents per watt per year .

The average cost of solar panels nationwide is $3.28 per watt according to Wood Mackenzie analysts. Using different sources of information, the EnergySage solar panel marketplace finds lower average prices than Wood Mackenzie. EnergySage reports average prices for select Midwestern states: Illinois ($2.98), Indiana ($3.25), Iowa ($3.02), Michigan ($3.10), Minnesota ($3.04) , Ohio ($2.68) and Wisconsin ($3.02). This list is incomplete because EnergySage does not work in all states or has enough data to calculate averages. This could be because the Midwest lags much of the rest of the country in residential solar power.

In a recent investor presentation (PDF), solar company Sunrun told investors that in Midwestern states, between 0-1% of the available market has adopted residential solar. While other states outside of the Midwest are at similar levels, parts of the country, like New England and the Southwest, are much more advanced.

The cost of panels is also affected by incentives such as the federal investment tax credit for solar energy, which pays 26% of the cost of a solar panel installation at tax time. The federal tax credit will drop to 22% in 2023 and is scheduled to end in 2024, although it could technically be extended.

State and local incentives throughout the Midwest are weaker overall than in New England, but not far off those in the Southeast, where more people are opting for solar power. There are variations throughout the Midwest; you can find more state-specific information in the State Renewable Energy and Efficiency Incentives Database.

Solar panels produce renewable energy in Michigan.

Stan Rohrer/Getty Images

Almost every state in the Midwest has a net metering system to compensate solar panel owners for the excess electricity they produce. South Dakota does not. Customers are compensated there at an avoided cost rate, which is generally up to the utilities to decide and usually at a lower amount than that offered under net metering. Most states also offer exemptions for the increased property tax that adding solar panels would cause. They usually also offer sales tax exemptions. Kansas limits the property tax exemption to 10 years. Iowa and North Dakota set the limit at five.

While statewide incentives lag behind other regions, city- and utility-specific incentives do exist. Indianapolis, Chicago, Cincinnati and others offer discounts or reduced permit fees. Iowa utilities offer discounts for solar panels.

Several states in the Midwest offer people options for sell renewable solar energy certificates their panels generate. The SREC market in Illinois is only open at certain times, when SRECs can be sold on long-term contracts of up to 15 years. Ohio has its own SREC market and allows neighboring states (Indiana, Kentucky, Michigan, and West Virginia) to sell there. This increases supply and lowers prices. A SREC in the Ohio market was $5.75 at the time of this writing.

The Solar Potential of the Midwest

The Midwest is down for solar adoption so far. The regional leaders are Missouri (187.7 solar installations per 100,000 inhabitants) and Iowa (185.74 installations per 100,000 inhabitants). Missouri and Iowa rank 28th and 29th, respectively, among all states by this metric. The Midwest also has two of the last three states for solar adoption: North Dakota and South Dakota.

Solar potential is not a technical term and can be defined in different ways. By one definition — the amount of energy a standardized solar panel would generate if mounted horizontally — the Midwest rates about 4 kilowatt hours per square meter of panel per day (PDF), according to the National Renewable Energy Lab. Four kilowatt hours is about as low as the contiguous United States. However, in parts of Missouri and South Dakota that same square meter of solar array would produce closer to 5 kilowatt hours per day and in Kansas and Nebraska it is closer to 6.

A white lighthouse with a small solar panel.

An atypical house near Chicago gets some of its electricity from solar panels.

benkrut/Getty Images

By another measure – how much of the average electricity bill the average residential solar panel could offset – the outlook is much brighter. While the average solar panel in Minnesota and Missouri would offset 60-70% of an average electric bill, according to the same NREL study. In Iowa, Indiana, North Dakota and Ohio it’s 70 to 80 percent and in Illinois, Kansas, Michigan, Nebraska and South Dakota it’s 80 to 90%. In Wisconsin, it’s 90-100%.

While other parts of the country have more sun and stronger incentives, there are still significant energy savings to be had from solar panels in the Midwest.

This is an overview, however, and each person going solar will have a different calculation to make, considering the impact of roof design and direction, energy consumption, and the availability of solar installers. . Background information shows that solar power in the Midwest might be worth looking into further.

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