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

It took about 40 years to put in 1 million solar installations in the US. The next million took just three years to install (PDF). That’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 disappears or for some other reason, you might be wanting to go solar soon.

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

The cost of electricity

We are considering the Midwest as the following states: Illinois, Indiana, Iowa, Kansas, Michigan, Minnesota, Missouri, Nebraska, North Dakota, Ohio, South Dakota and Wisconsin. This group comprises the North Central and North Central 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, came pretty 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 lower on average than in other US regions, but still amount to over $1,000 a year. Tariffs and electricity bills are probably higher now. From 2020 to 2021, the average cost of electricity increased by 4.3%, the biggest increase since 2008.

The cost of solar panels

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

The average cost of solar panels nationwide is $3.28 per watt, according to analysts at Wood Mackenzie. Thanks to different sources of information, the EnergySage solar panel market finds average prices below those of Wood Mackenzie. EnergySage reports average prices for some of the 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 operate in all states or have enough data to calculate averages. That could be because the Midwest lags behind much of the rest of the country in residential solar.

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

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

State and local incentives across the Midwest are generally weaker than those in New England, but not far from those in the Southeast, where more people are embracing solar. There is variation throughout the Midwest; You can find more state-specific information at the State Incentives for Renewables and Efficiency Database.

Solar panels, windmills and grain bins against a blue sky

Solar panels generate renewable energy in Michigan.

Stan Rohrer/Getty Images

Nearly every Midwestern state has a net metering scheme to compensate solar panel owners for the excess electricity they produce. South Dakota does not. Customers there are compensated at a cost-avoided rate, which is usually up to the utilities to decide, and typically an amount less than that offered by net metering. Most states also offer exemptions for increasing the property tax by adding solar panels. They typically offer sales tax exemptions as well. Kansas limits the property tax exemption to 10 years. Iowa and North Dakota set the limit at five.

While state incentives lag behind other regions, there are specific incentives for cities and utilities. Indianapolis, Chicago, Cincinnati and more offer discounts or reduced permit fees. Utilities in Iowa offer discounts for solar panels.

Several Midwestern states offer options for people sell renewable solar energy certificates your panels generate. The Illinois SREC market is only open at certain times, when SRECs can be sold under long-term agreements of up to 15 years. Ohio has its own SREC market and allows nearby states (Indiana, Kentucky, Michigan and West Virginia) to sell within it. This increases the supply and lowers the price. A SREC in the Ohio market was $5.75 at the time of writing.

The solar potential of the Midwest

The Midwest is at the bottom of solar adoption so far. The regional leaders are Missouri (187.7 solar installations per 100,000 people) and Iowa (185.74 installations per 100,000 people). 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 energy adoption: North Dakota and South Dakota.

Solar potential is not a technical term and can be defined in a few different ways. By one definition — the amount of power a standardized solar panel would generate if mounted horizontally — the Midwest estimates about 4 kilowatt-hours per square meter of panel per day (PDF), according to the National Renewable Energy Lab. Four kilowatt hours is the least the contiguous US can do. However, in parts of Missouri and South Dakota, that same square foot of solar panel would produce about 5 kilowatt hours a day, and in Kansas and Nebraska it’s closer to 6.

A white lighthouse with a small solar panel.

An unusual home near Chicago gets some of its energy 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 better. While the average solar panel in Minnesota and Missouri would offset 60-70% of an average electricity bill, according to the same NREL study. In Iowa, Indiana, North Dakota and Ohio it is 70-80% and in Illinois, Kansas, Michigan, Nebraska and South Dakota it is 80-90%. In Wisconsin it is 90-100%.

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

This is an overview though, and each person going solar will have a different calculation to make, given the impact of roof design and direction, energy usage, and availability of solar installers. General information shows that solar power in the Midwest may be worth a longer look.

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