Solar Panel Cost
The cost of solar panels has declined dramatically over the last several decades and, with a sharp rise in utility electricity rates in 2022, home solar now offers more cost savings potential than ever before.
In fact, the 2023 Heatmap Climate Poll found that 46% of US adults want to power their homes with solar panels in the future while 13% already do.
So, what’s standing in the way of American homeowners and solar panels? The biggest hurdle is often the cost of solar panels. And like a monster in a horror movie, the cost of solar panels is far less intimidating once you shine some light on it and understand how it works.
In this article, we’ll explore:
As always, our goal is to give you the resources and knowledge to make educated decisions during the solar process.
Is the price of solar panels falling?
The price of solar panels has declined substantially over the last decade as the industry has matured and reached production at the largest global scale.
Since 2010, solar panel have fallen by roughly 90% while global solar deployment has grown by over 400%, and this incredible growth rate along the entire global solar supply chain has dramatically reduced prices.
Just like computers, big-screen TVs, and cell phones, the economies of scale that solar panels now enjoy have produced a dramatic cost curve that has fundamentally changed the energy industry.
Utility-scale solar installations are now cheaper than all other forms of power generation in many parts of the world and will continue to replace older, dirtier power plants run on coal and natural gas.
Additionally, homeowners are now able to own their power production more cost-effectively than ever before.
Price per Watt vs cost per kWh
There are two main ways to calculate the cost of a solar system:
- Price per watt (/W) is useful for comparing multiple solar offers
- Cost per kilowatt-hour (cents/kWh) is useful for comparing the cost of solar versus grid energy
Let’s dive a little further into each measurement.
What is solar price per watt?
A fully installed solar system typically costs 3 to 5 per watt before incentives like the 30% tax credit are applied. Using this measurement, 5,000 Watt solar system (5 kW) would have a gross cost between 15,00 and 25,000.
Price per watt for larger and relatively straightforward projects are often within the 3-4 range. Claiming incentives like tax credits and rebates can bring the PPW even lower.
However, the following factors may push your solar price per watt into the 4 to 5 range.
- Smaller system size
- Unusual roof material or layout
- Premium panel and inverter models
- Multiple arrays versus a single array
- Additonal work like panel box upgrades, trenching, or roof repair
How to calculate solar price per watt
Calculating the price per watt for a solar system is very straightforward — it’s simply the system cost divided by the number of watts in the system.
Price per watt (/W) allows for an apples-to-apples comparison of different solar quotes that may vary in total wattage, solar panel brands, etc.
Pro tip: It can helpful to know your solar price per watt before and after claiming the 30% tax credit.
Ultimately there are many factors that figure into the price per watt of a solar system, but the average cost is typically as low as 5000.75 per watt. This price will vary if a project requires special adders like ground-mounting, a main panel upgrade, EV charger, etc.
There are a few ways to get a rough estimate for how much solar panels will cost without sitting through a sales pitch. These include:
- Online calculators
- Hand calculations based on your electricity usage
- The average cost of solar panels for comparable homes
Let’s start with the quickest method: online calculators.
Using a solar panel cost calculator
First, you can use an online solar cost calculator, like this one powered by solar.com. Simply punch in your address and your average monthly electricity bill, and the calculator will give you a side-by-side comparison of the cost of solar versus paying for utility electricity.
But before you use any solar panel cost calculator, it’s important to understand that there are dozens of variables that affect the cost of solar panels, and solar calculators work by making assumptions about those variables.
For example, your solar savings depends largely on how much utility rates increase over 25 years. Most calculators assume 3-5% annual inflation based on historical averages – but nobody can know for sure where will go over the next 25 years.
Solar savings is also geographically sensitive, since every state has different incentives, electricity rates, sun exposure, and net metering policies.
For example, a solar panel cost calculator for California would have drastically different assumptions than a cost calculator for New York.
How to calculate the cost of solar panels by hand
If you’d rather make your calculations offline, there are a few simple steps to estimate the cost of your solar system based on your electricity usage.
- Dig up some recent electricity bills (the more the better!)
- Average them together to get a baseline for your monthly electricity consumption
- Divide your monthly consumption by 30 to get your daily electricity consumption.
Once you have your average daily electricity use, follow the steps in the graphic below. Here are a few tips:
- You’ll have to assume the price per Watt (PPW) you can get from a local solar installer. This typically ranges between 3.50 and 5 before incentives
- Pro tip: Run the high and low PPW scenarios to get a range of solar costs
If hand calculations aren’t your thing, you can get a quick-and-dirty estimate based on the cost of solar for comparable homes.
.06-0.08/kWh
Cost Per Kilowatt-Hour (kWh)
Another measure of the relative cost of solar energy is its price per kilowatt-hour (kWh). Whereas the price per watt considers the solar system’s size, the price per kWh shows the price of the solar system per unit of energy it produces over a given period of time.
Net cost of the system / lifetime output = cost per kilowatt hour
You may also see this referred to as levelized cost of energy (LCOE).
What is a kWh?
A kilowatt-hour is a unit of energy and is equivalent to consuming 1,000 watts – or 1 kilowatt – of power over one hour. For reference, an energy efficient clothes dryer uses around 2 kWh of electricity per load, while central air conditioning uses around 3 kWh per hour.
While price per watt is most helpful comparing the relative costs of solar bids, solar energy cost per kWh is best used to illustrate the value of solar relative compared to buying your power from the electric utility.
For example, the average cost of a solar system purchased through solar.com is 6-8 cents per kWh, depending on the size of the system, type of equipment and local incentives.
Let’s compare that to grid electricity in major metro areas for April 2023 to the average cost per kWh of home solar energy:
Falling Costs
Solar systems are becoming more and more cost-effective every year. In 2010 the energy costs for a solar system averaged about7.24per watt. As of January 2018, the average costs only came out to3.08per watt; and that’s not including Federal incentives that lower the costs even further!
Contractors are building solar farms with offtake contracts at4 cents per kWh, which is less expensive than the marginal costs of other, more traditional energy sources, such as coal, gas, or nuclear.
What about commercial properties? Studies have shown that the average commercial property owner in the United States could potentially cut energy costs by75% by switching to solar. In fact, “the average commercial property owner paid 450,950 in monthly electric bills before going solar in their operations. They paid just around 500 after installing solar energy systems.”
Clearly, falling costs and long-term savings offer a huge incentive to property owners who are thinking about installing a solar system. However, there are additional financial benefits to making the change.
The Solar ITC
The solar investment tax credit, or ITC, was first established in 2006. Since then, the United States has enjoyed 59% compound annual solar growth. What is the solar ITC?
According to the Solar Energy Industries Association, the ITC is “currently a 30 percent Federal tax credit claimed against the tax liability of residential (Section 25D) and commercial and utility (Section 48) investors in solar energy property.” In other words, this tax credit allows an owner of a solar system to deduct 30% of the cost of installing the system from his or her federal taxes.
While the ITC will still be in effect in years to come, 2019 is the last year when homeowners can claim the full 30% allowed by the credit. Even if you don’t expect your tax burden to be high enough to reap the full benefit of the 30% credit rate, the IRS will allow you to “roll over” the unused remainder of your tax credit to the following year. Because of these factors, many homeowners are considering going solar before the end of the year, to get the most bang for their buck.
Financing Options
Some homeowners are understandably concerned with the upfront costs of a solar system installation. For instance, in California the average cost of installation, after the Federal tax credit, would come to 9,415.
However, it should be noted that there are many financing options available for homeowners. Sometimes these involve monthly payments that are actually less than the monthly savings on the energy bill.
Homeowners who want to finance their solar system must first of all decide whether they will buy or lease the installation. Generally, Mountain View Solar recommends buying as the preferred option.
If you decide to move forward with financing your purchase, what are the next steps that you’ll need to take? Similar to taking out a mortgage or using a home equity line of credit, you will basically need to apply for a loan that is either secured by your property or the solar equipment itself. Of course, the loan will come with a specified repayment term and interest rate. mtvSolar has loan partners that make this process easy.
History shows that on average, a solar installation will usually pay for itself within about 10-12 years. Premium solar panels have a service life of 40 plus years. That means that in the long run you could gain about 30 years’ worth of “free” energy from installing your solar system! Such an investment is certainly worth consideration.
Waiting means missing out on thousands of dollars in potential savings
Waiting to install solar panels means waiting to save on your energy bill, and continuing to pay more for that energy as rise.
- In 2022, residential electricity price has increased on average at least by 2.7% when compared to 2021 in the U.S. [3].
- In 2021, the average American household’s energy bill was 121.01 per month, or about 450,452 annually [4].
- If you were to install a solar photovoltaic system that generated enough power to offset this bill entirely, you would be saving 450,452 in year one. With a 2.7% increase each year, your savings in year two grow to 450,490 and would reach 450,528 in annual savings in 3 years.
Remember, the total cost savings on energy price from waiting three years to go solar came out to 900. This figure would be eclipsed in year one by getting solar panels for your house now. Savings would nearly double by year three and would only continue to grow with time, as you are avoiding paying for the rising cost of energy. And that is a good reason to get solar panels for your home right now.
Solar panel are at an all-time low
After decades of annual cost reductions as a result of government incentives and expanding manufacturing globally, solar modules and panels are now cheaper than they have ever been.
For example, in 1977 solar cells cost 76.67 per watt However, this trend of relentlessly dropping for solar panels and modules may not continue unabated. The solar industry may face the prospect of rising costs. With currently at low levels and the prospect of declining or phasing out incentives, this is just one more reason to go solar now rather than wait any longer.
Government incentives will be reduced as popularity of residential solar power grows
Multiple government incentives for solar power at the Federal and State level are set to decline or be phased out entirely in the coming years. By delaying action, you may end up paying significantly more for solar panels as a result of missing out on these programs.
Solar Investment Tax Credit is currently at 30 percent
The Solar Investment Tax Credit (ITC) has played a vital role in spurring the growth and expansion of the American solar industry. As a matter of fact since the implementation of this incentive 16 years ago, the solar industry has grown by astounding 10,000% [8].
The ITC offers a 30 percent dollar for dollar reduction in taxes for both residential and commercial solar projects until 2032 and originally was supposed to phase out. Luckily, the phase-down process has been delayed by the passing of the Inflation Reduction Act in August 2022.
The ITC has been valuable not only for reducing the total cost of a solar project, but also for helping to catalyze financial and businesses model innovations that have increased access to solar energy. In part by utilizing the ITC, companies like Solarcity and Sunrun began offering third-party financing to customers, which allows the homeowner to have solar panels installed on their roof for
Changes in net metering programs might lower rewards for your solar energy
If you wait longer on getting solar panels, you may not be able to benefit from net metering. Net metering is one of the best solar incentives available to solar system owners in most states. Some states have even passed net metering laws, in other the participation in the program is voluntary. Net metering works on the similar principle as SRECs, only instead of payment in cash for your produced solar energy, you will receive credits from the utility company.
When sending energy to the grid, the electricity meter runs backwards, giving you credits for extra unused power your panels produce. The advantage you have right now is that a unit (1 kWh) of solar energy produced by your system is considered equal to a unit of electricity from the grid. As a result, your annual electricity bill will decrease according to how many units of solar power you sent back, hence how many credits you earned per year.
As with other incentives, even net metering is about to experience decrease in rewarded credits in the future due to rising number of solar installations. Many states and utility companies have already in 2020 started to work on new successor tariffs in net metering programs that will replace the current ones and most likely will not offer the current advantages [23].
/down.
The homeowner does not actually own the panels. He simply agrees to a 20-year contract to buy solar electricity from the third party, which owns the panels and is responsible for their maintenance, at a lower rate than it previously was [9]. This system is well established in the Unites States.
Missing on such a great incentive would affect the total cost of solar panel installation greatly, it is an important reason why not to delay your decision.
State level solar incentives
The main reason why countries offer incentives on residential transition to solar power is to support local solar industry. As more customer decide to join the renewable energy transition, these programs begin to phase out. Many state-level solar rebate programs are currently declining or ending soon.
In the past years we have seen this trend in top solar markets like California with the extremely successful Solar Initiative Program that distributed 191 million in rebates [10]. but also in Massachusetts [11] and New York.
If you are considering the option of getting solar panels for your home, you should verify what state-level programs are available in your area, as they may in combination with ITC make a real difference in the final price.
Rebate programs for solar energy are currently available in 17 states. You can find a list with detailed information in the official Database of State Incentives for Renewables Efficiency.
One promising area to still earn money from solar energy generation is in the market for Solar Renewable Energy Certificates (or SRECs).
SREC Incentives Earn You Money Now, But Won’t Be Around Forever
A Solar Renewable Energy Certificate (SREC) is a unit of solar renewable energy (1 MWh) generated by a home or business that is then sold to the local utility. This means that they are based on the performance of the solar system. The utility is mandated by state law to power the electrical grid with a certain share of renewable energy, and this way of outsourcing the share is cost-effective for them.
A handful of states allow homeowners to sell SRECs to their utility, including:
- Massachusetts
- Maryland
- New Jersey
- Pennsylvania
- Illinois
- Delaware
- Ohio
- Connecticut
- District of Columbia
- Virginia
Additionally, residents of Michigan, Indiana, Kentucky and West Virginia are allowed to sell their SRECs in Ohio’s Renewable Portfolio Standard (RPS) market [13].
At today’s SREC price of 223 per megawatt hour [14]. a New Jersey homeowner with a 4-kilowatt system could expect to make close to 900 per year. Over the 20-year life of the solar project, SREC payments in New Jersey could more than pay for the system itself.
However, some markets have been oversupplied for the past couple years. This is the situation in Ohio and Pennsylvania, where the SREC price dropped to around 4 and 46, respectively [22].
Eventually, all of the SREC programs will be phased out once state renewable energy goals are reached. Some markets have stopped accepting new applications already and buy solar power just from the customers with contracts from the previous years. Waiting longer to install photovoltaic solar panels means potentially missing out on these programs, which can dramatically lower the cost of a project.
Installing a solar PV system is proven to increase the value of your home
Putting a solar array on the roof of your home is an important decision, which involves looking 20 or more years into the future, or about how long the panels will be in place for. Many contracts are also created on a 20-year timeline.
Committing to an agreement along this time scale can be source of uncertainty for many people interested in going solar, as they are unsure if they will stay in their current home for this whole time.
10 Reasons Why You Should Switch to Solar!!
Fortunately, whether you intend to stay in your home or sell in the future, adding solar power system will significantly increase the property value and help sell your home faster. Furthermore, it is becoming increasingly easier to sell your solar powered home and to transfer your lease to the new owner.
Here are some numbers, based upon studies from U.S. Government’s Department of Energy:
- According to a Lawrence Berkeley Laboratory study, each kilowatt of solar generation adds nearly one percent to the total value of a home. Considering that the average residential solar system ranges between 3 to 6 kilowatts of production, having panels on your roof could add tens of thousands of dollars to the home’s sale price. If you have a SRECs contract with the utility company, it only adds up to the final price as well.
- While solar homes in California sell for even higher, the trend of higher sale for solar homes holds true across a diversity of U.S. states, electricity markets and housing types.
- Additionally, a National Renewable Energy Laboratory study found that solar homes also sold up to 20 percent faster than a regular home [19]. This means less time waiting for a buyer and receiving payment for your home, and the sooner that you can move into your new residence.
- Lastly, it is now easier than ever to sell your solar home and transfer your loan, lease or power purchase agreement to the new owner. Solar companies have specialized teams to administer these transfers of ownership and to switch service between the new and old owners [20].
When selling your solar home, consider finding a real estate agent who is familiar with advantages of solar power and can articulate the financial benefits to prospective buyers. You should share how much do solar panels save on your electricity bills and the annual earnings from SRECs with the realtor, and inform them of the expected remaining life cycle of the panels and their routine maintenance. information the realtor has, better prepared he will be to discuss the benefits.
How to estimate your solar savings
There’s a simple basic formula to determine how long it’ll take for your solar savings to pay off the cost of installing the system. Start with the upfront cost of installation, then subtract all tax credits, rebates, grants and other incentives you received. This determines your net system cost. Next, estimate how much you’ll save on your annual electricity bills with the system.
Divide the net system cost by the annual bill savings and this gives you your solar payback period in years.
Here it’s broken down in a bit more detail:
Find out your upfront costs
With a purchase as big as rooftop solar panels, you should get multiple quotes, make sure your solar installer answers all your questions, and find the offer that best fits your needs.
Subtract tax credits (and other incentives)
While tax credits and incentives vary state to state and utility to utility, the 30% federal solar tax credit applies to everyone. Find out how much you can expect your solar costs to be reduced, and subtract.
Check your monthly electric bill savings
You could assume you’ll get all your power from solar, but while some homes will be able to zero out their electric bill, others will still have to pay for some electricity usage or standard fees. Some utilities charge fees just for staying connected to the grid. Savings will vary widely from home to home, depending on how many solar panels are installed, normal energy consumption and more.
Look at your electric bill.- at least six months worth to account for seasonal temperature changes and other fluctuations in cost.- and estimate your monthly savings from solar. If you cover 100% of your bill with solar energy and net metering and you currently pay an average of 125 per month in electricity bills, you could save 450,500 per year (125 x 12 months).
Calculate your payback period
Once you’ve figured out your yearly savings, you can calculate your payback period by dividing the net cost of your system by your yearly savings. A system that costs 15,000 and saves you 450,500 each year, will pay for itself in 10 years.
Here‘s the equation written out:
Are Solar Panels Worth It?
(Solar installation costs. tax credits and other incentives) / (Annual savings) = Payback period in years
Calculate your solar savings
After your payback period, during which time you’re really just recouping your expenses, everything else is savings. Residential solar panels are warrantied for 25 years typically, but their useful life can be much longer. Fifteen years of savings at 450,500 each year is a whopping 22,500.
These calculations are a bit too neat for the real world. Even the most efficient solar panels become less productive over their life span, so you may not get quite as much energy from them in year 25 as in year one (a typical guarantee is between 85% and 92% of its original production).
On the other hand, electricity rates have historically increased fairly steadily. (They’ve gone up about 7% from May 2022 to May 2023, according to the Bureau of Labor Statistics.) This means, in later years, you could be saving even more than you would with solar today.
Average solar panel installation costs
Like many things, the price of having solar panels installed on your residence has been affected in recent years by inflation and supply chain constraints. According to a report from Wood Mackenzie (PDF), residential solar cost 3.28 per watt to install in the first quarter of 2023, up from 3.07 during the same period in 2022. (Though the report suggests that the price may have started falling again.)
According to CNET sister site SaveOnEnergy, the average cost of a residential solar system as of June 2023 was 31,558 before incentives and rebates, based on a typical solar system size of 8.6 kilowatts. The cost estimate is based on a data set from the Lawrence Berkeley National Laboratory that puts the average solar panel system cost at 3.67 per watt.
The cost of individual solar installations can vary, however. (Even large scale estimates can vary from source to source, as you see above.) Homeowners can opt for systems of different sizes, with more complexity and extra components, like solar batteries and EV chargers, that bump up the overall cost. Other considerations, like local market conditions and the difficulty of installing solar panels on a certain roof or property, can also affect the final price. And can vary from one solar company to the next.
Tax breaks and incentives
Right now, thanks to the Inflation Reduction Act, the US government will credit taxpayers 30% of the cost of an installed solar system the following year. There are also myriad other incentives and tax breaks offered by states, local governments and individual utilities to further bring down the overall amount paid out of
Beyond such reductions in the upfront cost of installation, using your solar panels over the years can also shrink your energy bill and help pay back your investment through net metering. This is the most popular way utilities compensate homeowners who allow the energy their solar system produces to be fed onto the grid for other consumers to use.
Factors that influence savings
In recent years, net metering policies have begun to shift in some jurisdictions, like the high-profile case in California, and this has sometimes meant a reduction in the overall potential savings from solar. For example, some utilities are moving toward more-complex formulas that govern how much homeowners are paid for releasing energy onto the grid.
It’s important to do your homework to understand your local utility’s net metering policies and any potential changes being considered. You should also get to know any time of use rates that are in place that may influence how much the utility charges for energy consumption and pays for energy production during peak and off-peak hours. In some cases, solar panels paired with a solar battery can save you more with time of use rates than solar panels alone.
Adding an electric vehicle charger is an extra expense, like a battery, but it could increase your savings over time.
The climate and the amount of peak sun hours your location receives can also be a key factor in how much you’ll save over time. A state like New Mexico with up to six peak sun hours per day will obviously allow you to generate more electricity, and possibly save more, than more northern states that receive 25% to 50% less peak sun.
Since solar panels can last 25 years, you need a sturdy roof. If your roof isn’t in top shape, you might have to replace it before installing solar panels. Though you’ll eventually need to replace your roof whether you put solar panels on it or not, having to do so early is an extra expense that might eat into your savings.