In an effort to go green, switching to solar energy has become an attractive option for households and businesses across the world. But how much do solar panels cost? “It can really depend,” Will White, solar application specialist at Fluke, tells AD. “If you have a 1,500-square-foot house where you don't use a lot of energy versus a 12,000-square-foot mansion that’s a huge energy hog, the cost of solar panels will be very different.” In this guide from AD, learn everything you need to know about the financial implications of going solar, including upfront costs, tax rebate opportunities and other solar incentives, and long-term returns on investment.
How much do solar panels cost?
“Generally in the United States, the average cost of solar panel installation will be between $15,000 and $30,000,” explains Krystal Persaud, cofounder of Wildgrid Home, an online home electrification education platform designed to assist homeowners in transitioning away from fossil fuels. Of course, this number represents a large range. “This is because every solar system is different, but generally, the bigger the roof, the more panels that are needed, and the higher overall cost,” she adds.
How is solar panel cost calculated?
Though $15,000 to $30,000 is the average total cost for solar systems, most solar companies actually price services based on a price per watt. “$3 per watt is a pretty standard rate,” explains Persaud. “On average, a home might have a five to six kilowatt system—which is per 1,000—so that’s how you get to that number of $15,000 to $20,000.”
When going through the buying process, homeowners will typically reach out to various solar companies and installers for a quote. “They’ll come look at your site, figure out what available space you have, what kind of electrical constrictions you have, what your annual energy consumption is, and then design a system specifically for that house,” explains White, who was previously a solar installer.
To determine the price of each project, the solar installation company will look at various factors and calculate a cost per watt price. Though, as Persaud explains, the consumer’s final price is largely determined by their energy usage. “You’ll get a solar estimate based on your past electric bill,” she explains. If your bill tends to be higher because you use more energy, the system will require more panels in order to meet your energy needs. Likewise, if your bill skews lower, you likely won’t need as big of a system, hence the lower price point.
“If you’ve got a really small house, but a really big electric bill, your roof might not be big enough to fit all the panels so you might need ground-mounted panels,” explains Persaud of the various systems that could be installed. “Or you might have a gigantic house and a really small monthly electric bill, which doesn’t usually happen, but in that case you might not need to cover your roof and panels, you might only need 10, for example.”
What impacts a solar panel quote?
White points to a site called Energy Sage, which allows homeowners to compare quotes from various different solar providers in the area. However, it begs the question why quotes can vary so much between companies for—generally—the same type of solution. Consider the following factors that impact the price a company may offer. “I like to think of it as different layers that go into the final amount,” explains Persaud.
The first “layer” of a quote tends to be the product itself. There are many different brands of solar panels on the market and they cost different amounts. “Some are on the lower end and some tend to be much more expensive,” explains Persaud. The price difference often comes down to the efficiency of the panel—that is, what percentage of sun rays that hit the panel are converted into usable energy. The best solar panels typically have the highest efficiency rate. “SunPower makes one of the most expensive panels on the market, but their efficiency is 22%, which might sound low but is actually very high in the solar industry,” Persaud adds. “So a SunPower quote might be closer to $4 per watt.”
The size of a solar system also greatly impacts the system cost. Logically, a larger system that requires more panels will typically cost more than a smaller system.
The installation site will also impact the cost of a solar energy system. “Do you need extra wiring because you want the solar panels on your garage, but your meter is in your basement? That could be an extra $2,000 to wire it all the way down,” Persaud says. “Do you want the wire hidden, so you have to dig a trench? It’s stuff like that that comes up often for customers.”
When looking at the average price of solar energy, it's also important to consider the location and state where the system is installed. “I live in Vermont where there isn’t a lot of red tape when it comes to solar,” White says. “So our costs tend to be a little lower compared to a state like Massachusetts or New York where there’s a lot of permitting and other processes that add to the cost of the system.”
Other factors that can determine solar panel installation costs include labor costs, competition in the market, and “add-ons” to the system, such as solar batteries.
Financial benefits of solar power
While switching to solar energy can be a large upfront investment, there are also many financial and tax incentives that are important to consider.
In the United States, the federal government offers a Federal Solar Tax Credit. “It’s a federal tax credit of 30%,” explains Persaud. “This means if your panels cost $15,000, 30% of that is $5,000, so you can write off and deduct your taxable income by five grand.” Sometimes, this is called an Investment Tax Credit, or ITC, but as the Office of Energy Efficiency and Renewable Energy explains, this specific credit for residential solar panels is different from ITCs offered to businesses that own solar systems.
Depending on where you’re installing solar panels, there might be certain city or state incentives to consider. Not every state offers this; however, it’s worth researching for your area as you consider solar panel cost. The benefits at the state-level are often in the form of rebates or a low-interest solar loan that make it easier to purchase a solar system.
“When you get solar, they install a two-way meter, which will measure how much electricity comes into your house to use and how much electricity goes out of your house into the grid because your solar panel system is producing energy,” explains Persaud. This is particularly important for a concept known as net metering, which essentially allows solar owners to sell back unused energy from their solar panels to the utility company. “If you have solar panels, but you personally have a low electricity bill, you would just be getting credits or paid for the extra energy you make,” Persaud says. However, not every state participates in net metering, so it’s important to research if it’s available in your area.
By purchasing solar panels, there is the opportunity to eventually eliminate or significantly reduce your monthly energy bills. Once you own your household’s source of energy production, you no longer have to pay a company for energy from the grid. These savings can amount to thousands of dollars a year, however, exact numbers depend on the household’s average electricity usage and the cost of electricity in the area.
Lastly, installing solar panels can improve your home’s value should you decide to one day sell it. As explained in this AD article, your home value generally increases by $20 for every $1 that is saved on your energy bills through solar energy, according to the National Renewable Energy Laboratory (NREL). For example, if a homeowner is saving $1,000 per year through solar energy, the value of their home would roughly increase by $20,000.
Solar panel system payment options
There are different ways to pay for solar systems, each with a unique set of benefits. Consider the following common purchasing scenarios.
Paying in cash is generally the cheapest option long-term for solar panels. This is because it eliminates interest rates and allows homeowners to take advantage of net-metering, tax benefits, and lowered energy costs sooner.
A solar loan allows homeowners to borrow money—usually from a bank or solar company—to purchase a solar system, which is then repaid over time. While homeowners will likely pay some interest for financing options like these, they should try to ensure their monthly payments are less than or equal to their normal electricity bills throughout the payback period. “I always tell people to negotiate your monthly payment to be equal to or less than your electric bill,” Persaud says, “Because then you’re never actually paying for going solar, you’re just replacing it.”
With power purchase agreements, sometimes called a PPA, homeowners don’t own the solar equipment, but still get to make their house run on clean energy. Often the solar company will design the system for little to no cost, and the homeowner then pays the company for however many kilowatt hours of electricity they use per month, similar to paying any other utility company. The company often sells additional energy production from the system to other buyers. In this case, the homeowner isn’t responsible for many upfront costs and doesn’t have to pay for maintenance. However, since they don’t own the equipment, they can’t take advantage of tax credits, net metering, or other incentives.
Similar to PPAs, a solar lease is another option in which a third party owns the solar equipment. Instead of paying based on usage, homeowners agree to a set monthly fee to the solar company for a specific period, often 20 years. Like a power purchase agreement, homeowners can’t take advantage of owning the equipment, but are often able to purchase the solar system at the end of the leasing period for a discounted price.
Lastly, community solar allows a group of people to buy into a large-scale solar system. This option can be attractive to renters or those who live in apartments or condos and can’t install panels to their buildings. Multiple stakeholders can benefits from the program including individuals, businesses, and nonprofits. The specifics of the program, including whether stakeholder can buy or lease panels or take advantage of tax credits often varies.
Choosing the right payment option
Both White and Persaud agree that in most cases, it’s usually best to purchase a solar system whether with cash or through a loan. “It’s going to be better financially to own the system,” White says, since this way individuals can take advantage of all of the incentives that come with ownership. However, for people who are retired or don’t have a tax liability, third-party ownership might make sense. “Leases are often sold more towards folks who are retired and maybe don't don't have taxable income,” Persaud says. “You can’t benefit from the tax credit, but you can go solar with the least amount of risk.” While owning the system does place maintenance and repair responsibility on the owner, Persaud and White explain that there are often warranties that are provided by solar companies and installers that can minimize that risk. “Depending on the warranty, they might include different types of maintenance; like if something breaks, they’ll come back,” Persaud says.
Other frequently asked questions
Like all clean energy, solar panels can make a big difference on each individual’s carbon footprint. Financially, they can also be a good investment to increase the value of a home while decreasing taxable income and utility bills. Nonetheless, every situation is different, and it can be useful to speak with tax advisors or financial planners to determine possible returns.
Solar panels should last for 25–30 years, and most manufactures will offer warranties for that amount of time should something break.
According to Persaud and White, most solar systems will pay for themselves in 7–9 years. At this point, if the owner purchased the panels with cash upfront, the cost of the initial installation is now equal to what a homeowner would’ve been paying in electricity bills.
Both Persaud and White recommend against trying to DIY a solar installation, even if it seems like a good way to save some money. “I don’t recommend it,” White says. “Unless maybe you’re an experienced electrician or you work as a solar installer.” That said, there are some smaller DIY systems that you can purchase and set up relatively easily, but they aren’t nearly large enough to power an entire home.
