How Much Does Solar Power Cost?
If the sun shines brightly at your home, you could be making your own electricity instead of paying for it.
Solar power seems like such a win-win scenario: generating our own electricity from a free and clean natural resource versus paying big money for it from a utility. But it isn’t quite that simple, right? To harness that power at home, you have to buy expensive solar equipment that then (hopefully) pays for itself pretty quickly in power bill savings. So, how much you pay for equipment upfront, the amount of energy you are able to produce and the price you normally pay for electricity all factor into whether it’s a good idea.
Tesla’s Solar Roof is a combination of glass solar tiles and architectural-grade steel tiles that are indistinguishable for a seamless look.
In this article, we're going to explore the financial side of solar. We’ll discuss:
- What you're buying
- The different ways to pay
- Solar pricing: upfront and ongoing costs
- Reducing the price through incentives, rebates and credits
- Deciding whether going solar is worth it
- Getting started
What’s in the Box
In the residential market right now, there are a few types of modules packaged into solar energy systems:
- Solar panels: Those reflective squares we know and love are still the bulk of the market.
- Integrated solar shingles: Less obtrusive modules that are sized like the asphalt shingles or flat cement tiles on the rest of your roof and lie politely next to them on the roof decking like flashy cousins. CertainTeed and SunTegra make these.
- A roof, plus solar: A roof package that is composed of a powered section of flexible solar shingles and conventional roofing shingles. They are installed by the same contractor with the same nail gun. GAF Energy’s Timberline Solar product is sold this way.
- Solar roofs: Is that a solar roof or is it a conventional roof? Only your bank account knows! These roofs also pair solar modules with non-solar roofing products, but the two are nearly indistinguishable. Solar roofs are sold by Tesla, Luma Solar and Forward.
Whether panels, shingles or a whole-roof system, the typical solar installation is made up of a number of solar modules plus the balance of system (BOS) components that include the inverter(s), wiring and mounting equipment, safety equipment, meters and monitoring devices.
Solar energy systems fall into one of three categories — grid-connected, standalone and hybrid — which basically means they are either looped into your utility grid or use batteries to store your excess power. Adding energy storage for a standalone or hybrid system requires a battery and a charge controller. This device is the system foreman, directing the energy that's produced to the outlets or to the battery.
Modules are grouped together in an array to meet the energy needs of the household. To determine the size needed for your household, solar contractors look at:
- Your annual household energy usage to determine how much electricity you may want to produce in kilowatt-hours (kWh).
- The power rating of the solar module indicates how much power a single panel or shingle will produce in watts (W) under ideal circumstances.
- The solar resource at your home: unique environmental factors that determine how much sunlight the system will receive.
Then they make estimates on the expected energy production of modules in your unique circumstance so they can design a system to meet the household’s electricity needs. The 2021 edition of Berkeley Lab’s industry report Tracking the Sun found that the median size of a residential grid-connected system in the US was 6.5 kilowatts (kW) in 2020. But the national average is impacted a lot by California — a state with a ton of small systems. Take California out of the equation and the median size is 7.5kW or larger.
How to Pay for Solar
Homeowners who don’t want to pay for a solar installation outright now have three alternatives available that reduce or eliminate the upfront cost:
- entering into a power-purchase agreement (PPA)
- financing with a traditional loan or a solar loan
In leasing and PPAs, someone else owns the system and you pay a monthly amount less than your average utility bill under a long-term contract. With the lease, the payment increases yearly at a specified rate. In a PPA, you’re charged a per kWh rate based on monthly usage like with your utility, and that rate can also increase yearly.
If you finance your system using a traditional or solar loan, you will have a monthly loan payment, but you’ll own the equipment when you pay off the loan. Solar loans are instruments offered by states or utilities that operate like traditional loans but offer a reduced interest rate.
Timberline Solar™ from GAF Energy boasts the world’s first nailable solar shingle. This system is installed with conventional roofing on the remainder of the roof by a single roofing contractor under one warranty.
The upfront cost of a solar energy system installation varies widely depending on the module type. A solar panel installation in the US in 2022 averaged $2.77 per watt (W) according to EnergySage, a solar comparison marketplace supported by the US Department of Energy. Tesla’s solar roof was closer to $6.40/W. Integrated roofing shingles are likely to arrive somewhere between the two extremes. Other major factors that impact upfront pricing are home specifics and your region and locality.
A 7.5 kilowatt (kW) panel system at the per wattage price of $2.77/W would average $20,775 before rebates or incentives. That may seem like a lot, but the reduced cost for materials and production as well as increased module efficiencies has meant that the price of solar itself is on the decline big time. In 2009, you would have paid $8.50/W or $63,750 for the same panel installation!
There are upkeep costs you can anticipate with every solar installation. High-quality photovoltaic (PV) systems are generally low maintenance, but they do require regular cleaning and tree trimming (if relevant for your surroundings). Dirty and shaded modules reduce your power production substantially.
Also, remember that one time your Toyota broke down? Like any other device, there are issues that can arise requiring repair or replacement, even with high-quality solar products. Premium solar modules may be more expensive upfront, but in addition to their reliability, they carry some of the best warranties in the appliance world. A fantastic warranty goes a long way in ensuring that design flaws and quality issues that may arise later have a minimal impact on your wallet.
Operations and maintenance (O&M) packages costing a few hundred dollars annually through your solar provider will include preventive maintenance and cleaning. They also minimize repair headaches by checking system function and ensuring that any problems are caught early and rectified within warranty.
A couple of costly situations — to the tune of thousands of dollars — you should do your best to avoid:
- System additions: Our lives aren't static, and your electricity needs may increase. If you know that next year Dad is coming to live with you and he’s bringing his cryptocurrency mining business, there is a consensus you should oversize the system at the outset. It is less expensive to add another panel or shingle during the initial installation than to bring a crew out to modify the system later.
- Roof replacements for panel systems: Any home improvements that require removing the solar panel installation and reinstalling are to be avoided. Reputable solar panel installers will check the condition of your roof before they do anything.
Solar Roof by Tesla is a combination of glass solar tiles and architectural-grade steel tiles that are indistinguishable for a seamless look.
Reducing the Cost: Solar Incentives
Equipment manufacturers, utilities and governments at the local, state and federal level are really interested in consumers going solar and they're willing to pay for it. Incentives that might be available:
- One-time financial incentives: Lump-sum payments for solar equipment in the form of rebates and grants are frequently available and paid by states, utilities and manufacturers.
- Federal tax benefits: The largest incentive at the time of writing is from the federal government, in the form of a solar Investment Tax Credit (ITC). From 2022 through 2032, the solar ITC allows you to deduct 30% of your solar installation from your federal income taxes (Solar Energy Industries Association).
- State and local tax benefits: State and local governments will sometimes offer their own income tax credits as well as property and sales tax exemptions on the solar system itself.
- Net metering and feed-in tariffs: Most residential solar installations are now grid-connected. These systems generate power for the home and pass energy back to the grid when there's excess. In a policy called net metering, some utilities will compensate you for the energy you provide to them in the form of credits. What you sent to the utility during overproduction is credited against the utility power you used on cloudy days, reducing your bill. Feed-in tariffs, available in just a few states, also pay homeowners for their solar generation but at a guaranteed rate on a multiyear contract.
- Performance-Based Incentives (PBI): Similarly, some utilities will offer a performance-based incentive that pays out credits or cash (or both) over a period of time that is based on the energy production of the system.
- Another tool that can help the consumer is the solar mandate. These mandates take different forms and are not actually leveraged on the consumer. One type of state mandate requires local utilities to generate a certain percentage of their power through solar, a quota that a utility may have difficulty meeting. For each MWh of electricity your tiny power station generates, you get a gold star in the form of a solar renewable energy certificate (SREC). Your utility buys your SRECs in order to meet the state’s requirements.
These incentives are not universally available or accessible. If you choose to lease your solar installation or enter into a PPA, you aren’t the owner of the equipment so won’t benefit from most incentives. Standalone systems can’t avail of SRECs, net metering or feed-in tariffs. If you don’t have a tax burden, a tax credit won’t help you.
How To Know Whether Solar Makes Financial Sense
If you plan on purchasing solar, getting your head around the financials is imperative. After all, a solar energy system is an appliance with a high price tag upfront. But unlike our other appliances, it’s saving us money during operation instead of costing us to operate.
We asked Dr. Becca Jones-Albertus, Director of the Solar Energy Technologies Office at the US Department of Energy, to help us make sense of some of the finer points of the financial decision. She explains that what a household can save with solar depends on many of the topics we’ve discussed: system size, how you procure the system (buying, financing, leasing), household energy consumption and how much power the system can generate. But a major part of the equation, she reminds us, is the power company. She says, “Your savings also depend on the electricity rates set by your utility and how much the utility will compensate you for any excess solar energy you send back to the grid.”
So how do we factor in what she mentioned? One way is to calculate the solar payback period. This simple equation can help you see how well your home power station is going to work versus the alternative, your utility. The idea here is you are handing over stacks of cash upfront to lose that utility bill, and you want to know in how many years you will see enough savings from those bills (and compensation from the utility, in some cases) to equal what you shelled out — your break-even point. You need to know only a few pieces of information to do it:
- Solar energy system cost. This number is easy to figure out. What is the estimate from the solar contractor? Let's say $12,000. What a deal!
- Annual savings. To figure this one out, you need to know…
- how much power you will produce annually (kWh) that you would have had to buy
- how much your utility would have charged for that same power
Let's say the contractor told you that the system has an expected energy output of 8,000 kWh annually. You know your utility charges $0.15/kWh for electricity. Multiplying those numbers gives your annual savings. In this case, $1,200.
So, to get our payback period, we simply take the upfront cost of the system and divide it by that annual savings. ($12,000 / $1,200 = 10 years) After 10 years, our system will have paid itself off.
This basic equation will account for incentives that reduce the upfront cost as well as those that add to your yearly savings. For example, a rebate or tax credit could reduce the first number by a few thousand dollars. Or, if you’re eligible for the PBI we mentioned, you might get an annual payment of $300. That would be added to your $1,200 in power-consumption savings in the second number. You can also factor in yearly maintenance by reducing the second figure.
The smaller the first number and the larger the second, the quicker you break even, but there is nuance here, for sure. The price of utility power can go up and down. You can have unforeseen repairs to your system or lose an annual incentive. But the solar payback period does provide a useful back-of-the-napkin calculation for whether a PV system is worth entertaining.
What’s a good payback period? You generally don't want the break-even point to exceed the warranty or to even come close to it. You should also consider whether you plan to stay in your home long enough to recoup the investment and, if not, whether the solar installation will benefit a potential home sale.
You can see that going solar really is a no-brainer for sunny homes in states where system costs are low (reducing the first number), and utility prices are high (increasing the second number). Also, if your utility prices are low and a solar system for your home would be expensive and unproductive, solar would not be right for you.
The Solar Shingle Stumper
Solar roofing products — both the standalone shingles and the few types of whole-roof systems — add a layer of complexity to the financials. A panel system is rack-mounted on top of a conventional roof in great condition. Solar roofing products are installed on the roof decking in place of the conventional shingle or tile. Dr. Jones-Albertus explains that the higher per-wattage cost of solar shingles is to be expected partly because these products are combining two functions in one — roofing and solar. She adds, “Solar shingles are well-suited to new construction and may be a cost-effective option for consumers who are already planning to replace their roof.” So, if your roof is ready for replacement and you’re considering both shingles and panels, you’ll want to include the conventional roof cost for the panel system in any comparison.
Dennis Schroeder, NREL 60072
The Sunnyside Ranch Community Solar Array is a 1.8-megawatt project adjacent to the former Carbondale, CO landfill (NREL). Community solar farms allow you to participate in solar power generation without installing solar at your home.
To see whether the numbers work for a solar installation at your home, a good place to start is Google Project Sunroof. It analyzes your roof data for feasibility and then factors in your average power bill and what it knows about electricity rates in your area to tell you if a solar energy system makes sense. If so, the calculator will recommend the system size and give you the financial breakdown. Then it’s time to call a few recommended installers to get quotes. If there’s a solar void in your area and you’re frustrated by high system prices, Solarize campaigns encourage solar adoption in communities by linking would-be solar adopters together so they can benefit from group purchasing power and know-how, lowering the price of high-quality installations.
How to Go Solar, but not Solo
If you crunch the numbers and figure out that going solar on your own rooftop simply isn't feasible, you can still participate in solar through community solar projects. These programs allow those who can't get solar power, like renters and condo residents to avail of solar benefits without the gleaming rooftop. Community solar projects are operated by utilities, businesses, neighborhood groups and condo associations and take different forms. The basic idea is you buy in or subscribe to a share of a solar installation and then receive a portion of the energy production rewards. Visit the community solar section of EnergySage to see if there's one near you.
Money Is Important but not the Only Factor
Saving money on electricity is not the only reason Americans go solar. In a January 2022 survey by Pew Research, the vast majority of homeowners who recently installed or are considering solar panels are focused on both saving money and helping the environment. Some solar adopters like the idea of energy independence, health benefits for their families and the reliability of solar systems versus their local grid. Two-thirds of Americans believe alternative sources of energy should be the priority for energy development in this country. Utilities across the country offer renewable power programs that allow customers to participate in the environmental benefits of solar power generation for a small fee. Usually sporting the word green in the title, these programs allow you to buy solar electricity from the utility in blocks or by matching your monthly electricity usage. So, you’re not getting free power, but you are requesting that the utility purchase renewable power to the tune of your investment. Check with your power company to see what’s available.
Solar power generation is only one way to use the power of the sun. Check out our solar ideas gallery for other household savings through solar.