Getting solar power for your home is one of the best ways to help the environment while also helping yourself. In most places in the United States, solar panels pay for themselves in less than 13 years—half of their warrantied lifespan—and can even help you earn a solid financial return over the long term.
If you’re considering home solar and you’re wondering how expensive it might be, you need to consider a few things:
- The up-front cost of home solar
- Incentives in your area, like tax credits and rebates
- How much the solar power can save you over the long term
Let’s jump right in to cost!
How expensive are home solar panels?
A common myth about solar panels is that it’s expensive to buy up front. That may have been true 15 years ago, but it isn’t anymore. With the recent explosion in the solar marketplace around the world, solar prices have gotten so cheap, so quickly that reality is struggling to catch up with perception.
The basics of solar panel cost
The cost of a solar panel system is greatly dependent on how much energy it can produce. The energy output of each solar panel is measured in watts, and a typical panel can produce 265 watts under conditions of direct sunlight.
A typical solar system for a home is made up of enough panels to produce 5,000 watts (shortened to “5 kilowatts”). That’s about equal to nineteen of those 265-watt panels.
Solar panels themselves have gotten really cheap. Each panel might cost around $200 if you buy it from a wholesale supplier, which means the 19 panels in the example above might cost only $3,800. But the cost of panels is only part of what goes into a solar panel system.
How much does a full solar panel system cost?
A solar system requires labor to design the best position for the panels on your roof, install the panels using dedicated solar racks, wire all the panels together and connect them to an inverter that will make the energy usable in your home, and connect them to the grid. That doesn’t even account for other tasks like getting the right permits, setting up inspections, and other important tasks.
The price quote you get from a solar installer will account for all these expenses (and a little profit for the business), and will be quoted to you as dollars per watt.
As of 2017, the average cost of a 5-kilowatt residential solar system in the United States is about $3.50/watt, or $17,500.
That might seem like a huge markup from the $3,800 it would cost to buy the panels yourself, but all the other equipment, labor, and time that goes into designing and building the system is quite expensive. And at $3.50/watt, solar is cheaper than it’s ever been.
Take a look at this chart of installed solar prices over the past few decades:
Why are solar panels getting cheaper?
Solar panels are getting cheaper for the same reasons anything does: people are buying more solar, so companies are producing more. And the home solar boom has helped businesses develop best practices to keep costs low.
These days, a home solar system can be installed in about half a day. With favorable laws and utility company rules, you could sign up for solar this week, have it installed next week, and have the electric company connect your panels to the grid the week after. This kind of streamlining has really worked to bring costs down.
Maybe the real question is, why are people buying so much solar?
The answer is solar incentives. The federal government, along with many states, wants to encourage the growth of clean, reliable solar for the future of our country and the planet. The way they do that is through incentives like tax breaks, rebates, and special solar payments.
Incentives are one of the biggest reasons solar is so affordable these days. They help make solar so cheap, they create a huge demand, which has driven growth in solar business around the world.
How can you get cheaper home solar?
If you want a lower cost per watt, you can go big. Adding panels to a system is really cheap, as long as you have the roof space for it. As you increase the size of your system to 10-kW or larger, you might see costs of $2.90/watt or even lower.
Also, differences in prices exist because states have varying solar policies. Solar markets in some states are mature because the state enacted laws years ago that helped solar companies grow. Some places even offer rebates that can make solar cheaper right off the bat.
Finally, every home is unique, and the combination of state, roof type and shading, and incentives can affect the price dramatically. The best way to find out the cost of solar for your home is to connect with local solar experts and get personalized estimates.
Many solar incentives have already expired, but there are still a few around. Check it out:
What solar incentives are available?
Solar Tax Credits
A solar tax credit is an incentive that reduces your tax bill by a certain percentage of the total cost of your system. The most important solar tax credit is the federal government’s “Investment Tax Credit,” or ITC, which awards solar owners 30% of the cost of their system, and can be taken over multiple tax years until it is fully recouped.
For example, take that typical 5-kW system that cost $18,750. If you install panels this year, you’ll get up to 30% back next April.
30% of $18,750 is $5,625, which takes a big chunk out. Take a look:
You can read more about the ITC here.
Several states also have tax credits. Here’s a quick rundown of the best:
- Hawaii – 35% up to $5,000
- New York – 25% up to $5,000
- Oregon – $1,500/kw up to $6,000
- Iowa – 18% up to $5,000
- South Carolina – 25% up to $3,500
- Utah – 25% up to $2,000
If you live in one of these states, solar could save you thousands in taxes. Sign up for a personal solar quote today.
Here’s an image that shows the grades we gave to all of the states based on their solar tax credits:
Solar rebates are money back on the cost of your solar installation. They’re usually available right away, reducing the up-front price from the installer, but they sometimes work more like a traditional “mail-in-rebate,” where you pay first, then fill out a form and get a check after.
Solar rebates are usually based on the size of your system. That is, you get a certain amount for each watt your system is rated to produce. Like we said above, the average cost of solar these days is $3.75/watt.
Here are some of the best current state solar rebates:
- Rhode Island – $1.05/watt
- South Carolina – $1/watt (Duke Energy Progress Only)
- Connecticut – $.40-$.54/watt up to $9,400
- New Hampshire – $.50/watt + $.25/watt for NHEC customers
- Oregon – Various, most between $.40 and $.60/watt
If you live in one of these states, you can learn more about rebate availability by signing up for a personal solar quote today.
Here’s an image showing the grades we gave to all of the states based on their solar rebates:
Solar Performance Payments
If you’re lucky enough to live in Colorado, Minnesota, Vermont, Washington, Ohio, New jersey, Illinois, Washington D.C., Maryland, or Massachusetts, you can get paid extra based on how much power your panels generate. Read on to find out about solar performance payments, or skip to the next section.
The states listed above have laws that provide bonus payments for every kilowatt-hour produced by a solar system. These bonuses are called “performance payments,” and they can mean a lot of money for solar owners.
Performance payments are generally paid in one of two ways:
- On a solar owner’s electricity bill as an additional credit
- As payments for special “Solar Renewable Energy Certificates” (SRECs)
The bill credits are pretty straightforward. You get paid per kWh generated. States with solar performance payments like these include Colorado, Minnesota, Vermont, and Washington.
The SRECs are a little more complicated. In a state with and SREC market, utility companies are required to generate a certain amount of energy from solar. If they can’t make it themselves, they have to purchase SRECs from solar owners to make up the difference, or face stiff monetary penalties. The penalties are what give SRECs their value, since the utility companies would rather pay somewhat lower prices for SRECs than higher prices for penalties.
Prices paid for SRECs vary widely by state and by year the solar energy is produced. It’s best to connect with a local solar expert to learn more about SRECs in your state.
If you live in one of these states, you should see if they can work for you by signing up for a personal solar quote today.
Check out our grades for states with solar performance payments:
How much do solar panels save?
This is the big question, right? The first step is figuring out how much energy you use. You can find that number on your power bill.
You’re looking for kilowatt-hours per month, or kWh. Your electric company might include information about you annual usage right on your bill, or you might need to look at multiple bills to get the total per year.
The reason you need your usage is to figure out what sized system is right for you. Many states won’t allow you to sell back more solar power than your total annual usage, so you have to be careful.
A good rule is that each solar panel you put on your roof can make about 1 kWh per day. If you know your average energy usage per year, divide it by 365 to get the number of kWh per day. That number will also equal the number of solar panels you need to make all the energy you’ll use in a year.
Another limiting factor is the size of your roof. We’ve got a handy solar panel calculator below that can help you see how many panels will fit and how much energy they’ll make.
How to do solar savings calculations
All of the above information can be combined with some educated guesses about future energy prices to see how much solar can save you.
Here’s how to do the calculation:
- Figure out the final cost of solar after any rebates. For example, a 5-kW system at $3.75/watt would cost $18,750
- Figure out how much electricity the system will make. Ex: A 5-kW system in Massachusetts will make about 6,000 kWh in an average year.
- Figure out how much that production will go down over time (solar panels degrade slowly. We use a 0.7%/yr degradation rate.)
- In net metering states, multiply energy produced by electricity price to get savings in year 1.
- Figure out how much electricity prices change per year (hint: they generally go up). We assume and increase of 3.5% per year, which is the national average for the past 20 years.
- Plot the annual solar energy produced and the electricity price over time. We use 25 years, which is how long panels are usually warrantied for.
- Subtract incentives from your calculations at the appropriate times. For example, if you can take advantage of it, the 30% federal tax credit comes the April after the initial payment. Subtract other incentives from the cost as they accrue
- Estimate any SREC or performance payment income, and add it in at the appropriate time
Sounds simple, right? Well… we know this stuff gets complicated.
The good news is solar installers have gotten pretty good at communicating these benefits to you. But don’t take their word for it. Get multiple quotes for solar, and compare them against each other. Make sure to compare warranties for panels and installation, and look at reviews of the companies you’re considering.
Solar panel cost calculator
Enter the numbers for your home below, and get a short estimate of how much you could save with solar!
Last modified: April 3, 2017