When it comes to things people want to know about home solar, solar panel cost is at the top of the list. Below, we break down the average cost of installing solar panels for a home in the U.S., and also where each penny within that price goes, from the hardware and marketing costs to the installer’s profit.
The best thing about solar panel cost is it keeps falling. The U.S. residential solar industry is booming, and the price of installing solar has gone down dramatically in the past 5 years. In 2014, the power-generating ability of U.S. residential solar exceeded 1 gigawatt (GW), which is enough for almost 200,000 homes.
That means lots of companies installing lots of solar panels on lots of homes—and that volume of installations means this trend is going to continue into the future. So we wanted to know: what does solar cost, and where does the money go when you install solar panels? How much of the cost is represented by the hardware, and how much of it goes to “soft costs” like labor and overhead?
The answers to those questions are thankfully pretty easy, because lots of people are looking at best practices in the solar panel installation industry, and the topic has been studied extensively. Here’s what we know:
Costs to install solar panels are decreasing dramatically
The chart above shows historical solar system prices for 15 years, from 1998 to 2013. The cost of solar is reported as dollars-per-watt, which is common to the industry. As you can see, the overall trend is downward, which is a good thing for people who want to go solar. The decreases can be mostly attributed to successful state and federal policies that offer incentives for switching to solar, most notably the U.S. government’s Energy Investment Tax Credit (ITC), which offers 30% of installed costs back to homeowners at tax time in the year after they install panels.
Notice the rapid decrease after 2008? That’s when the ITC was reauthorized and expanded. Before ’08, the ITC had a cap of $2,000, which meant only very small solar panel installations got to take full advantage. The solar tax credit stimulated some growth, but not much. The $2,000 cap was lifted with the re-authorization, which led to much bigger tax credits and the current solar boom.
The price reductions are a good sign that incentives are working. More people are getting solar power now than ever before, and there’s been an explosion of new solar installation companies to serve the growing marketplace.
Here’s a more recent chart showing decreases between 2010 and 2018, broken down by where each portion of the final cost comes from:
The downward trend continues, although it’s slowed a bit due to the Trump Solar tariffs. The decreases in installation cost (and the increases in installations) are expected to keep going until the end of 2021, when the ITC expires for residential installations.
The cost of solar panels in 2019
If you look at the above image again, you’ll see an cost of $2.70 per watt for solar panels. At an average system size of 6.2-kilowatts (kW), that equals a total average home solar panel installation cost of $16,740, before tax credits and other solar incentives. But be wary of that number, because it might not reflect real-world pricing. Here’s why:
NREL uses a “bottom-up” methodology to build that number, which takes into account the prices paid by solar installers for all equipment, labor, and other costs, but importantly doesn’t include what they call “developer fees” and “price gross-ups,” which are common in the solar industry. So depending on the state you live in, the installer you choose, and the specific of your roof and system size, you may end up paying more.
How Solar Power Rocks calculates solar panel cost
When we perform our solar payback estimates for all 50 states, we take into account a number of sources, including the NREL report linked above, along with data from Wood Mackenzie Power & Renewables, and EnergySage. That gives us a full picture of average cost per watt for a “standard” sized home solar installation—usually the same 6.2 kW mentioned above.
With those numbers in place, we look at data from the United States Energy Information Administration regarding average household energy use by state (measured in kilowatt-hours [kWh] per year), and match that with NREL insolation data, which tells us the average number of kWh that can be produced by one kW of solar panels.
Divide household kWh needs by kWh produced per kW of solar, and—Bob’s your uncle—you get the average solar system size in kW. Then we adjust the average cost based on the difference between average system size in each state and the “standard” 6.2-kW system.
In plain English, here’s an example of how that works:
Say Chris and Pat live in Poughkeepsie, NY and need about 600 kWh per month to power their home. That’s 7,200 kWh per year.
They go to PVWatts and type “Poughkeepsie, NY” in the location bar. Then they set the PVWatts “System Info” screen with the following settings:
- System size: 1 kW
- Module type: Standard
- Array type: Fixed
- System losses: 15%
- Tilt: 30 degrees (pitch of the average roof)
- Azimuth: 180 (due south
Then they click “go to results” and see that 1 kW of solar on their roof will produce an average of about 1,300 kWh per year. Divide their needs (7,200 kWh) by that production and you get 5.5-kW.
So Pat and Chris need a 5.5-kW solar system to offset all their energy needs for the year. That’s about the size of the average 6.2-kW system so we wouldn’t adjust the cost estimate much from the data available from NREL or EnergySage.
In this case, in 2019, Pat and Chris can expect to pay about $3.50 per watt, or just over $19,000 for a 5.5-kW system, before tax credit and NY Sun incentives.
So where does the money go?
That $3.50/watt gets divided up a number of ways, and as you can see in the second chart above, very little of it is actually spent on the panels (less than $.50). But the reduction in prices has not just happened because the cost of solar panels has gotten cheaper. Solar companies are doing everything they can to streamline the process of designing and installing systems—and state governments have helped by enacting rules that move the permitting and inspection processes along quickly.
Going back to the NREL report, which showed an average cost of $2.70 per watt, here’s how the costs were broken down by sub-category for installations in 2018:
As you can see, there is quite a bit that goes in to the final cost of the system. As we mentioned before, NREL builds their average cost estimates from the bottom up, and doesn’t include developer fees or “price gross-up,” which together add another ~23% to the final price paid by the homeowner. Some of those add to the installer’s profit, and some get passed along to sub-contractors. Going back to our example above, Pat and Chris would pay $3.50/W for their system, of which about $.80 represents these costs not tracked by NREL.
Looking closely at that chart now, let’s see what went in to the final $3.50 per-watt cost of Pat and Chris’s system, which at 5.5-kW costs $19,250 all in. We’ll also build the costs from the bottom up.
|Other Hardware (“BOS” or Balance of System)||$1,705|
|Supply Chain Costs and Sales Tax||$2,145|
|Permitting and Inspection Labor||$275|
|Developer Fees & Price Gross-Up||$4,400|
|Total System Cost (before incentives)||$19,250|
Last modified: March 15, 2019