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Solar Panel Cost in 2020, and Where the Money Goes

Avatar for Ben Zientara
Published on 11/18/2015 in
Updated 04/20/2020

A solar installer working with a couple

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 the cost of solar panels 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

cost of solar panels 1998-2013

(Courtesy NREL)

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 26% 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:

Cost of solar panels 2010-2018

(Courtesy NREL)

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 2020

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
PVWatts settings for Poughkeepsie, NY

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 2020, 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:

NREL chart showing solar panel cost breakdown

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.

Cost CategoryAmount
Other Hardware (“BOS” or Balance of System)$1,705
Supply Chain Costs and Sales Tax$2,145
Installation Labor$1,485
Permitting and Inspection Labor$275
Developer Fees & Price Gross-Up$4,400
Total System Cost (before incentives)$19,250

How can you get cheaper home solar?

If you want a lower cost per watt, you can go big. increasing the size of your system before installation makes it cheaper on a cost-per-watt basis, 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 Incentives

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 26% of the cost of their system, and can be taken over multiple tax years until it is fully recouped.

For example, a 5-kW system might cost $18,750 up front. If you install panels in 2020, you’ll get up to 26% back next April.

26% of $18,750 is $4,875, which takes a big chunk out. Take a look:

A graph showing the effect of the federal solar tax credit on system cost

Read more about the Federal solar tax credit.

Several states also have tax credits. Here’s a quick rundown of the best:

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:

2020 Ranking of State Solar Tax Credits

Learn more about state solar tax credits.

Solar Rebates

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 $3.50/watt.

Here are some of the best current state solar rebates:

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:

2020 Ranking of State Solar Rebates

Learn more about solar rebates.

Solar Performance Payments

If you’re lucky enough to live in New Jersey, Illinois, Washington D.C., Maryland, or Massachusetts, you can get a special bonus 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.

Learn more about solar performance payments.

Last modified: April 20, 2020

5 thoughts on “Solar Panel Cost in 2020, and Where the Money Goes

  1. Avatar for Ralph Ralph says:

    So at 10k in soft costs, that is 1,000 hours of time spent at $100 per hour. 6 months of full time weeks at that rate?

  2. Avatar for Anonymous Anonymous says:

    These numbers must be looking at places like California and the costs associated with companies like Solar City because I work here in TN and the surrounding states and we routinely install systems priced in the $2-2.25/KW range. That’s total system cost installed. However, we spend next to nothing on marketing and customer acquision so thost types of soft costs aren’t a huge part of our overhead. I work with Total Quality Environmental based in Hixson, TN.

  3. Avatar for Mycollege Mycollege says:

    This is an industry waiting for a disrupter. Any industry that has $10,000 in marketing, sales, developer and profit is overpricing. Essentially, it costs about $4-5000 in direct costs to install these things by your estimate. When someone smart comes along and drops the installed price to $6 or $7,000—still allowing a hefty $10000 per home, you will see solar sales take off. Where is Elon Musk when you need him?

    1. Avatar for Ben Zientara Ben Zientara says:

      Unfortunately, Elon (well, and his cousin) has tried to reduce costs like this, but Tesla has some of the highest per-watt costs in the industry. A major component of the remaining cost structure is what are known as “soft costs,” like permitting, inspection, and especially customer acquisition (i.e. marketing and salespeople). The hope is, with enough consumer education and things like streamlined, nationwide permitting standards and laws like that in California, where all new homes must be built with solar, we can get those costs down.

      Basically, there’s no reason to think home solar won’t be down to $1 to $1.50 per watt in a few years.

  4. Avatar for Lindasy Venture Lindasy Venture says:

    Installing solar panels at home is no longer a big issue now. There are many funding options available both by government and private firms. Moreover, with little investment you can enjoy lot of benefits for longer periods of time.

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