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 in 2014 and 2015:
The downward trend continues, and around March of 2015, we were at around $3.46 per watt for home solar. The decreases in installation cost (and the increases in installations) are expected to keep going until the end of 2016, when the ITC expires (unless congress acts).
So where does the money go?
That $3.46/watt gets divided up a number of ways, and as you can see in the first chart above, very little of it is actually spent on the panels (i.e., the Module Price Index). 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.
Here’s another chart that shows the breakdown of costs within the $3.46 number:
The reductions are still there, and now you can see what’s been happening in the industry. The bottom segment of each column represents the cost for just the panels. It’s been nearly stagnant for over a year. The next three segments up from the bottom are for the other system components; structural and electrical stuff that makes the whole thing work. Together, these four segments represent hardware costs.
The light blue band in the middle and the one just above it represent the labor for the installations. This is things like solar panel system design and engineering, installation labor, and labor for inspections and permitting. The final bar above represents the bulk of the “soft costs,” which include overhead, customer acquisition, and profit. As of mid-2015, these costs represent a little over 40% of the total, with about a quarter of that being profit.
Basically that means that, for an average 5-kW solar installation, the solar installer makes about $1,700. Here’s how the other costs break down:
|Permitting and Inspection Labor||$1,200|
|Overhead/Other Business Expenses||$5,900|
|Total System Cost (before incentives)||$17,300|
Last modified: October 9, 2018