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Think of a home solar system as a giant appliance on your roof. To get the best one you need to do some research and cost comparisons, just as you would with a new stove or refrigerator. It does take some time, but when it’s done, you rarely have to think about it again. So if you’re researching the cost of home solar panels, here are some factors to consider.
Average energy costs in the United States
“In January 2019, the average national solar panel cost is $3.14/watt. The average solar panel system size in the U.S is approximately 6 kilowatts (kW), therefore an average solar panel system would cost $13,188 after tax credits,” according to EnergySage.com*.
How to research the cost of a home solar panel system step by step
Before you start getting estimates check out Everything You Need to Know Before You Shop For A Home Solar System. Then, to figure out if a home solar system is worth the expense do these six things:
- Get a rough estimate from a solar calculator like Google's Project Sunroof or EnergySage.com*
- Get multiple quotes from EnergySage.com or contact three or more solar companies on your own. The more estimates you get the better.
- Consider all the factors that go into a solar system.
- Find the levelized cost of electricity.
- Compare the levelized cost of energy (LCOE) of the best estimate with the LCOE you pay your utility.
- The cost of electricity has increased year over year since 2002, but no one can predict the future. Decide if the levelized cost of electricity you will pay with a home solar system, and the emissions you prevent, are worth the expense.
Factors that go into the cost of a home solar system
A lot of factors go into the cost of a home solar system.
Installation – If your roof is already slanted and facing the sun it may be less expensive to install than if it needs to be built up. If the roof is flat or the panels can’t be placed to face the sun, the system will be built up for maximum sun exposure. These factors affect the price of installation.
The type of solar panels – Monocrystalline are usually more expensive and efficient than polycrystalline panels and may be necessary for a small roof. Polycrystalline are usually less expensive and efficient but may save money if you have a large roof with lots of space. Ask your sales representative if paying for the more efficient panels is necessary.
Connecting to the grid and permits – The solar company will need to connect your system to the energy company so you get electricity when the sun goes down as well as gas. You might need permits, so make sure to ask your solar company who will take care of that.
Solar incentives and state rules
Investment tax credits – In 2020, the federal solar tax credit may allow you to deduct 26% of the cost of installing a solar energy system from your federal taxes according to EnergySage.com*.
State and local incentives – Each state and utility have their own incentive program. DSIREUSA.org offers details about what's available in your area.
Net Metering – Some states allow you to sell your unused solar energy back to the utility through net metering. You receive a credit on your energy bill in exchange for the electricity. With net metering you pay for all the energy you bought from the utility once per year in your True-Up statement.
State solar renewable energy certificates (SRECs) – Some states require utilities to purchase SRECs that go toward their Renewable Portfolio Standard (RPS). In states with SRECs, homeowners with rooftop solar are paid cash by the SREC market for unused solar credits.
The difference between net metering and SRECs is how you get paid for unused solar energy. In states with net metering, you receive a credit from your utility. In states with SRECs, you receive cash from the SREC market in exchange for the utility taking credit for the clean energy you produce.
Only the owner of a solar panel system can sell the credit, so if you lease your system you can’t get paid for the SREC because you don’t own the system.
Check out DSIREUSA.org to learn more about laws and incentives specific to your state.
How to pay for the solar panel system
Cash – Cash is the simple way to go, if you have the cash, and you're willing to spend it on a solar system rather than another investment.
Finance – You own the home solar system but you borrow the money from a bank or credit union. Financing solar is similar to financing a home. You own it, but you make payments each month. Some people use a home equity line of credit for solar instead.
Solar power purchase agreement (PPA) – A solar power purchase agreement (PPA) is a contract between you and a company that owns and installs a home solar system on your roof or property. The company sells the power to the utility, and the property owner pays the company a monthly fee. The power purchase agreement is usually 10 – 25 years. The company owns the system and is responsible for maintenance. Some PPA contracts allow the homeowner to buy the home solar system after a period of time.
Lease – Some states allow the solar company to lease the solar system directly to customers. A solar lease is similar to a PPA, but the company does not sell the electricity back to the utility. It's similar to a car lease in that you do not own the system at the end of the contract. You may be able to buy the system after a period of time if that's included in your contract.
Only the owner of the solar system qualifies for most tax credits and SREC’s so you may not qualify for them with a PPA or solar lease.
True-Up – If your monthly electricity use is higher than the amount your solar panels generate you will begin to accumulate net energy metering (NEM) charges if your state allows net metering. These are often the charges for the electricity you pull from the grid when the sun is down. You pay for your electricity in the True-Up statement once per year. This is one of those things your sales representative may not mention, so it's good to ask how much this may be. I've heard of True-Up statements between $500 – $1,000.
The levelized cost of electricity (LCOE)
After you get the best estimate from the solar company, find the levelized cost of electricity (LCOE). A lot of factors go into the lifetime cost of ownership, so you need to add in all those variable. To get the lifetime energy output you may need to ask the salesperson what they estimate the energy output will be per year in kilowatthours, then multiply that by the lifetime (years) of the solar panel system.
LCOE ($/kWh) = Lifetime Cost of Ownership ($) / Lifetime Energy Output (kWh)
Compare the cost per kWh
Compare what you pay the utility per kilowatthour to the levelized cost of electricity you’ll pay with a home solar system. The cost per kilowatthour may not be on your electricity bill, so you may need to call and ask.
Now you have the information you need to determine if the levelized cost of electricity with a home solar panel system will be more or less than what you pay now. It may be more with a home solar panel system. Which is where the year over year cost of electricity comes in.
Energy prices tend to increase
The average retail cost of electricity has increased year over year since 2002. When you look at the cost of solar panels and the salesperson talks to you about savings, ask how they calculate the savings. Part of that savings may be based on the assumption that your average electricity price will increase over the years, and the cost of your solar panel system will remain the same. All good stuff as long as you understand the assumptions they are making.
Ready to start shopping for solar panels?