The Cost of Solar

By Michael Penwarden
October 21, 2016
Solar Homes

How much does it cost to go solar?

If you’ve been considering going solar but haven’t made the switch yet, here’s some great news: The cost to install solar on your home has dropped by 70% in the past ten years.  For many homeowners, that means solar is less expensive now than the energy you buy each month from the local electric company.

Still, it’s easy to get overwhelmed when trying to get a clear picture of the costs of installing solar energy. 

To understand what goes into the price of installing solar on your rooftop – and to therefore understand where there are opportunities to save money – it’s useful to get a breakdown of all the variables that affect the overall system price.

Let’s explore the variables involved in installing enough solar panels to generate most – if not all – of a household’s own electricity.

Understanding the costs

Currently, installed solar panels cost somewhere in the neighborhood of $3-$4 per watt, depending on your geographic region.

According to the Solar Energy Industries Association, that breaks down to approximately $0.50 to $1.00 per watt for the solar modules, plus $0.25/watt for the inverter (which converts the direct current coming off of the solar panels into the alternating current required to power your home or flow back into the grid), $0.25/watt for other electrical components, and about $0.10 for structural components.  

Those are the hard costs, which add up to somewhere around $1.10-$.1.60 per watt. 

In addition, there are soft costs to consider, which include approximately $0.15 for engineering, and $0.25/watt for the direct labor of climbing up on your roof and installing the panels.

Finally, there are over $1.50 in additional soft costs, which is where things like supply chain management, overhead and sales and marketing are factored in.  These soft costs are where the most savings can be realized.

Most specifically, the cost of customer acquisition – what a solar installation company pays to find you, the customer ready to hire them to put solar on your roof – is a significant variable cost that’s factored into what you pay for solar.

That’s where Pick My Solar can really help.

By building a streamlined conduit between solar customers and independent, high-quality installers, Pick My Solar can dramatically decrease the cost installers pay to acquire new customers while simultaneously keeping prices to consumers down by creating a marketplace where customers receive multiple competitive bids to choose from.

Is your home solar friendly?

How much solar do you need?

According to the Energy Information Administration, the typical US household consumes an average of 911 kWh of electricity per month at $0.12 per kWh, which adds up to an electricity bill of around $110/month.  

Of course, that’s a number that can vary widely. If you’re throwing huge hot tub parties, you’re definitely going to need to factor that into your usage estimates. Also, if you run your air conditioning a lot in the warmer months (or electric heaters in the colder ones), that’ll significantly increase your usage as well.

Fortunately, getting accurate numbers for your individual situation is as easy as cracking open your monthly energy bill and reviewing your individual usage data over time.

While you’re studying your electricity bill, make a note of how much you are paying for each kilowatt-hour (kWh) you consume.  The average household in the United States currently pays 12 cents per kWh, but that can vary widely (all the way up to a whopping 33 cents per kWh if you live in Hawaii!).

Now that you’ve got an idea how much electricity you consume and how much you’re paying for it, the next step is to figure out how much solar capacity you’ll require to meet your usage needs.  Let’s say your home consumes 9,000 kilowatt-hours per year, less than the national average but normal for places with high energy prices. To find out how many solar panels you need, use a program like PVWatts to estimate how much energy 1 kilowatt of solar can generate per year in your community. Here’s how you can use the answer to size your system:

Energy consumption ÷ Output from 1 kilowatt = Full-sized system

9,000 ÷ 1,440 = 6.25 kW

Keep in mind that while fully offsetting the electricity you receive from the grid is a great goal, you don’t want to overdo it:  Utilities give you credit for energy you send back into the grid via net metering, but typically only up to the amount that matches your annual consumption.  So if you install too much solar capacity, that extra power just flows back into the grid without any benefit back to you!  To avoid this, you’ll want to produce about 80% of your annual energy capacity from your rooftop system. In our example above, a 6.25 kW system would produce all of your home’s energy, but a 5 kW system will produce 80% of it and will therefore likely be a better balance of cost and energy production for your home over time.

Up-front costs vs. long-term costs

When evaluating the benefits of solar, you need to take both a short- and a long-term view.  In the short-term, it’s important to understand what federal, state and local utility incentives are available to homeowners that could offset the costs of your system and therefore significantly shorten the time to payback. These incentives can really add up:  For example, there’s a 30 percent federal investment tax credit available until December 31st, 2019.  In addition, many states, counties, municipalities and utilities offer rebates for going solar (a good resource for exploring what’s available in your area can be found here).

When you work with Pick My Solar to design and bid your system, our advisors will research the incentives available to you and will help ensure you take advantage of all of the incentives that you qualify for.

Another important consideration when looking at the overall costs of going solar is to look at the financing options available to you.  Obviously, if you pay cash for your system your upfront costs are high, but then your electricity bills are permanently slashed or eliminated.  If you choose to finance your system, you may qualify for a zero percent down loan, which could make your monthly loan payments replace much of your electricity bill.  And that’s where the long view comes in: once it’s paid off in 12 years or so, the system will still be on your roof, quietly offsetting your electricity bill for years to come.

Once again, Pick My Solar’s advisors will walk you through all of this, and will prepare a report that outlines the costs and benefits of each option base on your unique situation.

So … What does solar cost?

Based on how much energy most homes in the US consume, the average rooftop solar energy system should be about 5 kW in size. At $3 to $4 per W, the initial price before tax credits and net metering benefits will be $15,000 to $20,000. Those look like big numbers, but wait until you see how incentives make solar more affordable.

The federal tax credit offsets 30 percent of the system cost when you file your next tax return. If your system costs $15,000, your tax credit drops the upfront cost down to $10,500. If your system costs $20,000, the credit knocks the upfront cost down to $14,000.

If you’re already paying $110 per month for electricity, that means you spend $1,320 a year, and over 20 years you’re on pace to spend $26,400. For many homeowners, that’s much more than you would spend on solar energy, even after adding in long-term financing costs.

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To find out if you can save with solar, grab your electricity bill and head over to Pick My Solar’s Solar Calculator.

Our advisors will work with you at no obligation to understand the specifics of your needs and provide you with an outline of what incentives are available to you and how different financing options will play out over time.

 If you like what you see, you simply agree to put your solar project out to bid, and several vetted, trusted local installers will compete with each other to provide you with the bid you like best.

The whole process is quick and painless and could have you producing your own clean electricity much sooner than you think!

Michael Penwarden

Written By

Michael Penwarden

Michael Penwarden is a technology journalist and serial media entrepreneur. He was the Founder and CEO of Matter Network, which at its peak represented the largest online audience of clean technology professionals, and was a primary provider of clean technology news to Reuters.com. He also served as Editor of Macworld Magazine, which received two consecutive Maggie Awards for Best Technology Magazine during his tenure. Prior to that, he was a founder and Executive Editor for Ziff-Davis Media’s Consumer Media Group where he was involved in the development and launch of several technology publications and websites.

More articles by Michael Penwarden

What's Pick My Solar? We empower our customers to adopt clean energy through transparency and choice. Our free, no-obligation platform provides competing solutions from top providers.

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