Climate change is changing the world on a physical level never before seen during remembered human history. It has become painfully obvious that human reliance on fossil fuels must decrease dramatically as quickly as possible. Even formerly renewable, power-generation sources, such as hydroelectric dams, can’t be relied upon to meet the energy-consumption needs of citizens and visitors because of growing, widespread droughts.
With energy costs related to traditional power companies based on fossil fuels skyrocketing around the country because of climate change and other factors, we understand that homeowners need an alternative that protects both the environment and their wallets. Solar power is a free, readily available resource. It places a minimal amount of stress on the environment and makes the cost of access to power easier.
An Overview of Cost
From a cost perspective, the transition to solar power via a system of solar panels requires a serious upfront investment. The cost depends on a wide range of factors, including the geographic region and state of the installation, the system size, the manufacturer, and any renovations that an installer or other contractor must perform to set up the system.
Typically, the initial cost for solar panels matches approximately the base price of a new, low-end automobile before the application of federal solar tax incentives, state incentives, and other incentives that significantly bring down the price. Additional costs both for installation and the life of the system, respectively, include permits, non-panel equipment such as necessary inverters or an optional whole-home backup battery, installation-related labor, regular inspections and rare maintenance and repair calls.
Yet, a homeowner enjoys amazing savings over time that more than make up these costs. Also, they never again have to worry about traditional power grid outages from down power lines or overuse of the grid affecting their lives. Even better, they might be able to make money off their system by selling some of the power back to their closest traditional utility company.
Thinking About All the Details
Before discussing cost further, it’s important to discuss the installation process and everything a homeowner might experience that can impact their budget. Typically, a homeowner must wait up to four months for the installation to take place after they start discussing the possibility of setting up solar power with a solar energy company.
The company sends an installation expert, known as an installer or installation engineer or technician, to the home to perform a basic property inspection. They must determine if the roof or another structure can handle the weight of various types of panels or a specific type the homeowner discussed with them over the phone. They also check out electrical systems to confirm that the home’s wiring can handle the power distribution.
Experts agree that a homeowner should invest in a second opinion from an electrical engineer who has prior experience with solar power systems to check that the equipment and other recommendations made by the solar energy company are sound and beneficial to the homeowner. With either technician, the homeowner might learn that they need home, landscape or wiring updates that require the work of one or more additional contractors.
The homeowner can expect to fill out a lot of paperwork that features complex information about clean energy programs, initiatives, rebates, tax credits and renewable energy certificates. The installer might also point out paperwork that the homeowner must complete to meet building permit and other requirements. Once the homeowner signs the contract and the equipment eventually arrives, the installer reinspects everything and prepares the installation zones, such as racks for the panels or circuitry and inverters that connect to the panels. A building and safety inspector with the local municipality or state must then approve all the work. If everything meets their requirements, the local utility connects the grid to the homeowner’s new system.
Solar Energy Costs: The Basics
The installed cost of a solar power system starts with the equipment and labor fees that the homeowner must pay the contractor. A homeowner might pay everything upfront with cash or a loan or set up a lease or power purchase agreement (PPA). The latter pays off the cost over time through the power generated and sold back to a utility.
The homeowner receives back some of the cost, approximately 30% in the form of a federal tax credit, which gives them their “net cost” total. If the homeowner also finds manufacturer, retail or other rebates, they can take that amount off the total as well when estimating the net cost. For example, the homeowner might receive an energy incentive from the state that provides them with a rebate based on a per kW estimate.
Most cost estimates are based on a kilowatt (kW) standard. In Colorado, a homeowner might expect to pay $19,100 upfront for a 6-kW system before any tax credits. The average cost per watt can run approximately $2.44. The federal tax credit value was 26% in 2020 ($4,446), for example. These amounts don’t take into account any money the homeowner might save from separate rebate and other incentive programs. The per kilowatt cost also decreases with larger systems and the use of whole-home batteries to store backup power.
As a point of comparison, Colorado’s upfront costs are higher than surrounding states with approximately $13,353 (Kansas) the cheapest estimated cost in this part of the country to $16,680 (New Mexico). These costs are comparable to other areas of the country, especially so called “green” states with Washington the cheapest at $14,040 and New Hampshire at $17,460. Hawaii has the highest cost attached to installation at $22,560.
Given the upfront costs, many homeowners procure a smaller system (5 or 6 kW) and rely on a mix of solar and traditional power. Although this setup doesn’t provide the greatest amount of savings over time and impacts the environment more than a larger system, it’s a fairly decent transitional setup that allows the homeowner to immediately start protecting both the planet and their finances and prepare for a future upgrades that remove their reliance on the grid entirely. With a smaller system, they can expect to rely upon it 50% of the time.
Breakdown of Solar Panel Costs
Solar panels (polycrystalline, monocrystalline and thin film) make up the majority of the cost. A homeowner can expect to pay approximately $12,000 after tax credits on average for the panels. Of course, low- and high-end differences exist based on type and size with the range between $5,000 and $40,000.
Polycrystalline solar panels or cells are cheaper than monocrystalline because they’re easier to manufacture and less efficient than monocrystalline. They’re usually seen at commercial locations. Blue monocrystalline panels, which have a higher price tag, provide more efficiency but react more sensitively to high temperatures. A homeowner can also choose panels made of thin film that the installer can glue onto roof tiles and other surfaces. They’re not affected as much by heat, but they have lower long-term efficiency and the shortest lifespan of the three options (i.e. replacement required before 25-year lifespan of other products).
The cost of panels also depends on the total number of panels the homeowner needs for their location. In a total-generation setup, a homeowner might need between 25 and 35 panels since a single panel typically produces 1 kilowatt-per-hour (kWH) of energy/power every day. If the homeowner currently uses approximately 32 kWH of energy/power daily, then they need approximately 32 panels. Of course, if the homeowner decides to go with a 50/50 system, they need fewer panels.
Additionally, some homes utilize other on-site heating and cooling equipment and resources that increase or decrease the cost of their utility bills, such as a thermal HVAC system or a hot tub, respectively, which the homeowner must take into account when deciding on the total number of panels. The fastest way for a homeowner to calculate the number is to take the monthly kWH stated on their utility bill and divide it by 30 days to give them a rough estimate of the monthly average.
Special Consideration: Low Generation Days
When determining cost, a homeowner also needs to take into account the primary method of solar power generation. When the panels fail to receive full sunlight, such as on a heavily cloudy day or at night, the amount they pay and save changes depending on the type of panel. Some new panels are designed to utilize any level of sunlight to generate power.
That said, solar energy companies and installers recommend that a homeowner still take into account sunlight hours. A homeowner should multiply the average amount of energy their home needs by the number of full or peak hours of sunlight for their geographic region and then divide by the wattage for a specific brand of panel. They can perform this calculation with different brands and make comparisons. This will let the homeowner know if they can power their entire home with solar panels.
To reduce reliance on costly traditional utilities during on overcast days and at night, a homeowner should consider installing a whole-home, backup battery. Batteries designed to last an estimated lifespan of between 10 and 20 years cost approximately $5,000 to $7,000 at the low end and $14,000 to $15,000 at the high end on average. If a homeowner opts to install a backup battery at the same time as the panels, they face additional upfront equipment fees but may actually enjoy better overall installation costs because the installer isn’t forced to make separate special appointments.
Why Are Solar Panels Worth It?
Government agencies and others offer clean energy programs that feature either rebates or tax credits to help offset the costs. Some government entities and utility companies offer other incentives and even low-cost loans to deal with costs. Although a state-level rebate might still fall under federal income tax requirements, some utility companies offer a one-time rebate that isn’t normally taxed on federal returns.
The other method to recoup or save money is through selling extra power generated during bright, sunny peak hours to the closest utility company, which typically pays half the amount they charge for their own power. As a result, the homeowner is literally paid to switch to solar and continue to generate solar power for the lifetime of their system. It’s a passive income stream.
But what about energy savings as compared to traditional utilities? Homeowners pay up to $200 per month on average for electricity nationwide. With solar panels, they can see up to $1,500 in savings without taking into account potential passive, solar power revenues. The amount that a homeowner saves depends on a lot of different factors, including the quality of the system they procure, the number of sunny days in their geographic area and the amount of power they’re trying to generate. To determine savings, they should take their estimated net cost and divide that amount by the amount they already save every year on their traditional utility bill.
Other types of savings also exist. Insurers consider solar panel systems and backup batteries forward-thinking investments that increases home value. They often offer a discount, commonly known as a solar or green discount, as a percentage off the homeowner’s policy premium. A homeowner can also enjoy using their solar system as leverage when negotiating the sale of their home. Buyers often value pre-existing systems that make it possible for them to reap all the benefits of solar power immediately without waiting years to balance out the upfront costs.
Critical Cost & Savings Considerations
It’s important to keep in mind that this type of system doesn’t save money immediately because of the upfront investment, which doesn’t exist with use of a traditional electricity grid. It can take five years or longer for a homeowner to start benefiting from the system. The national average is approximately seven years. The amount of time depends on the net cost and the homeowner’s choices, such as installation of a backup battery or an agreement to a net-metering or solar-buyback contract.
It’s also critical that a homeowner perform the installation of a solar power system before state and federal tax incentives go away. They can use the tax credit toward the cost of solar panels and cells, permit and inspection fees and developer fees, if applicable. They can also apply it to contractor labor costs, which include onsite preparation, assembly of any structures or equipment and installation of a first-time, solar power system, inverters, wiring, mounting hardware, energy-storage devices (3 kWH or higher installed 2023) and sales tax on all the above.
Congress originally planned to allow tax credits to lapse by 2024. Instead, in August 2022, they extended the program and raised the credit discount on installations from 2022 to 2032 to 30%. They also allowed homeowners to take the credit for systems installed on and before December 31, 2019, because of the COVID-19 pandemic. Although the discount is set to not drop to 26% again until 2033 and then 22% in 2034, volatile political changes in the country over the last several years prove that a simple change in the control of the House of Representatives and Senate or politically motivated lawsuits could lead to the sudden cessation of the program. Experts advise homeowners to take advantage of the savings now while the opportunity still exists.