As the world looks to go green, solar energy continues to leap forward as a green energy source. Solar energy is an excellent choice for most homes because of its easy installation and minimal upkeep.
Yet, it’s not always clear how much installing a solar energy system will cost consumers. The system’s price can change based on your energy needs, your state, tax credits, and other factors. If you want to understand the price of solar energy, read this guide on solar panel costs.
Introduction
Solar module prices have been dropping since 2010. Over the last ten years, the average buyer’s cost of installing a solar system has fallen by 89%[1]. This fact means that solar prices are the cheapest they’ve ever been now!
The COVID-19 pandemic was one of the biggest causes of prices falling over the last year. Due to reduced demand, solar companies had to drop prices to compete with the stalled market. This caused the most recent drop we’ve seen in solar panel prices. It’s believed that the market price will stabilize in 2021 as the economy recovers and demands a return to a regular rate.
The average solar panel system cost in the United States is about $12,000 to $14,600. This works to an average price per watt of $2.70-$3.30. This range is broad, thanks to the differences in state tax credits and installation costs.
While these trends are helpful, they don’t paint a complete picture of the solar energy market. To better understand your costs, we have to delve deeper.
Calculating Solar Power Costs
There are a lot of variables that play into the cost of a solar panel system. To determine how much your system will cost, we have to look at each variable separately before putting the total together.
Defining Solar Panel Costs
In the professional sense, solar panel cost refers to having a solar panel system professionally installed by a licensed company. While that definition seems straightforward, it doesn’t clarify all the minor expenses that add to the total.
For example, a professional company will need to inspect and get the proper licenses to install a residential solar system. These inspections will review the roof’s conditions and the home’s electrical construction.
Equipment and labor will factor into this price, as well. The company will try to offset equipment costs to install the solar system, such as inverters and wires. The workers who come to the home to install the solar panels have to get paid. These totals will come together in a quote from the solar installation company. Usually, this quote is given as a cost per watt or the dollar amount it will cost you per watt of energy the system will generate. For example, if a company wants to charge you $3 per watt for a 4,000-watt system, you would expect to pay $12,000.
The Factors of Solar Panel Installation Costs
Outside of the installation company’s need to keep their lights on, there are factors on your home’s end that affect the cost of a solar panel system. Some of these will play a more significant role in determining your price than others. It will depend on your location. Still, these are the main factors that inform how expensive your solar system will be:
Your State of Residence
Location is the leading factor in your cost calculation, but maybe not for the reason you think. Geography is a significant factor in how much sunlight you get in your house. Areas where the sun isn’t as intense or has fewer sunny days, will need a more extensive solar system to provide the power your home needs.
A more extensive solar system means you need more panels to capture the little bits of sunshine your house will get. As you go up in the number of panels, the price will jump up, too. This is why areas that receive a lot of sunlight can get away with fewer panels. To begin with, you don’t have to spend as much on materials when you need to make fewer panels!
Your Electricity Usage
As you increase electricity usage, your solar system will need to increase in size to match that usage. In some states, such as Arizona or Florida, your usage will naturally be higher thanks to running your air conditioning more often than the rest of the nation on average. Although, there’s something to be said about places like Alaska and Maine that need their central heating for a good part of the year.
Individual usage will matter here, too. Suppose you have interests that use a lot of electricity, such as having computers or other tech hobbies. In that case, you might use more electricity than the average person. Your electrical company will have a spot on your monthly bill that tells you how much electricity you use each month. This can be a good baseline to use for your solar panel installation.
The Size of Your System
The larger your solar panel system needs to be, the more the solar panel costs will go up. This is because you will have to pay for more panels to cover more area on your roof, driving the price up.
But there’s another tip many people might not know about: the larger the solar energy system you buy, the lower the panels’ average cost. This works along the same line as purchasing items in bulk from the grocery store. As you buy more items in advance, lower your price as the seller moves more stock.
While your average price per panel will go down, remember that solar panels still have a cost to them. Adding more solar panels will only increase the price, not decrease it.
Federal, State, and Local Tax Credits
It’s not just sustainability that pushes people towards solar energy. Tax credits from the federal, state, and local governments can encourage people to go out and buy a solar system by reducing the effective price. These tax credits reward a homeowner for buying and installing a residential solar panel system.
One of the more notable tax credits for solar panels is the Solar Investment Tax Credit (ITC). Under Section 25D of its statutes, this tax credit allows for a 26% tax credit on a residential solar energy system after it has been installed. This federal tax credit rewards the buyer with a credit towards their income taxes of 26% of the total cost.
So, if we were to receive a tax credit from the ITC for our $12,000 solar system from earlier, we’d get back $3,120. That money would be applied to that year’s federal income tax report, reducing your total costs by using some of your income taxes paid to that sale.
Solar Panel Brand
Not all solar panel brands are equal. This doesn’t say anything about quality, just pricing.
Some companies can manufacture solar panels for less money than others. Whether this is due to their supply costs, manufacturing cost, or entirely else will depend on the company. Regardless, it allows you to choose a cheaper brand of panels for your system, reducing your solar panel costs.
For example, Risen sells its solar panels for an average of $0.34 per watt. In contrast, Kyocera Solar sells them for $0.50 per watt. Choosing a different brand can double the effective cost of your solar system!
Solar Power Battery Costs
On average, a solar battery will cost you between $200 and $2,000 for a small battery[2]. For the large-scale storage that a residential solar system needs, that cost could jump up to $7,000 or more!
Still, solar power batteries are increasing in demand with solar panel systems. Yet, these batteries will factor into the total cost of your solar system. Here’s how they might affect the price:
Types of Solar Grid Connections
How your solar system connects to the utility grid will play a significant role in whether you need a solar power battery. There are three different types of grid connections for a solar power system:
- Grid-Tied Solar Systems: These solar systems connect to the utility grid and are the most common. Since this system connects to the electrical grid, they do not have battery storage options because it will provide electricity when the panels aren’t making power.
- Off-Grid Solar Systems: These systems are the opposite of a grid-tied system. Since you have no connection to the utility grid, many panels and battery storage solutions are needed to keep the power throughout the day.
- Hybrid Solar Systems: This system combines the previous two, allowing you to connect to the utility grid while having a battery storage option for your solar energy to be saved up inside.
These different grid connections tell us how much battery storage your system needs to work. The more battery storage you need to maintain, the higher the installation cost of your solar panel system will be.
Other Solar Power Battery Costs/Savings
Like solar panels, other details can change the cost of adding battery storage.
One of the main factors will be tax credits. The ITC credit will affect the cost of your battery storage as well as your solar panel costs. The ITC was created to incentivize all solar energy investment, not solar panels. So, that 26% tax credit for your income tax will apply to the battery and the panels.
Plugging into the utility grid is a great boon for hybrid solar systems. A hybrid system can be flexible in your energy usage between the solar panels and the electrical grid.
By storing solar energy inside the battery, your house can use the excess solar energy before tapping into the utility grid on days when sunshine is plentiful. You could also choose to have the energy stored in the battery until the electrical grid goes out, such as during a storm or other emergency.
This means that a hybrid solar system is great for those who like having backup power to rely on. Those who live in sunny places might also build up a good reserve of sunlight during the day, allowing them to run off stored power throughout the night. Regardless of the reason, a hybrid system will cost more than a grid-tied system, thanks to the extra cost of the solar battery.
What Makes Solar Panels Worth It?
If you’re interested in getting a solar panel system and are unsure if it’s worth it, there are plenty of factors to consider. Here are some of the positives to getting a solar panel system:
Renewable Energy Source
As the world’s population continues to climb, alternative energy sources to oil and natural gas increase in demand. This is because as the world needs more electricity, having more power sources will allow society to function without being overly reliant on one energy source.
Solar energy has the benefit of relying on a renewable source of energy: the sun. The sun isn’t set to run out of energy for billions of years, so it is almost functionally a renewable energy source. Also, when cared for, solar panels last 25 to 30 years. This means that you can expect to replace your solar panels once or twice in your lifetime! Compare this to how often you’d have to refill the gas tank in a generator or a propane tank for your grill.
Tax Breaks
While upgrading to something more sustainable than fossil fuel is excellent, the tax credits make solar panel systems much easier to buy. Since the federal ITC credit alone will cover one-quarter of the cost of a solar system installation, buying a solar panel system with this credit is like buying something that is always on sale.
This says nothing about state and local tax credits, too. Many states and cities around the United States have similar policies that reward you for investing in solar technology. Taking advantage of these credits means you can further reduce the cost of your solar system, reducing the time it takes to make a savings return on your solar panel system.
Long-Term Savings
Once a solar panel system is installed, it will begin cutting back on your electricity bill from the utility grid. You’re no longer reliant on just them for your power, so you’ll be using less city power and creating more of your own.
This acts as a return on the initial cost of your solar system. The exact return on your system will depend on how expensive it was and how much you save on your electricity bill each month. Still, most solar panel systems will run even around the eight to 10-year mark. Your solar system will generate a net profit for the next 15 to 20 years by saving you on electricity bills!
Power Versatility and Choice
By installing a hybrid solar panel system, you give yourself options for the source of your electricity. If you want to save up electricity when the sun isn’t out, you can choose to rely on the utility grid while you save up that power. Likewise, you can rely on solar power as much as possible and only use city power when you have to.
This is great for homeowners who know what energy sources their local power company uses to generate electricity. If you know that your power company prefers a power source you don’t like, installing a solar system lets you reduce or cut that tie.
Summary
The solar panel costs you encounter will depend on where you are and how much electricity you need for your home. If you have the option to add battery storage, that addition will increase your costs, too. But things such as tax credits and electricity bill savings will reduce your initial and ongoing costs for solar energy.
If you’re interested in seeing how much solar energy you will need to power your home, we’ve written a guide [3] on how many solar panels it will take to power the average home. It breaks down that cost based on the size of the house, how much energy you use, and all the other factors we discussed here.
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