How Much Does Solar Energy Cost?

Last Updated on November 3, 2024
Written by CPA Alec Pow | Content Reviewed by CFA Alexander Popinker

With rising energy bills and climate change concerns, many homeowners and businesses are considering installing solar panels. But what is the full cost of going solar? This in-depth guide examines the many factors that influence solar energy system pricing.

We’ll provide average solar cost ranges, real-world case studies, cost breakdowns, and tips for maximizing savings. You’ll get a detailed understanding of the investments and potential returns to empower your solar decision-making.

How Much Does Solar Energy Cost?

Going solar requires installing photovoltaic (PV) solar panels, inverters, and other equipment at your home or business. What does a complete solar energy system cost?

Residential solar system pricing ranges widely, from $15,000 to $25,000 on average for a moderately-sized system before incentives. Here’s a breakdown of what influences costs:

• System size – Smaller 3-5 kilowatt (kW) systems can cost $9,000 to $15,000. Larger 8-10 kW systems for bigger homes run $18,000 – $25,000 before incentives.
• Location – Prices vary based on labor costs, permits, and sun exposure. US averages range $3 – $5 per watt, but some areas cost below $3 per watt.
• Roof factors – Complicated roofs or tile vs. shingle add expenses. Condition matters too, as roofs nearing replacement may require additional costs.
• Equipment tier – Premium panels and inverters cost more than mid-grade options. DIY kits are cheaper but require expertise.

Commercial solar systems entail higher costs, with many factors impacting pricing:

• Building size – Systems below 50 kW can cost $50,000 to $150,000. Large 500 kW+ systems run $750,000 to $1 million+.
• Electricity needs – Larger energy users require bigger, more expensive systems to offset usage.
• Roof complexity – Larger flat commercial roofs are optimal, while small/angled roofs increase labor and costs.
• Location – Urban areas with higher labor, permitting and property costs add expenses.

Both segments benefit from tax credits, rebates, solar loans and other ways to defray the upfront price. But ultimately solar represents a major investment.

According to CNET, the cost of solar panels can vary significantly based on the type, size, and application. Residential solar panels cost approximately $3.30 per watt, leading to a total cost of around $16,500 for a 5-kilowatt system. However, with the 30% federal tax credit provided by the Inflation Reduction Act, this cost can be reduced. The average national cost for a 5-kilowatt system ranges from $14,000 to $20,900, depending on the source and period of data.

EnergySage reports that the average cost of a 10.8 kW solar panel installation is around $29,926 before federal tax credits, which reduces to $20,948 after the credits are applied. This source also highlights that the cost per watt averages about $2.75 across the US, though this can vary by state and other factors. Homeowners can expect to save between $28,000 and $120,000 over 25 years by switching to solar energy.

Paradise Solar Energy notes that the average residential solar panel system costs between $2 and $3 per watt, resulting in a total cost of $25,000 to $50,000 for the system. After applying the 30% federal tax credit, homeowners can expect to pay between $18,000 and $38,000. The cost also depends on the size of the system and the type of equipment used. Additionally, maintenance and other overlooked costs, such as conduit installation and wiring, can add to the overall expense.

NerdWallet estimates the average cost of installing an average-size home solar system to be about $30,000 before federal tax credits and incentives. With the federal solar tax credit, this cost can be reduced to about $21,000. Local incentives can further lower the cost. The cost varies among states, with typical costs ranging from $19,973 in California to $39,250 in Alabama before federal tax credits.

Covetool Help Center provides detailed cost breakdowns, stating that residential solar panels cost between $2.53 and $3.15 per watt, averaging $2.70 per watt before any tax credits or incentives. Commercial solar costs average $1.83 per watt. The cost per square foot for residential solar panels is estimated to be between $4 and $10, though most estimates are based on the energy needed, at $2.53 to $3.15 per watt.

Solar Energy Overview

Solar energy offers households and companies the ability to generate their own renewable electricity. This provides insulation against utility rate hikes and reduces environmental impact. However, installing a solar energy system requires significant upfront investment.

This article will analyze the true costs of going solar. We examine pricing for both residential and commercial systems, including component costs, labor, fees, and other expenses. You’ll learn how factors like your location, roof, and financing options influence price. We also explore strategies for reducing costs through careful planning and research.

While becoming solar-powered represents a major investment, it can pay dividends through electricity savings and environmental benefits for decades to come.

Real-World Case Studies

To better gauge real-life solar costs, here are breakdowns of actual residential and commercial installations:

Residential Solar Example

• System Size: 5 kilowatt rooftop array
• Location: Suburban neighborhood in California
• Cost Summary:
  • Equipment – $9,000 ($1.80 per watt for panels, inverters + other hardware)
  • Installation Labor – $4,500
  • Permitting/Inspection – $1,000
  • Total Pre-Incentive Cost: $14,500
• Incentives: Federal tax credit of $3,770 + state solar rebate of $2,500
• Final Net Cost: $8,230

Commercial Solar Example

• System Size: 100 kilowatt rooftop array
• Location: Small business warehouse in New Jersey
• Cost Summary:
  • Equipment – $100,000 ($1 per watt)
  • Installation Labor – $50,000
  • Structural Assessment – $15,000
  • Permitting/Inspection – $10,000
  • Total Pre-Incentive Cost: $175,000
• Incentives: Federal ITC of $45,500 + state rebate of $27,500
• Final Net Cost: $102,000

These examples illustrate how costs add up for solar energy systems. While incentives provide substantial savings, solar still requires major investment given equipment expenses, labor, and permitting costs.

Cost Breakdown for Solar Components

To help understand what goes into pricing, here is a detailed breakdown of the main solar energy system components and costs:

Solar Panels

The solar panels or PV modules make up around 40% of the total cost on average. Key factors impacting solar panel pricing:

• Efficiency – More efficient panels produce more energy but at a higher cost per watt.
• Brand name – Leading brands like LG, Panasonic and SunPower carry about a 20% cost premium.
• Technology – Monocrystalline panels (15-22% efficiency) are pricier than polycrystalline (13-17% efficiency).
• Size – Larger panels tend to cost slightly less per watt but require more labor to install.
• Quantity – Bulk panel orders save roughly 5-10% on total equipment costs.

Typical solar panel cost range: $1.75 – $2.50 per watt

You might also like our articles on the cost of just the solar panels, Tesla solar roofs, or 4Patriots solar generators.

Inverters

Inverters convert the DC energy from solar panels into usable AC electricity for your home or business. Inverter costs include:

• Power – Larger inverters cost more for bigger systems but save on labor.
• Efficiency – More efficient models allow for solar oversizing but add cost.
• Monitoring – Internet connectivity for monitoring and software adds cost.
• Warranty – 10-20 year warranties are common but longer ones cost more upfront.

Average inverter pricing: $0.20 – $0.40 per watt

Additional Equipment

Beyond panels and inverters, other solar equipment includes:

• Racking – holds panels in place ($200 per panel on average)
• Wiring – connects components ($1 per foot)
• Safety gear – for rooftop installs ($500+)
• Batteries – for backup storage (Tesla Powerwall: $10,000+)

Installation Labor

Labor accounts for 10-25% of the total solar system price depending on roof complexity, location and electrician rates.

• Simple composition roofs cost less than tile, steep pitch and flat commercial installs.
• Urban areas and unique roof shapes/angles require more labor hours = higher cost.
• Electrician rates range $40 – $120 per hour based on skill level and geographical pay rates.

Permitting, Inspections and Other Soft Costs

While permitting fees are usually low, costs add up when including structural assessments, interconnection paperwork, inspections, etc. Typical range:

• Residential: $500 – $2,000
• Commercial: 1% of total costs or more

Reducing these soft costs through streamlined solar policies provides additional savings.

Cost Percentage Breakdown

System Component	Avg. Cost Share
Solar panels	35-45%
Inverters	8-15%
Misc. equipment	5-12%
Installation labor	15-25%
Permitting/fees	5-10%

Factors Influencing Solar Energy Costs

Solar pricing depends on a variety of factors. Being aware of these allows you to evaluate bids accurately and potentially reduce costs:

• System size – Bigger systems benefit from economies of scale. Larger commercial projects can cost 35% less per watt than small residential.
• Location – Labor, permitting, incentives and sun availability cause geographic variability. Rooftop solar averages $2.50/W in LA vs $3.50/W in NYC.
• Available sun – Less sunny areas require bigger systems to generate the same energy, raising costs.
• Roof type – Pitch, unusual angles, and tile roofs make for complex installs requiring more labor.
• Roof age – Nearing roof replacement requires removing panels, then reinstalling.
• Brand & equipment tier – Top brands and high-efficiency, premium gear costs 20-30% more than mid-range options.
• Energy usage – Larger energy needs require oversizing solar capacity, inflating costs.
• Electrician rates – Regional labor cost differences and union rates impact install costs.
• Permitting & fees – Utility connection assessments and lengthy permit processes increase soft costs.
• Technical factors – Complex installs demand specialized labor, expertise and equipment.
• Economic conditions – Periods of high solar demand combined with panel shortages can increase pricing.

While you can’t fully control market factors, you can optimize decisions like system sizing and equipment choices to manage solar costs.

Solar Incentives and Rebates

While solar requires major upfront investment, incentives help defray the initial costs substantially:

Federal Solar Tax Credit – This Income Tax Credit reduces your taxes by 26% of total system costs through 2032. For a $15,000 system, that equates to $3,900 in savings.

State Tax Credits and Rebates – States like California, New York, Florida, and others offer rebates from $500 up to $5,000+ for residential solar based on system size.

Utility Rebates – Local utility companies provide rebates and savings for installing solar in certain territories. Amounts vary but typically range from 5-20% of total costs.

Low Interest Loans – Some banks and credit unions offer green energy loans with rates as low as 3-5% for solar projects compared to 15%+ on credit cards.

Net Metering Savings – Utilities pay the retail electricity rate for excess solar energy fed back into the grid, reducing effective costs over time.

Payback Example: A $15,000 system might reap $3,900 federal tax credit, $2,500 state rebate, and $1,800 utility rebate, reducing net outlay to $6,800. This helps solar pay for itself faster through electricity savings. Evaluate all incentives available in your region to maximize savings!

Reduce Solar Costs

For homeowners and businesses considering solar power, here are tips to minimize costs:

Go with a Smaller System – Optimize your system size to your actual needs rather than maximum roof space. This avoids overpaying.

Leverage Bulk Purchasing Discounts – Buy panels, inverters and equipment together with neighbors or a solar co-op to benefit from volume discounts.

Take Advantage of Manufacturer Price Drops – Panel makers often cycle down prices throughout the year. Time your purchase right to save 5-15%.

Buy Solar Rebranded or Excess Inventory – Ask installers about discounted panels from tier 1 brands offered rebranded from a partner supplier.

Install During the Off-Season – Schedule installs for fall or winter when demand is lower. You can save 10% or more.

Go with Grid-Tie Over Battery Backup – Battery systems add substantial cost. Grid-tied solar is cheaper but depends on net metering.

Use Home Equity Financing – Leverage low interest financing by tapping solar equity loans or lines of credit.

Join a Community Solar Program – Share production and costs by buying into a centralized local solar installation.

Taking advantage of just a few cost-saving strategies can reduce your total solar expenses by 20% or more!

Expert Tips

Industry experts suggest these tips for going solar affordably:

Compare Bid Packages Closely

“Make apples-to-apples comparisons on equipment brands quoted to get the optimal value” says Robert Santos, SunCentral Solar CEO.

Leverage Cost Modeling Tools

“Online tools like the EnergySage Solar Calculator allow modeling system sizes and financing options to optimize affordability” explains Alex White, 12-year solar advisor.

Understand Long-Term Expenses

“Factor in lifetime system performance, warranties, maintenance costs and production guarantees when evaluating bids” advises Kelly Reese, founder of SunSource Solar.

Get Clarity on Incentives

“Confirm you maximize all available tax credits, rebates, net metering savings and other incentives to reduce effective costs” says Michael Chen, Solar United Neighbors policy director.

Experts recommend careful planning and research to control costs for the greatest return on your solar investment.

Data and Forecasts

Solar Costs Keep Dropping – The average total price of solar energy systems has dropped over 70% in the last decade according to Lazard’s Levelized Cost of Energy analysis. This makes solar ever more affordable.

Solar Pricing Forecast – Research firm Wood Mackenzie predicts residential solar system pricing will drop another 10-15% by 2025. Commercial solar prices are projected to fall up to 25% over the same period.

Solar Cost Drivers

DOE market research highlights three key drivers that will accelerate solar cost reductions:

• Improved solar cell efficiency
• Expanded global production scale
• Increased competition and expanded access

The Outlook for Solar Energy Affordability – All evidence points to continued declines in solar costs thanks to better technology, streamlined installations, scaled manufacturing and growing adoption. While solar requires major investment now, within 5-10 years its projected to reach nearly universal grid parity as the cheapest energy source.

Impact of Costs on Solar Adoption

Falling prices allowed solar adoption to accelerate over the past decade. This creates a virtuous cycle further reducing costs.

• The average size of residential solar installations grew over 75% from 2010 to 2020 as prices dropped making larger systems affordable.
• With system costs down over 70%, the U.S. residential solar market grew at an annual pace of 50% from 2014 to 2018 before plateauing briefly during the pandemic.
• Solar accounted for just 0.1% of U.S. electrical generation in 2006, but jumped to almost 4% by 2021 as prices dropped according to EIA data.

Forecasts predict residential solar adoption rising from 5% to 20% of U.S. households by 2030 if costs continue falling alongside energy prices. Delivering affordable clean energy will encourage faster adoption.

Historical Price Analysis

According to Solar.com, The cost of solar panels has significantly decreased over the past decade due to technological advancements and increased market competition.

Price Reduction: Since 2010, the cost of residential solar panels has fallen by roughly 50%.

• 2010 Prices: The average cost was about $7 per watt.
• Recent Fluctuations: There was a slight rise in residential solar pricing from 2020-2023 due to supply chain issues from the pandemic, but prices are expected to continue falling as local manufacturing increases.

Answers to Common Questions

What are the rough costs for a typical residential solar system?

A typical home solar system ranges from 5-8 kilowatts and costs $15,000 to $25,000 before tax credits and rebates are applied. The final out-of-pocket cost after incentives averages $10,000 to $15,000. Larger or premium systems cost more while smaller systems cost less.

What percentage of solar system costs are the panels vs. inverters vs. labor?

On average, solar panels account for 40% of the total installed cost, while inverters represent 15%. The remaining balance covers labor, permitting, racking and other miscellaneous equipment. There is also regional variation in the cost breakdown.

How much can installing solar panels reduce my electricity bill?

By generating your own solar electricity, you can reduce utility bills 50 to 100% in some cases. The savings depend on your system size, electricity rates, and sun exposure. On average, solar cuts homeowners’ bills by 60 to 80%.

Are there any discounts or incentive programs to reduce solar costs?

Yes, you can often save 25% to 35% through federal tax credits, state/local rebates, and utility incentives. Additionally, “off-season” install discounts, bulk purchasing solar as a group, and using lower-cost financing can further reduce costs.

Should I wait for solar panel prices to drop further before installing?

While prices are gradually declining, federal tax credits also phase out over time. As long as local rebates and net metering remain in place, near term installation lets you maximize incentives relative to solar system costs and start saving sooner.