We’ve all heard that solar panels can reduce your electricity bills. But how much do they actually cost? Read our guide to learn everything you need to know.
Going solar can reduce your utility bills—especially if you qualify for tax breaks and live in an area where solar panels are cheap. Homeowners with high electricity bills can potentially save tens of thousands of dollars throughout the lifespan of their system. However, you should still be prepared for a large up-front cost.
According to the Center for Sustainable Energy, the average cost for solar panels is $3–$5 per watt, totaling $15,000–$20,000 for a typical 5 kilowatt (kW) system. Learn which factors impact cost before reaching out to solar companies near you, plus get information about cost-saving tax credits and incentives.
How Much Solar Panels Cost
Solar panel costs can vary widely from state to state, due in part to the average electricity bill in the area. Hawaii has the highest costs, while Louisiana has the lowest costs. The national average price is 10.53 cents per kilowatt-hour (kWh). Keep reading for a breakdown of solar panel costs in each state.
Cost of Solar Panels by State
|State||Cents Per Kilowatt-hour*||Solar Panel Starting Cost for 6 kW System**||2022 Tax Incentives at 30%**|
How Solar Panel Installation Works
Solar installation is a straightforward process. Your solar company will handle most, if not all, steps. A representative will begin by holding a consultation to assess your energy needs and home design.
Matt Johnson, co-owner of Namaste Solar, says that a reputable installer should supply an itemized list of the costs for each aspect of the installation, including labor, permit fees, sales taxes, utility fees, the interconnection fee, and so forth. The installer should also include available tax incentives.
After that, your installer will design a system tailored to your home’s specifications and handle required permits from your local municipality. Finally, they will install the system and conduct final inspections. This process can take up to 60 days to complete.
Watch our video below to get a better understanding of what the solar installation process entails.
Factors That Determine Solar Panel Costs
There are several key factors that determine the total cost of solar panels:
- Amount of sunlight: The more sun your home receives on a daily basis, the greater your potential savings.
- Household electrical demand: This is the amount of electricity your household uses each month. Homes with predominantly gas appliances will use less energy than those with primarily electric appliances.
- Labor: Labor costs vary by location and are more expensive in areas with higher costs of living. Different solar providers also charge different prices. Labor will be included in your initial quote.
- Location: Solar panels cost more in some states than others, largely due to electricity costs in the region. Peak sunlight hours are also also a factor.
- Purchasing options: Customers can choose to pay with one lump sum, take out a loan, lease, or enter into a Power Purchase Agreement (PPA). Each option affects how much you’ll pay in the long run.
- Panel quality: The equipment you choose has a big impact on your electricity production. You’ll want to find the most efficient solar panels that fit your budget. More expensive equipment doesn’t always translate to higher savings, while the cheapest option can sacrifice value. Find the right balance between quality and price.
- Panel size: A larger solar system costs more because it requires more labor and more equipment. However, it can yield greater savings.
- Tax incentives: Federal and state solar incentives can reduce installation costs.
- Solar panel type: Monocrystalline panels are more efficient but more expensive than polycrystalline panels. More efficient panels are typically needed for homes with limited roof space.
Solar Tax Incentives
Solar tax incentives lower installation costs. These incentives are offered by the federal and state governments, utility companies, and certain municipalities. Some common types include tax credits, cash rebates, Solar Renewable Energy Credits (SRECs), and property tax exemptions. These incentives vary by state in terms of availability and payout.
One exception is the federal solar tax credit, which provides a tax deduction equal to 30% of your solar installation costs. If your tax liability is lower than the deduction, it will roll over to the next year.
Solar Panel Financing Options
Solar panel installation requires a significant financial commitment, so any companies offer different payment options to suit different budgets. Here’s an overview of the typical financial options offered by solar providers:
- Full payment: You pay for the solar system outright without a loan or payment plan. This option will save you the most money because you won’t pay interest rates. Full payment also grants you ownership of your system, qualifying you for incentives.
- Solar loan: A loan allows you to make small payments over a longer payback period. However, you’ll pay more in the long run due to interest rates. Solar loans also qualify you for solar incentives.
- Solar lease: This option allows you to make fixed monthly payments with little to no up-front cost. Your solar company retains ownership of your system and is responsible for its upkeep. These agreements usually last around 20 years. Leasing customers don’t qualify for solar incentives.
- Power purchasing agreement (PPA): A PPA allows you to pay for only the energy you use. Similar to an electric bill, the rate fluctuates each month. Your solar company retains ownership of the system and is responsible for its upkeep. You will not qualify for incentives.
Solar Panel Savings
Solar panels can save you money on your electric bills, but the amount depends on your roof’s size and angle, local electricity rates, and how much direct sunlight you receive. Compare your monthly electric bills to your projected rate with solar panels to get a sense of how much you can save.
You will likely still receive an electricity bill, but you won’t owe money. Instead, the bill will show how your usage was offset by the month’s net credits. If you provide more electricity to the grid you pull from it, your utility can roll over as a credit for the next month.
Solar panels are also cheaper than ever before. According to the Solar Energy Industries Association, the cost to install solar panels has dropped more than 70% in the past decade.
How Many Solar Panels Do I Need?
The number of solar panels you need will depend on a variety of factors, including the size of your home, the amount of daily sunlight it receives, and more. Ultimately, the energy needs will dictate how many panels you require. You’ll need your solar panels to generate 100% of your home’s electricity needs to completely get rid of your electricity bill.
The typical solar panel produces roughly one kilowatt-hour per day. You can find out your kWh usage on your utility bill. It will be listed monthly, so divide it by 30 to get your daily use. If you use 50 kWh, you would need 50 solar panels. But there are other features outside your home that might require energy, like powering a guest home or heating a pool. That will increase the number of solar panels you need. Johnson says that certain issues with your roof can also increase installation costs, such as additional lumber to strengthen rafters.
It’s important to do your research on the best solar providers and equipment before investing in solar panels. You should also maximize any federal and state incentives whenever possible.
We recommend getting as many quotes as possible to get the best rate and avoid inflated prices. Weigh the equipment’s cost, financing options, and warranties. Use our tool below to begin your search for solar providers in your area.
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