Solar Panel Cost

The cost of solar panels has declined dramatically over the last decade, and solar systems now offer more value to homeowners than they ever have before.

The recently extended 30% solar tax credit makes the deal that much sweeter.

That said, solar panels are only one component of a complete solar system, so there are other solar installation costs to consider as well.

In this article, we’ll take a look at why solar module prices have fallen so dramatically, the key terms for evaluating the cost of solar systems, and the many factors that will ultimately impact the price you pay for your solar system.

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The Solar Panel Cost Over Time

The cost of solar panels has declined substantially over the last decade as the industry has matured and reached production at the largest global scale.

Since 2010, solar panel prices have fallen by roughly 90% while global solar deployment has grown by over 400%, and this incredible growth rate along the entire global solar supply chain has dramatically reduced prices.

Image source

Just like computers, big-screen TVs, and cell phones, the economies of scale that solar panels now enjoy have produced a dramatic cost curve that has fundamentally changed the energy industry.

Utility-scale solar installations are now cheaper than all other forms of power generation in many parts of the world and will continue to replace older, dirtier power plants run on coal and natural gas.

Additionally, homeowners are now able to own their power production more cost-effectively than ever before.

Use our solar calculator to see how much you could save with solar.

How To Calculate Solar Panel Cost

There are two main ways to calculate the cost of a solar system:

• Price per watt ($/W) is useful for comparing multiple solar offers
• Cost per kilowatt-hour (cents/kWh) is useful for comparing the cost of solar versus grid energy

Let’s dive a little further into each measurement.

Solar Panel Cost in Price Per Watt

The price per watt (PPW) of a solar system is the price that the homeowner will pay for every watt of solar being installed.

Calculating the price per watt for a solar system is very straightforward — it’s simply the gross system cost (contract value) divided by the number of watts in the system. 

Price per watt ($/W) allows for an apples-to-apples comparison of different solar quotes that may vary in total wattage, solar panel brands, etc.

Ultimately there are many factors that figure into the price per watt of a solar system, but the average cost is typically as low as $2.75 per watt. This price will vary if a project requires special adders like ground-mounting, a main panel upgrade, EV charger, etc. 

Related reading: Are Solar Panels Worth It? Calculate Your Return on Investment

Solar Energy Cost Per Kilowatt-Hour (kWh)

Another measure of the relative cost of solar energy is its price per kilowatt-hour (kWh). Whereas the price per watt considers the solar system’s size, the price per kWh shows the price of the solar system per unit of energy it produces over a given period of time.

You may also see this referred to as levelized cost of energy (LCOE).

A kilowatt-hour is a unit of energy and is equivalent to consuming 1,000 watts – or 1 kilowatt – of power over one hour.

While price per watt is most helpful comparing the relative costs of solar bids, price per kilowatt-hour is mostly used to illustrate the value of solar relative compared to buying your power from the electric utility.

For example, the average cost of a solar system purchased through solar.com is 6-8 cents per kWh, depending on the size of the system, type of equipment and local incentives.

Let’s compare that to grid electricity prices in major metro areas for November 2022:

While electric bills are subject to continuously increasing rates, purchasing a solar system can be thought of as pre-paying for 25-years of power at a locked-in price, protecting you from decades of rate increases.

The average price per kilowatt-hour from electric providers in the United States is about 16.3 cents/kWh, according to the Bureau of Labor Statistics, and increasing a nearly 4% per year since 2016.

Here’s how rising grid prices compare to a flat-rate of 7 cents per kWh for solar energy over 25 years:

The payback period of going solar for the average US household is around 9-10 years. However, it can be much shorter for homeowners with higher than average utility electricity rates.

See how much solar would cost per kWh for your home.

How do you calculate solar energy cost per kWh?

Comparing the cost per kWh of solar versus grid electricity is an easy way to estimate how much you can save by going solar. This figure is provided in quotes generated through solar.com

But if you want to do it on your own, the equation is pretty simple:

Net cost of the system / lifetime output = cost per kilowatt hour

Let’s run through an example using a 6.4 kW system with a net price of $20,484 (after the 30% tax credit). Most solar panels are warrantied for 20-25 years and last much longer, so we’ll assume a 22 year lifespan to be super conservative. Finally, we’ll assume 90% efficiency over the 22 years.

Lifetime solar output = 6.4W x 5.5kWh of sun per day x 365 days x 22 years x 90% efficiency = 254,390kWh

So now we have both the net cost of the systema and the lifetime output. Let’s bring it home to cost per kWh!

$20,484 / 254,390kWh = $0.08 per kWh

Now that you can calculate the levelized cost of going solar, you can easily compare your solar quotes to the cost of staying on grid.

Related reading: Free Solar Panels? The Truth Behind the Ads for Free Solar

How To Reduce the Cost per kWh of Solar Energy

There are two main ways to reduce the cost of going solar:

1. Claim local and federal incentives
2. Shop around for the best price

Claiming incentives

Incentives for solar and batteries are also important components of the overall cost of a solar system.

The most widely available incentive is the federal tax credit, now set at 30%  from 2022 to 2032 thank to the passage of the Inflation Reduction Act. This tax credit applies to the gross cost of the project —  parts, labor, permits, battery, and more — and substantially reduces the price per kWh.

Let’s see how that looks using the 6.4 kW system from the example above.

There are other important state and local incentives that depend on location, such as New York’s 25% state tax credit and California’s SGIP program for solar batteries. 

Shopping for the best price

At the end of the day, going solar is a home improvement just like remodeling a kitchen or putting in new floors. As with any home improvement project, it’s crucial to get multiple bids to find the best price without sacrificing quality.

Solar.com makes that easy by using a single design to generate dozens of bids from our vetted network of installers.

What goes into the cost of a solar system?

It’s important to understand that solar system costs involve a lot more than just the solar module prices themselves.

In fact, the price of solar panels, inverters, and other equipment (balance of system) make up just over half of the total system cost.

The other half stems from “soft costs” including labor, which only accounts for around 5% of the system cost. Other soft costs include:

• Sales tax (if applicable)
• Permitting, inspection, and interconnection
• Sales and marketing
• General overhead (Business expenses not directly tied to installation, like rent, equipment/building maintenance, administrative staff, etc.)
• Profit

Data source. 

Hard costs for solar panel modules, inverters, and balance of system equipment increased by as much as 53% in 2021/2022 due to supply chain issues. These costs are expected to fall in the future as supply chains untangle and new tax incentives jumpstart American manufacturing of solar equipment.

There are also opportunities to reduce costs by standardizing and automated the permitting process.

How Much Does Solar Energy Cost?

Now that we understand how to evaluate the relative cost of solar systems and the factors that contribute to overall installation costs, let’s consider the big question: how much do solar panels cost to install on your home?

The short answer is that it depends.

Solar energy system costs vary widely depending on many factors like the amount of energy needed, the amount of roof space available, the kinds of panels and inverters being used, and whether a battery is included with the solar system.

The average cost for a solar system is around $20-30,000 (before incentives), but the system size is proportional to the amount of power needed. Especially in places like California and New York, system payments are typically lower than the electric bill the homeowner is paying for anyway.

With an investment of this size, homeowners typically have two primary concerns:

1. That they have great pricing for the system they’re having installed
2. That the great pricing doesn’t come at the expense of high-quality workmanship and a fantastic customer experience 

Fortunately solar.com was founded to address these exact concerns and ensure a positive experience throughout.

As a virtual platform, solar.com has been structured from the very beginning to have the lowest costs in the industry, as verified by the US Department of Energy.

Most companies rely on expensive marketing campaigns and in-home salespeople to sign up homeowners, which leads to an extremely high cost of acquisition for every system they install. By operating virtually, solar.com saves installers on those costs, and those savings are passed along to you!

Here is a direct comparison between average market pricing and solar.com’s average pricing in some of the largest solar markets in the country, according to data from the National Renewable Energy Laboratory.

Solar energy cost vs grid energy by state

That said, fantastic pricing isn’t enough. Homeowners also need to feel confident that they’ll have the highest-quality workmanship on their home and have a smooth installation process.

To that end, solar.com employs a rigorous vetting process to ensure that only the best solar installers have access to our platform and customers.

Homeowners who use our platform also have a dedicated Energy Advisor who will advocate to the installer on their behalf to make sure their system is installed as quickly and seamlessly as possible.

Related reading: The Actual Cost of the Tesla Solar Roof

Solar Energy Cost Frequently Asked Questions

How much does solar energy cost per kWh?

The most common way to measure the cost of a solar panel system is in cents per kilowatt-hours (cents/kWh).

Residential solar energy costs on average 6 to 8 cents per kWh when purchased through the solar.com marketplace. The cost per kWh varies based on the size of the solar system, sunlight, type of equipment, and energy needs.

To find the cost per kWh of solar energy, divide the net cost (after tax credit and rebates) by the lifetime output of the system (system size in kW x average peak sun hours per day 0.7 efficiency rating x 365 x 25 years).

Net cost of the system / lifetime output = cost per kilowatt hour

How much does solar energy cost per watt?

One way to measure solar panel cost is in Price Per Watt (PPW). In California, the average PPW of a home solar system is between $3.00 and $4.00 per Watt.

To calculate price per Watt, divide the gross system cost (before tax credits and rebates) by the system size (in DC Watts).

For example, a 6 kW system (15 panels x 400W each) with a gross price of $20,000 comes out to $3.33 per Watt.

$20,000 / 6,000 Watts = $3.33 per Watt

Is solar energy cost effective?

With an average cost of 6 to 8 cents per kilowatt-hour through the solar.com network, solar energy is much more cost effective that grid electricity in most of the US. In November 2022, the average price of grid energy was 16.3 cents per kWh — more than double the average cost of solar energy purchased on solar.com.

Solar owners essentially replace their utility electricity bill with payments on their solar system. Once the solar system is paid off (typically over 5-10 years), solar owners no longer pay for electricity and enjoy a return on investment for the life of their solar system (typically 25 years or more).

Is the cost of solar energy expensive?

Residential solar energy looks expensive as the upfront cost of a solar system is typically between $20,000 and $30,000 (before the 30% federal tax credit and state/local incentives). But when boiled down to cents per kWh, home solar energy is much cheaper than grid electricity in most areas.

The average cost of solar energy purchased through solar.com is 6 to 8 cents per kWh while the national average cost of grid electricity was 16.3 cents per kWh in November 2022.

Solar panels are typically warrantied for 25 years or more and pay for themselves after 5-10 years (depending on the size of the system and cost of local grid electricity). For many solar owners, that leaves 15-20 years of zero electricity costs adding up to tens or hundreds of thousands of dollars in savings.

The Bottom Line

The cost of solar energy has fallen dramatically over the last decade and federal and state incentives have made home solar systems more accessible to homeowners than ever before.

Knowing the key terms for evaluating solar system costs and the primary components of solar systems helps to understand the most important considerations that factor into the cost of solar systems.

While it might seem like a lot to consider, our Energy Advisors are ready to guide you through the process and connect you with bids from fantastic installers at industry-leading prices!

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