How much does it cost to switch to solar power

A number of factors determine the final price of a PV system, including its size, component options and configuration, labor costs, local permitting costs and available incentives and tax credits. 

The cost of a solar electric system is measured in dollars per watt. The average cost for a residential system is currently $3-5 per watt. That means the average 5-kW residential system will cost $15,000-$25,000, prior to tax credits or incentives.

What incentives and tax credits are available?

A one-time “Residential Renewable Energy” federal investment tax credit (ITC) is available for residential solar PV systems. The credit is based on a percentage of the total solar PV system cost. If the system is placed in service before Dec. 31, 2019, a federal tax credit of 30% of the total system cost is available. After Jan. 1, 2020, the tax credit will start to decline.

Federal Investment Tax Credit

Note: Homeowners must have the tax liability to utilize the credit, but a portion of the credit may be carried forward if not completely usable in the installation tax year.

State and Local Incentives

Depending on your local utility, there may be local solar rebates or incentives available. For more information on incentives, visit DSIRE.

Example of Purchased System

The average residential system is 5 kW or 5,000 watts.

*State incentives may be available, depending on your utility territory.

What is the average payback period?

The average payback period for a residential solar electric system is between 6-9 years, depending on the cost of the system and the utility bill savings.

Take the next step: Financing Options

As solar energy continues to gain traction across the country, prices continue to drop and solar panel installations become more accessible.

The Office of Solar Energy Efficiency and Renewable Energy reported a 70 percent drop in the price of solar PV panels since 2014 and the U.S. Energy Information Administration said that the amount of solar power being used continues to climb dramatically. 

With that said, the cost of the system and installation ranges between $12,000 and $30,000. That wide range reflects a number of factors including the home’s geographical area, size, ​​a home’s sun exposure, and energy usage. 

The national average price for a 6-kilowatt (kW) solar energy system is about 10.55 cents per kilowatt-hour. For context, residential solar panels are usually sized at 3kW to 8kW. This is before factoring in potential tax incentives and rebates. But what does all of that really mean? Let’s break it down into what solar could cost for your home.

Generally, it’s safe to estimate that it will cost about $16,500 to outfit a 1,500-square-foot home with solar panels. Ultimately, the price will depend mainly on two factors: your home’s sun exposure and electricity usage. Homes that are closer to the equator will more than likely have lower costs than those further away. 

Read on to find out what you can expect to pay in your area for solar panel installations. 

How Much Do Solar Panels Cost?

These are a few main factors that will determine exactly how much it will cost to install solar panels on your home:

Your Home’s Average Utility Costs and Energy Usage

The amount of energy used by your household will dictate the number of solar panels you will need to install to compensate for your energy costs. Homeowners can look at their electrical bills to calculate their daily average of energy usage and compare it to how many panels would be necessary to generate all of their energy needs.

Your Rooftop’s Solar Potential, or the Amount of Sun It Receives Yearly

The amount of sun exposure your home receives can impact how much energy is absorbed by the solar panels, and in turn, how much money you are able to absorb from your existing electric bills.

The Average Local Cost For a Solar Panel System in Your Area 

Where a homeowner lives can impact the local installation rate as well as the number of incentives and rebates available in the area.

The Average Labor Costs and Demand in Your Area

The average price of labor per watt across the country is about 50 cents, but it varies state-by-state.

Keep in mind that the cost to install solar panels varies from state to state. However, according to the Department of Energy, the cost to install solar panels is dropping nationally year over year due to new solar energy initiatives. In the last decade, the cost of solar power has dipped by more than 80 percent. 

According to the Solar Energy Industries Association, the Top 5 states for solar installations are Texas, California, Florida, Virginia and Georgia. 

Many states have also accelerated their relationships with solar energy. For instance, in 2019, Virginia ranked 19th but now sits in fourth place.

Still, it’s important to note that some of the rebates and tax incentives being offered for solar panel installations will soon expire as prices continue to drop. For that reason, if you think solar panels are ideal for your situation, it may be more effective to start the process now instead of waiting. Modernize recommends discussing this with a professional contractor. 

Compared to other home improvement projects, solar panels are a relatively high-cost project. But they can in turn raise a home’s market rate and, eventually, offset electricity bills. In general, solar panels begin to pay for themselves in small increments within the first year. Homeowners can expect broader payback offsetting between five and 15 years depending on the setup and where you live. 

Is Your State a Good Candidate for Solar?

Solar power is used in different capacities by homeowners across all 50 states, but some inevitably do better than others. That’s why where you live can play a critical factor when it comes to deciding if your home is a good candidate for solar energy. 

According to a report released by the Solar Energy Industries Association (SEIA) in January and based on annual data collected throughout 2021, these are the top states for cumulative solar electric capacity installed. 

1. California: 34,950 megawatts
2. Texas: 13,845 megawatts
3. Florida: 8,206 megawatts
4. North Carolina: 7,811 megawatts
5. Arizona: 5,644 megawatts
6. Nevada: 4,511 megawatts
7. Georgia: 4,268 megawatts
8. New Jersey: 3,854 megawatts
9. Virginia: 3,761 megawatts
10. Massachusetts: 3,607 megawatts

Like last year, California remains leaps and bounds ahead of the other nine states in terms of solar power. The state is able to power more than 10 million homes using solar power, compared to Texas, which is in second place and can power about 1.7 million homes. The Golden State was an early adopter of the technology and jobs generated by the industry.

According to the same Solar Energy Industries Association data, the worst states for solar energy are: 

1. North Dakota
2. South Dakota
3. West Virginia
4. Alaska
5. Kentucky

The low rankings are because of a combination of factors including less sunlight in some cases, reliance on coal facility-based labor (West Virginia), and long winters. 

Solar Panel Installation Costs by Size

To get started estimating your own costs, reference our table below. Find your home’s closest square footage and check out the range of panels you may need and the cost for those panels. The panel number ranges depending on whether you live in a state that is better or worse for solar due to climate and whether or not you want to offset all your electricity needs or just a part of them. See “How Many Solar Panels Will You Need?” below for more information.

How Many Solar Panels Will You Need?

To know how many solar panels you will need, you will want to determine how much electricity you use in your home daily. 

Modernize recommends discussing these factors with a trusted solar contractor. For ease, bring your electric bills with you to a consultation or calculate how much energy you use per day ahead of time by taking your monthly kilowatt usage and dividing it by 30. For context, the average house in the United States uses about 900-kilowatt hours (kWh) a month—roughly 11,000 kWh a year.

Ultimately, the number of panels you purchase matters because it contributes toward the amount of kW of electricity produced each day. In turn, the more of your electricity costs you want absorbed by solar energy, the more panels you will need. If you only want a portion of your power to be produced by solar panels, you won’t need as many panels. 

Additional Solar Panel System Costs

There are a few things you’ll want to add to your solar energy system’s total cost to get the most accurate price estimate. Here are a few additional factors that will impact how much your solar panels will cost:

Labor costs

Local labor costs for solar installation will change depending on your area and the average costs solar installers charge in your area.

Installing solar mounts

The costs to install the racks that hold your residential solar panels will affect the cost as well. You can choose from fixed mounts or tracking mounts on the ground, on poles, or, most commonly, on the roof.

Installing solar inverters

A solar inverter will need to be installed to transform direct current (DC) power from the panels into the alternating current (AC) you can use in your home

Other costs

There may also be costs for any local permit fees, inspection fees, and taxes on the solar panels.

Fortunately, as more people adopt solar power, costs have fallen as a result — a trend that’s very likely to continue in the future. An analysis by the federal government’s National Renewable Energy Laboratory (NREL) discovered that installed prices have fallen at an average annual rate of 13% to 18%.

Always make sure to speak with a local solar professional to get a more accurate estimate of what your installation will cost.

What Size Solar Panel System Do You Need?

The average home uses 905 kWh per month, or around 10,850 kWh per year, in electricity. That means that an average-sized home with a decent amount of sunshine could install a 5 kW to 6 kW solar panel system to help reduce utility bills. 

You may want to learn about your sun number score for solar, which is calculated based on your home’s location and average sunlight exposure. Also, explore the different solar panel dimensions and sizes with your contractor for more context. 

The larger the solar panel system you install for your home, the lower the cost per watt will be. The cost per watt – including solar panels, parts, labor costs, permits, and overhead – is between $6 a watt and $8 a watt.

With solar panels, the money you save on your electricity bills can more than earn back your initial installation costs in seven to 20 years. Solar rebates and incentives when available from both the government and local energy providers can also help speed up your return on investment. You may also be able to participate in selling excess electricity from your solar panels – a process known as net metering – in your area.

What is the ROI on Solar Panels?

You can calculate the return on investment for installing solar panels by calculating your total payback. Calculate the amount you spent to install a solar panel system and then figure out the amount you will save on energy bills monthly. 

These two numbers show how quickly your savings will cover your initial costs. Electricity rates will vary by region, being higher in the Northeast than in the Northwest. Solar tends to be more cost-effective where electricity prices are high and sunshine is abundant.

In a March 2021 Modernize survey, 40 percent of homeowners said they are actively pursuing home improvement projects to save money on their utility and electric bills. Installing solar panels is an energy-efficient way to save money on energy bills for the long-term.

On the other side of the coin is your home’s resale value. A Zillow analysis showed that solar panels can increase a home’s value by up to 4.1 percent.

How Does Net Metering Work?

Simply put, if your home is able to take advantage of solar net metering, solar energy that is collected in abundance and not needed in your home will run through your meter and out to the grid. 

A digital meter on your house records electricity moving in either direction as it comes into the house and as it leaves. The “net” part of the term means that the homeowner pays the “net” amount for the electricity used by the house minus the extra sold back to the grid.

In states where net metering is in effect, consumers can sell the excess solar energy they produce back to their local utility. That lowers their electricity bill, shortening their payback period and raising their cost savings.

According to Solar Reviews, homeowners in Delaware, New Hampshire, Oregon and Washington, D.C. can take the best advantage of net metering because of a combination of factors including policy, inclusion, fees and rollover policies. 

Should You Lease Solar Panels?

There are several payment options that bundle solar installation costs into a consumer’s electric bill, either as a solar panel leasing option or as a power purchase agreement (PPA). Solar leases allow the homeowner to install solar panels without paying anything (or much) up front reducing the overall solar panel cost. After the panels are installed, the homeowner pays only a flat monthly fee. The fee includes the installation costs, which are spread out over time, and the cost of electricity supply.

• Pros

  • Lower out-of-pocket cost
  • Third-party financing
  • Immediately cash-flow positive

• Cons

  • Homeowner does not keep incentives
  • May make home harder to sell
  • Paying monthly fee for panels

Advantages

These types of third-party financing arrangements have a lot of benefits for consumers—the best being no large out-of-pocket investment. And the solar system becomes cash flow positive from day one. Not surprisingly, these agreements have been a big factor in driving today’s solar energy installation boom.

Disadvantages

It is worth noting that under most solar lease arrangements, the solar company usually keeps any incentives that are associated with owning the solar panels. But the consumer gains other advantages. The solar company may offer a monthly fee below the utility rate, or one that doesn’t rise as utility rates do. At the end of the contract, homeowners can renew, purchase the system, or have the solar panel equipment removed. If you decide to sell your home, having leased solar panels can actually work against you as you would need to transfer over your lease to a qualified buyer, which means, of course, ensuring the person making an offer on your home is qualified in the first place. Many homebuyers would rather not deal with that extra paperwork, making homes with solar leases sit on the market longer than home where the solar panels are owned.

Solar power may be simple in concept, but in application, it can be bewildering. And the best approach for one homeowner isn’t necessarily the best for another. Take the time to gather the pertinent information —about house size, local solar insolation, existing electric rates, and consumption. It’s worth it in figuring out your potential solar cost for your home. Solar panels can not only power your home’s electricity for appliances but can also be fitted for other benefits such as heating and cooling your home with solar, solar water heating, and even heating a pool with solar energy.

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