How Much Does Solar Cost In The Us?
Solar power has experienced exponential growth in the United States over the past two decades. According to the Solar Energy Industries Association (SEIA), the solar industry has grown at an average annual rate of 42% since 2000 (SEIA). In 2021 alone, the US installed 23.6 gigawatts (GW) of solar photovoltaic (PV) capacity, more than any other energy source that year.
The SEIA projects that the US will install over 33 GW of solar capacity in 2023, breaking the previous annual installation record (SEIA). This continued growth is driven by rapidly declining costs and supportive policies at the federal, state and local levels. The SEIA estimates that the US solar market will quadruple in size over the next 10 years.
Upfront Costs of Solar Panels
The upfront cost of solar panels in the US is primarily determined by the cost per watt of solar panels. According to a source the average cost per watt of solar panels in New Jersey is $2.77, which is $0.11 per watt more than the national average of $2.66. In Nebraska, the average cost per watt is $3.55, which is $0.22 higher than the national average.
The cost per watt can vary quite a bit by region and local market conditions. Areas with more sun exposure and higher electricity rates tend to have lower solar panel costs per watt. Installation costs also impact the total upfront price.
Other Hardware Costs
In addition to the solar panels themselves, there are other important hardware components that make up a complete solar PV system. These include the inverter, mounting and racking equipment, wiring and electrical components.
Inverters play a critical role, converting the direct current (DC) electricity generated by solar panels into usable alternating current (AC) that can power home appliances and be fed back into the electrical grid. The size and type of inverter required depends on the solar panel system size. For a typical residential solar system, inverters may cost $0.20 to $0.40 per watt. So for a 5 kW system, the inverter may cost $1,000 to $2,000. Larger commercial systems need heavy-duty inverters which can cost up to $0.50 per watt
Racking, mounts and wiring to connect the solar array and integrate it with the home’s electrical system also add to the hardware costs. Ballpark estimates for racking and electrical BOS components range from 10% to 20% of the total installed cost.
Proper permitting, inspection and repairs of any roof issues are also key costs beyond just the solar panels themselves. Working with qualified solar professionals helps ensure the system hardware is sized, designed and installed correctly.
Soft Costs
Aside from the cost of solar panels and hardware, there are other “soft costs” associated with going solar. These include permitting fees, installation labor, and financing costs. According to a Greentech Media article, soft costs can account for up to 50% of the total price of an installed residential solar system.
Permitting fees, which are paid to local governments, cover inspections and approvals needed for installation. These fees can range from a few hundred to over a thousand dollars depending on the jurisdiction. Streamlining and standardizing permitting processes could help reduce these soft costs.
Installation labor is another major cost, which covers the workforce needed to design systems, adapt sites, and assemble panels and equipment. Finding ways to reduce labor hours per install can help decrease overall soft costs. Labor costs are impacted by installer experience, wage rates, training procedures, and efficiency of the installation process.
Financing soft costs relate to customer acquisition, paperwork processing, financing, etc. These represent a significant portion of the total soft costs. Third-party ownership models like solar leases and power-purchase agreements have helped lower financing costs through access to third-party capital.
According to solar industry expert Jonathan Norris, steps are being taken across the industry to lower the soft costs of residential solar installation through improved processes, products, and financing options. Reducing soft costs is critical for continuing to drive down the overall costs of solar energy.
Average System Costs
According to the Solar Energy Industries Association, the average cost to install solar panels on a residential home is $19,182 for a 6 kW system as of Q3 2022 [1]. However, costs can vary significantly based on system size, location, roof type, and other factors.
For a typical 5 kW system, expect to pay $15,000 to $25,000 before solar incentives and includes solar panel cost and installation [2]. System sizes for most homes range between 4-8 kW. The larger the system size, the more expensive it will be overall but the lower the price per watt.
The average size of a residential solar array increased from 6.4 kW in 2015 to 9.1 kW in 2020 [3]. So for a larger 9 kW residential system, expect total installed costs around $27,000.
For commercial systems, costs are roughly $1.83 per watt according to the National Renewable Energy Lab [4]. So a 100 kW commercial solar system would cost approximately $183,000 before incentives.
Cost Differences by Region
Solar costs can vary significantly across different states in the U.S. due to differences in solar incentives, electricity rates, installation costs, and solar resource potential. According to Forbes, the states with the highest number of homes powered by solar are California, Texas, Florida, North Carolina and Arizona.
An analysis by MoneyGeek found that the states with the highest return on investment from solar are Washington, West Virginia, Ohio, Kentucky, and Arkansas. The cost of a solar installation in West Virginia averages just $3.32 per watt, compared to over $4 per watt in states like Rhode Island and Massachusetts.
According to This Old House, the states with the biggest savings from solar are Hawaii, Nevada, Utah, Arizona, and New Mexico. The sunny climate and high electricity rates make solar power very cost-effective in these states.
In general, solar costs are lowest in states with high solar resources, low installation and permitting costs, and strong financial incentives. Meanwhile, northeast states like New Hampshire and Vermont have some of the highest solar costs due to less sunny weather and fewer solar incentives.
Federal Tax Credits
The federal solar Investment Tax Credit (ITC) allows homeowners to deduct 26% of the cost of installing a solar energy system from their federal taxes. This tax credit was originally scheduled to decrease to 22% in 2021 and 0% in 2022, but was extended to 2032 with the passage of the Inflation Reduction Act in 2022. The ITC covers both the cost of solar panels as well as other hardware costs like inverters and racking equipment. There is no cap on the amount that can be claimed.
The ITC significantly reduces the net cost of a solar system. For example, on a $15,000 system, the ITC would provide a tax credit of $3,900. The credit can be claimed on the tax return for the year the solar system was installed. If the tax credit exceeds the amount of taxes owed, the excess credit can be carried forward to future tax years. To qualify for the full ITC, panels and equipment must be new (not used) and installed on the taxpayer’s primary residence. Rental properties and commercial installations can qualify for a lower 22% commercial ITC. More details can be found in the Homeowner’s Guide to the Federal Tax Credit published by the Department of Energy.
Net Metering
Net metering allows solar panel owners to sell any excess electricity their system generates back to the grid for credit on their utility bill. This helps to offset the cost of power drawn from the grid when the solar panels aren’t producing enough to meet the home’s needs. 38 states plus Washington, D.C. and Puerto Rico have mandatory net metering rules in place that require utilities to buy back excess solar power at the retail electricity rate.
This means that during sunny times when the solar panels produce more than the home is using, that excess energy goes back into the grid and spins the home’s meter backwards. At night or on cloudy days when the home needs to pull power from the grid, the meter spins forward again. But the net effect is that the home has generated some of its own power and bought less from the utility overall.
Net metering provides significant savings on electric bills and allows solar owners to get the most value from their system. It has been a key policy driving solar adoption across the U.S. Figure 2 shows the status of net metering policies in each state.
Payback Period
The payback period refers to the length of time it takes for the energy savings from a solar system to offset the upfront costs of installation. This is an important metric to consider when evaluating the financial viability of going solar.
According to Energybot, the average payback period for solar panels varies widely by state, ranging from 6 years in sunny California to 14 years in Arkansas [1]. In general, payback periods tend to be shortest in states with high electricity rates and abundant sunshine.
For example, Sempersolaris reports the average payback period in California is around 6 years, but can extend to 11.5 years in Colorado due to less sun exposure [2]. Of course, the raw amount of electricity savings is also impacted by the cost of the solar panels themselves.
For commercial solar systems over 100kW, Solarchoice finds the national average payback period is approximately 5.3 years. However, this can vary from under 3 years in states like California and Hawaii, to over 9 years in Alaska and Iowa [3].
Overall, the payback period gives an indication of how long it takes for solar panel investment to pay for itself. But this needs to be weighed against expected system lifetime, which is typically 25-30 years. Most homeowners find solar delivers worthwhile lifetime savings despite the upfront costs.
Future Outlook
Most industry experts predict that solar costs will continue to decrease going forward, driven by both reductions in hardware costs and soft costs. According to the Solar Energy Industries Association (SEIA), solar panel costs have dropped by over 90% since 2010.1 This trend is expected to continue, with some projections forecasting an additional 40% reduction in panel pricing by 2025.2
In addition to hardware, reductions in soft costs like permitting, installation, labor, and financing will also help drive down total solar system pricing. The Department of Energy has initiatives underway targeting a 50% reduction in soft costs by 2030.3 As the solar industry matures and becomes more streamlined, these cost declines will likely accelerate.
Overall, experts project that the levelized cost of energy (LCOE) from solar will fall by an additional 40-70% by 2040.4 This will make solar increasingly cost-competitive with conventional energy sources across much of the U.S. With the extension of the federal solar tax credit through 2034, the future looks bright for continued expansion of affordable, renewable solar energy.
