Is Solar More Affordable Than Ever?

The cost of solar power has plummeted over the last decade. According to a recent analysis, the average cost of solar energy has fallen by 90% since 2009. This precipitous drop has surprised even solar experts, with the cost declines far exceeding predictions. In fact, since 2009, the actual observed decline has been 10% annually, while experts predicted only a 5% annual decline. What’s driving this faster-than-expected decrease? In short: manufacturing improvements, economies of scale, and market forces. As more panels are produced, costs drop even further. With each solar doubling, costs fall by 20-30%. With solar now hitting mainstream adoption, the technology is benefitting from a powerful virtuous cycle – more demand is enabling more supply, pushing costs down even more. This trend shows no signs of slowing. Most experts believe costs could drop an additional 40% by 2030. For homeowners today, solar may be two to three times more affordable than just a decade ago. Let’s explore the factors behind this transformation.

Brief History of Solar Panel Pricing

The cost of solar panels has decreased dramatically over the past few decades. According to the National Renewable Energy Laboratory (NREL), in 2010, the average cost of solar panels was around $2.50 per watt. Now, just a decade later, utility-scale solar systems cost around $1 per watt (Documenting a Decade of Cost Declines for PV Systems).

Several key factors contributed to these substantial price reductions:

– Technological innovations like thinner silicon wafers and higher efficiency panels drove down manufacturing costs (Solar (photovoltaic) panel prices).

– Government policies like federal tax credits made solar more affordable and accelerated adoption.

– Economies of scale and increased competition as the solar industry grew rapidly.

– Reductions in non-hardware costs like permitting, installation labor, and financing.

As a result of these developments, the average cost of a residential solar system decreased from $12.20 per watt in 2002 to just $3.82 per watt in 2021, an astonishing 69% drop (Cost of Solar Panels Over Time).

Current Cost of Solar Panels

The average cost for solar panels today is about $3.00 per watt for a residential system according to data from the energy consulting firm Wood Mackenzie. In more exact terms, the average 8-kilowatt residential solar panel system cost about $3 per watt in 2022, which amounts to $24,000 for the system. For a larger 10 kW system, that translates to $30,000 on average.

Factors like system size, solar panel brand, your location, installation costs, and available tax credits or incentives will impact the total price. But focusing specifically on the solar panels themselves, most homeowners today are paying between $2.50 to $3.50 per watt. Higher efficiency monocrystalline solar panels tend to fall on the upper end of that range.

Other System Costs

Beyond just the solar panels themselves, there are other components and costs involved in a complete solar system installation. Key elements include the inverter, racking, wiring, any additional electrical work, permits, and labor for installation.

Inverters are a critical part of any solar system. They convert the direct current (DC) electricity generated by the solar panels into the alternating current (AC) used in homes and on the grid. Good quality inverters often cost $0.25 to $0.30 per watt, so for a 5 kW system the inverter may cost $1,250 to $1,500.

Racking refers to the mounting structure that securely fastens the solar panels to a roof or ground mount. Aluminum is a common and durable material used for residential solar panel racking. Racking costs tend to run $0.07 to $0.12 per watt, making it around $350 to $600 for a 5 kW system.

Labor expenses include the installation team’s time to mount the racking system, install the panels, run electrical connections, and handle inspections. This often costs $1 to $1.50 per watt, making labor $5,000 to $7,500 for a 5 kW residential system. Permits and any additional electrical work would be additional costs.

When factoring in all system components and labor, total soft costs for a complete solar installation often run $2,000 to $4,000 per kW. So for a typical 5 kW residential system, the total costs beyond just the solar panels themselves can easily be $10,000 or more.

Federal and State Incentives

There are several federal and state government programs that provide significant financial incentives for solar power, helping to reduce the net cost for homeowners. The federal solar Investment Tax Credit (ITC), for example, provides a 26% tax credit for systems installed in 2022-2023, 22% in 2024, and 10% thereafter (1). Many states also offer additional tax credits and rebates on top of the federal ITC.

For instance, California has some of the most generous solar incentives in the country. Homeowners in CA can qualify for both the federal ITC as well as a state tax credit up to $3,856 for systems installed by the end of 2024 (2). The state also has several solar rebate programs, including the California Solar Initiative which provides cash back incentives up to $3,548 for solar installations (3). Between federal, state, and local programs, total incentives in California often cover 30-50% of the gross cost of a solar energy system.

Other leading states for solar incentives include Massachusetts, Arizona, New Jersey and New York (4). Programs range from personal tax credits to sales tax exemptions to renewable energy credits and performance-based incentives. Ultimately, stacking federal, state and local incentives brings down the net cost of solar considerably compared to just looking at the upfront system prices.

Electricity Bill Savings

How much can solar panels reduce electricity bills? According to EnergySage, the average homeowner can save between $20,000 and $96,000 over their solar panel system’s lifetime, depending on electricity costs in their area. Many factors affect the actual savings, like sunlight availability, system size, electricity rates, and financing options.

For a typical 5 kW residential solar system, monthly electric bill savings range from $100 to $150 or more. As an example, EcoFlow says this size system can reduce a $200 monthly bill by 50-75%, resulting in $100 to $150 in savings per month.

According to MarketWatch, a 6 kW solar system generating 9,000 kWh annually could save around $1,432 per year, assuming electricity costs of 16 cents per kWh. For a household with high energy usage, the savings could be even greater.

In summary, most solar customers can expect to cut their utility bills in half or more by switching to solar power. The savings ultimately depend on system size, electricity usage, rates, and financing. But for a typical residential solar installation, $100-$150 in monthly savings is reasonable.

Payback Period

The payback period for solar panels refers to the length of time it takes for the energy savings to outweigh the upfront costs of a solar system. This is an important metric for homeowners and businesses considering going solar. According to EnergyBot, the average payback period for solar panels in 2023 across the United States is around 7-8 years.^[1] However, this can vary widely by state due to differences in electricity rates, solar incentives, and solar requirements.

For example, SunRun reports that states like California and Arizona have some of the shortest payback periods at around 6-7 years on average.^[2] This is due to excellent solar resources and high electricity rates in these states. On the other hand, states like Georgia and Idaho have average payback periods around 12 years because electricity rates are lower.^[3]

Overall, declines in solar costs coupled with rising electricity rates have led to solar becoming a sound long-term investment for most homeowners in sunnier parts of the country. With federal and state tax credits factored in, payback periods are shrinking all the time.

^[1] https://www.energybot.com/blog/payback-period-for-solar-panels.html
^[2] https://www.sunrun.com/solar-lease/cost-of-solar/solar-energy-economics
^[3] https://www.energybot.com/blog/payback-period-for-solar-panels.html

Future Projections

The cost of solar is expected to continue declining in the future according to reports from the Solar Energy Industries Association (SEIA). The SEIA’s Solar Industry Research Data shows that solar system pricing fell by around 40% over the last decade. Experts predict prices will fall a further 40% by 2035 as technology improves, supply chains mature, and more solar is deployed globally driving economies of scale.

In particular, the SEIA forecasts the average residential system cost to drop from around $2.80 per watt currently to $1.60 per watt by 2035. For a typical 5 kilowatt system, that equates to a price decline from $14,000 today to $8,000 in 2035 in real terms. This ongoing decline in costs will continue to make solar power more affordable and attractive for homeowners.

At the utility scale, SEIA predicts pricing to fall from an average of $1.00 per watt now to around $0.60 per watt in 2035. That will put large solar farms on par with natural gas power plants in terms of levelized cost. As solar becomes ever cheaper, utilities are expected to greatly accelerate adoption and investments.

Other Benefits of Solar

In addition to cost savings, solar panels provide other advantages for homeowners. One significant benefit is increased home value. Multiple studies have shown that installing solar panels can increase a home’s resale value. According to the Lawrence Berkeley National Laboratory, home buyers are willing to pay approximately $15,000 more for a property with an average-sized solar array [1]. This premium valuation makes solar panels a worthwhile investment.

Solar also provides sustainability and energy independence benefits. Generating your own renewable electricity reduces reliance on the grid and non-renewable energy sources like coal and natural gas. With solar panels, homeowners can feel good knowing their energy use has a lighter environmental footprint. During power outages, solar panels equipped with batteries can also provide backup electricity to keep your home running.

Additionally, federal, state, and local incentives can make going solar very affordable. Programs like the federal investment tax credit (ITC) offset 26% of installation costs in 2022 [2]. There are also no sales taxes on solar in many states. Plus, some utilities and municipalities offer rebates. With incentives, the payback period for solar investments can be under 5 years.

[1] https://emp.lbl.gov/news/research-spotlight-new-study-solar-prompts

[2] https://www.energy.gov/eere/solar/homeowners-guide-federal-tax-credit-solar-photovoltaics

Conclusion

In reviewing the pricing trends and incentives available, it’s clear that solar power has become significantly more affordable for homeowners over the past decade. The dramatic drop in solar panel prices, combined with federal tax credits and additional state/local incentives in many areas, means the upfront costs of a solar system are now far lower.

At the same time, steadily rising retail electricity prices mean the long-term savings from solar have increased. This allows solar buyers to recoup their initial investment faster through electricity bill savings. In many U.S. markets today, a solar system can pay for itself within 5-7 years.

Going forward, continued technological innovations and economies of scale will likely bring costs down further. However, federal tax credits are scheduled to step-down over the next few years before phasing out completely. So the overall affordability outlook is complex.

What is clear is that 2021 represents an exceptionally good time to go solar for many homeowners. With smart timing and shopping, solar power can now be within reach for more homeowners than ever before.