Man wearing an orange vest, on a home roof, with solar panels.

Investing in solar energy means you are investing for the long run. Getting past the initial investment, solar panels will significantly lower your electric bill over 20 years. But what is the cost of solar panels? How can you budget efficiently to know if solar energy is really for you?

Factors to consider

The cost of solar panels is dependent on a multitude of factors. Before investing in a solar energy system, you should first consider those factors:

  • The cost of photovoltaic panels and other parts.
  • Installation fee.
  • Your electricity bill from the grid.
  • Is there any applicable local, state, or federal tax credit?
  • Estimated savings on your energy bills.

Once these factors are worked together, you can then determine the real cost of solar panels for your home or business.

Parts of the solar energy system

Solar equipment holds a great percentage of cost when estimating the costs of installing solar panels. A standard solar energy system comes with four parts:

  1. Solar panels: responsible for capturing sunlight and converting it to electricity.
  2. Controller: This safeguards batteries by managing the flow of electricity
  3. Batteries: electricity storage for future use.  
  4. Inverter – transform battery-stored energy to the usable current needed to power standard electrical appliances. 

Understanding the cost of solar panels


Cost of solar energy panels


Dollars-per-watt or cost-per-watt is probably the most common method of evaluating the cost of solar panels. You can calculate this by dividing the total cost of the solar system installation (labor and electronic parts connecting the solar system to an existing electrical system) by its electrical output (power it generates) in kilowatts. For example, the average house in North America uses a 4kW – 7kW solar system.

The price of a solar panel is also dependent on your state of residence, the installation company, and projected incentives and rebates you are eligible to receive. In California, for instance, the dollar-per-watt could range from $4.39 for small systems to $3.56 for big systems.

The cost of solar panel installation, at the time of this writing, could range from $7 to $9 per watt. Therefore, the cost of a 5kW (5,000 watts) system would range from $25,000 to $35,000 before incentives and rebates. Of course, this cost could seem excessive for the average household; however, many utility companies provide subsidies or incentives to compensate for the cost of your solar system.

Average on-the-grid power consumption

The average U.S. household consumes electricity at the rate of 1 kilowatt per hour (kWh). With about 730 hours in a month, 730 kWh is consumed monthly. Since the national average cost of 1kWh of electricity is 13.19 cents, the average monthly fee is around $96.29. This means the average (conservative) annual fee is $1,155.48

Note: This average electricity bill is only feasible when you do not have non-standard items, like your hot tub, running nonstop. Extended use of electronics such as video game consoles, plasma screen TVs and computers can also significantly affect your bill. Likewise, months of continuous usage of your heater or air conditioning unit could spike your fee. 

Across the U.S., the cost of electricity differs extensively—from as high as $0.24 per kWh in Hawaii to as low as $0.07 per kWh in West Virginia. But to get an exact estimate, adjust your projected calculations to meet the pattern of your electricity use.

Generating capacity of solar panels

The average generating capacity of a solar panel is 10 watts/sq. ft. This means that 100 sq. ft. of solar panels is needed to generate 1kW of electricity (which equals the average household on-the-grid consumption).

The average sunshine across the United States differs. You can get three hours of direct sunshine, for example, in cities like Pittsburgh, Seattle, and Chicago. While you will get five to six hours of sunshine in California and Colorado. Homeowners in hot states like Arizona can get almost 7 hours of sunlight daily. The amount of average sunshine in your state would determine the size of the panel array you should go for. You will need more (additional square feet) of panels if you get less sunlight daily, and fewer panels if you live in a hot state.

Net metering


A solar house using net metering to reduce electric bills.

If you use solar panels and your utility company permits net metering, your average annual energy bill can reduce to zero. Net metering (NEM) is a system where the utility company provides you with a meter that reads backward when you self-generate excess electricity than you use in this grid-tied system. You then become a producer of electricity and save money immensely.

Note that NEM policies can vary widely depending on the state and utility company. You can do your homework on this site by the U.S. Department of Energy: Database of State Incentives for Renewables & Efficiency (DSIRE). 


The solar Investment Tax Credit (ITC)
Created in 2006, the solar Investment Tax Credit (ITC) is a federal policy made to encourage the commercial usage of solar energy systems in the United States by offsetting the installation cost. So if you own a business that uses solar systems, you may qualify for a tax credit against the income tax you will pay the federal government.  

The Solar ITC in 2019 is 30 percent. This means if you invest $10,000 in solar, you will get $3,000 in tax credit. Note that the ITC will reduce to 26 percent in 2020, 22 percent in 2021, and 10 percent after 2021. The sooner you jump on the solar energy train, the better for your business. 

Investing in solar battery storage

A battery storage system comes in handy when you want to discharge your stored solar energy instead of depending on the grid supply during nighttime. The good news is that you may choose to purchase the batteries outright or lease from your solar provider.


This combined system, along with installation cost, is what controls the cost of solar panels. Of course, you may also have to replace the batteries over time. This adds up to cost.

Fortunately, the cost of solar panels has been predicted to drop in the future as improvements are being made on thin-film panels and nanotechnology. This could reduce the cost of panels for homeowners while increasing the system’s current total electricity output.

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