How Much Does An Average Solar Power Installation Cost?
To most people, solar power is a luxury which they can never afford. To go solar is a status symbol – “here’s a family which can afford to free itself from the shackles of the local power utility” is the thought going through someone's mind who passes by a home with solar panels installed on its roof tops.
While this has historically been the case (average installed system cost in US in 1998 was $10.80 per Watt, which would round up to $54,000 for a 5 kW system), people do not seem to realize just how much has changed. In fact a recent survey by Harris Interactive found that as many as 97% Americans overestimated the cost of having solar panels installed.
Nearly 40% of those surveyed believed a solar power installation will set them back by at least $20,000 or more, while the truth is, these systems can be purchased for an upfront cost of no more than $1,000 thanks to available financing schemes. A complete solar power system can also be installed at no charge if they are part of a solar lease agreement.
Finally, the survey found that 77% people will not mind going solar if cost was not a barrier. Clearly there are some BIG misconceptions doing rounds out there.
So, just what is the true cost of getting a photovoltaic solar system installed on your rooftop? Here are some estimates…
The cost of a typical solar power system can be broken down into –
While this has historically been the case (average installed system cost in US in 1998 was $10.80 per Watt, which would round up to $54,000 for a 5 kW system), people do not seem to realize just how much has changed. In fact a recent survey by Harris Interactive found that as many as 97% Americans overestimated the cost of having solar panels installed.
Nearly 40% of those surveyed believed a solar power installation will set them back by at least $20,000 or more, while the truth is, these systems can be purchased for an upfront cost of no more than $1,000 thanks to available financing schemes. A complete solar power system can also be installed at no charge if they are part of a solar lease agreement.
Finally, the survey found that 77% people will not mind going solar if cost was not a barrier. Clearly there are some BIG misconceptions doing rounds out there.
So, just what is the true cost of getting a photovoltaic solar system installed on your rooftop? Here are some estimates…
The cost of a typical solar power system can be broken down into –
- Cost of equipment (47%)
- Installation and permits (35%)
- Sales and operations (18%)
Courtesy: Sunrun.com
Cost of solar power equipment
In the US, an average home utilizes about 20-24 kWh of electricity, which will require a solar system producing 4 kW of electricity (from 5 sun hours per day). Installing such a system will cost $15,000 to $20,000 before taking government subsidies into account, and depending on which manufacturers you purchase from. The more electricity you use, the more solar panels you will need to install, consequently the greater the final price tag will be.
Each solar power system consists of solar panels, inverters, mounts, wiring and batteries. Out of these, the solar panel is the most crucial component. Solar panels convert sunlight into usable electricity by utilizing the photovoltaic properties of silicon. Research is being conducted to see if other materials which exhibit better efficiency at converting light from the sun into electricity can be used on a commercial scale.
The cost of solar panels however is declining rapidly. Here’s a graph showing how solar panel prices have come down from 1977 to 2013:
In the US, an average home utilizes about 20-24 kWh of electricity, which will require a solar system producing 4 kW of electricity (from 5 sun hours per day). Installing such a system will cost $15,000 to $20,000 before taking government subsidies into account, and depending on which manufacturers you purchase from. The more electricity you use, the more solar panels you will need to install, consequently the greater the final price tag will be.
Each solar power system consists of solar panels, inverters, mounts, wiring and batteries. Out of these, the solar panel is the most crucial component. Solar panels convert sunlight into usable electricity by utilizing the photovoltaic properties of silicon. Research is being conducted to see if other materials which exhibit better efficiency at converting light from the sun into electricity can be used on a commercial scale.
The cost of solar panels however is declining rapidly. Here’s a graph showing how solar panel prices have come down from 1977 to 2013:
Courtesy: Bloomberg.com
Just 10 years ago, you would have had to shell out $4/Watt for buying a solar panel, while today it stands at 36 cents to the Watt!
Besides solar panels, you will also have to invest in balance of systems (BOS), or all the other equipment which support the solar panels. These include the inverter, mounting hardware, wires and batteries. In 2011, the ratio of price between solar panels and BOS in a solar power system was 50:50. However, BOS account for 68% of a solar power system’s price today. Efforts are already underway to make BOS more affordable.
Solar power inverters which convert a solar panel’s DC power into utility grade AC power are the most expensive component in a BOS. An inverter typically costs $1,000 to $4,000 depending on its make and load capacity. While most solar power systems will come with string inverters, micro-inverters can also be purchased at a premium.
Batteries can also be a crucial component; however they are only really needed if you are getting an off-grid system (more on this later). The price for the battery tends to vary quite a bit, but it is highly recommended that you do not overlook quality here as you do not want to end up without power at the middle of the night should your battery system fails.
Typically, deep cycle lead-acid batteries are used with solar power systems; however, Tesla is getting ready to launch lithium-ion batteries for home use, and these are predicted to make solar power even more economical.
Cost of solar power installation and permits
Solar power installation costs account for a major part of a solar system. While the quote you will receive from installers and roofers will depend largely upon where you live, as of this date, the cost per watt of installed power is between $3 and $8 in the US. Consider these tips while finding an installer to ensure that you are getting a good deal –
Look for a professional who…
The cost of installing a solar power system on your home will also depend upon whether you choose to get a grid-tied system, or an off-grid system.
Grid-tied solar systems work in tandem with your local electricity grid. If your solar system is producing more energy than you need, then it can be fed back into the grid. On the other hand, if your home or business requires more energy than your solar system can produce, then it can draw energy from the grid. This process is called “net-metering” and requires a smart meter installed at your place.
A grid-tied solar system is by far the best choice for most home and business owners. It allows you to sell excess energy to the local utility which reduces your monthly electricity bill. By retaining your ties with the grid, you can also save yourself the trouble of getting a costly battery pack.
Off-grid solar systems on the other hand use battery backups to store excess energy produced by your solar panels, which you can use during night time. These systems are only good if you are living in a remote area, or where there are frequent power outages. An off-grid system is considerably more expensive than its grid-tied brethren as the batteries required to run it are quite pricey. Also, by not tying your system with the grid, you lose the chance to sell electricity to the local utility.
Your installer will also need to get local permits required to install a solar power system which will account for $0.5 per watt in the final price.
Federal subsidies for solar power
Even though solar power is becoming increasingly affordable, in itself, it’s still not at parity with regular non-renewable sources of energy in most states when all the costs are taken into account. To off-set this, the government provides rebates and subsidies to companies and consumers who opt to have a solar system installed. The Federal Investment Tax Credit for Solar Energy Properties for instance subsidizes the cost of a solar power system by 30%.
Similarly, a state’s Renewables Portfolio Standard (RPS) decides what its solar policies are going to be, and how many incentives they will provide. Some states such as New York, Massachusetts, Connecticut and California have aggressive RPS, and are doing a lot to promote solar power and other renewable sources of energy. Other states like Arkansas, Idaho and Oklahoma are somewhat lacking in this regard.
Some places like southern California and New York have already achieved unsubsidized solar parity, meaning citizens there can purchase solar power at or below the cost of electricity provided by their local utility without any intervention by the state.
If you go in for a grid tied system, then you can earn even more with Solar Renewable Energy Credits, or SRECs which are part of a state’s RPS program. An SREC is created every time 1,000 Kilowatt-hour of solar power is produced. Utilities in each state with a RPS in place need to earn a certain number of SRECs (or produce a certain number of Kilowatt-hours of electricity from renewable sources of energy) annually in order to comply with environment friendly initiatives.
Should they fail to achieve the minimum required, they have to pay a Solar Alternative Compliance Payment (SACP) which is more than the value of SREC in the state. In order to make this work, the state government will put a cap on the value of a SREC as the utility may simply pay the fee instead of the SREC if it is equal in price to SACP or costlier.
Electricity suppliers thus buy SRECs from home owners and businesses to fulfill their quota. SRECs can be bought and sold in an open market, and their value is determined by supply and demand. The price tag on SRECs also differs from state to state. For instance, the spot price of a SREC in New Jersey was $160 in May 2014, while the same in Delaware was $50.
Leasing a solar power system
If you do not want to pay upfront, and/or manage a solar power system, then you can lease one instead of purchasing it as well. A lease is also called a Solar Power Purchase Agreement (SPPA), in which you essentially rent out your roof to a company which installs, operates and maintains the solar system on it. In a lease, you have to pay your monthly utility bills as you are doing, however this is usually lesser than a traditional utility bill. Most leases last 15-20 years and the service provider will offer you a fixed kW-hour rate for the duration of the lease.
A SPPA is the perfect solution if you do not want to pay upfront. By leasing a solar system you can bring down the installation cost to nothing, start saving money from day one, lock in your utility bill for the next 20 years and save yourself from cost inflation.
However, be advised, a SPPA usually requires a credit score of 700 or more, so you might have issues selling your home during the time the lease is active. You will also be handing over the special state given tax incentives and rebates which account for 50%-75% of the cost provided to the service provider.
Closing thoughts
Today, solar power is no longer a farfetched idea, meant for the rich and famous or people who wanted to desperately do something to save the environment; in fact it is beginning to make plain economic sense to most people. Solar power already costs less than grid electricity in 42 of America’s 50 largest cities, and more places are catching up. You can save a lot of money by going solar thanks to federal subsidies and leasing agreements that are available, so quit sitting on the fence and lookup solar power installers in your area.
Besides solar panels, you will also have to invest in balance of systems (BOS), or all the other equipment which support the solar panels. These include the inverter, mounting hardware, wires and batteries. In 2011, the ratio of price between solar panels and BOS in a solar power system was 50:50. However, BOS account for 68% of a solar power system’s price today. Efforts are already underway to make BOS more affordable.
Solar power inverters which convert a solar panel’s DC power into utility grade AC power are the most expensive component in a BOS. An inverter typically costs $1,000 to $4,000 depending on its make and load capacity. While most solar power systems will come with string inverters, micro-inverters can also be purchased at a premium.
Batteries can also be a crucial component; however they are only really needed if you are getting an off-grid system (more on this later). The price for the battery tends to vary quite a bit, but it is highly recommended that you do not overlook quality here as you do not want to end up without power at the middle of the night should your battery system fails.
Typically, deep cycle lead-acid batteries are used with solar power systems; however, Tesla is getting ready to launch lithium-ion batteries for home use, and these are predicted to make solar power even more economical.
Cost of solar power installation and permits
Solar power installation costs account for a major part of a solar system. While the quote you will receive from installers and roofers will depend largely upon where you live, as of this date, the cost per watt of installed power is between $3 and $8 in the US. Consider these tips while finding an installer to ensure that you are getting a good deal –
Look for a professional who…
- Is ensured and bonded. Also make sure that there are no complaints against the installer logged with the Better Business Bureau.
- Does not outsource installation; you can talk to the installer directly if there are issues later on.
- Offers a strong warranty, at least 20 – 25 years on solar panels, and 10 years on the inverter.
- Can provide you with a list of references. More the better.
The cost of installing a solar power system on your home will also depend upon whether you choose to get a grid-tied system, or an off-grid system.
Grid-tied solar systems work in tandem with your local electricity grid. If your solar system is producing more energy than you need, then it can be fed back into the grid. On the other hand, if your home or business requires more energy than your solar system can produce, then it can draw energy from the grid. This process is called “net-metering” and requires a smart meter installed at your place.
A grid-tied solar system is by far the best choice for most home and business owners. It allows you to sell excess energy to the local utility which reduces your monthly electricity bill. By retaining your ties with the grid, you can also save yourself the trouble of getting a costly battery pack.
Off-grid solar systems on the other hand use battery backups to store excess energy produced by your solar panels, which you can use during night time. These systems are only good if you are living in a remote area, or where there are frequent power outages. An off-grid system is considerably more expensive than its grid-tied brethren as the batteries required to run it are quite pricey. Also, by not tying your system with the grid, you lose the chance to sell electricity to the local utility.
Your installer will also need to get local permits required to install a solar power system which will account for $0.5 per watt in the final price.
Federal subsidies for solar power
Even though solar power is becoming increasingly affordable, in itself, it’s still not at parity with regular non-renewable sources of energy in most states when all the costs are taken into account. To off-set this, the government provides rebates and subsidies to companies and consumers who opt to have a solar system installed. The Federal Investment Tax Credit for Solar Energy Properties for instance subsidizes the cost of a solar power system by 30%.
Similarly, a state’s Renewables Portfolio Standard (RPS) decides what its solar policies are going to be, and how many incentives they will provide. Some states such as New York, Massachusetts, Connecticut and California have aggressive RPS, and are doing a lot to promote solar power and other renewable sources of energy. Other states like Arkansas, Idaho and Oklahoma are somewhat lacking in this regard.
Some places like southern California and New York have already achieved unsubsidized solar parity, meaning citizens there can purchase solar power at or below the cost of electricity provided by their local utility without any intervention by the state.
If you go in for a grid tied system, then you can earn even more with Solar Renewable Energy Credits, or SRECs which are part of a state’s RPS program. An SREC is created every time 1,000 Kilowatt-hour of solar power is produced. Utilities in each state with a RPS in place need to earn a certain number of SRECs (or produce a certain number of Kilowatt-hours of electricity from renewable sources of energy) annually in order to comply with environment friendly initiatives.
Should they fail to achieve the minimum required, they have to pay a Solar Alternative Compliance Payment (SACP) which is more than the value of SREC in the state. In order to make this work, the state government will put a cap on the value of a SREC as the utility may simply pay the fee instead of the SREC if it is equal in price to SACP or costlier.
Electricity suppliers thus buy SRECs from home owners and businesses to fulfill their quota. SRECs can be bought and sold in an open market, and their value is determined by supply and demand. The price tag on SRECs also differs from state to state. For instance, the spot price of a SREC in New Jersey was $160 in May 2014, while the same in Delaware was $50.
Leasing a solar power system
If you do not want to pay upfront, and/or manage a solar power system, then you can lease one instead of purchasing it as well. A lease is also called a Solar Power Purchase Agreement (SPPA), in which you essentially rent out your roof to a company which installs, operates and maintains the solar system on it. In a lease, you have to pay your monthly utility bills as you are doing, however this is usually lesser than a traditional utility bill. Most leases last 15-20 years and the service provider will offer you a fixed kW-hour rate for the duration of the lease.
A SPPA is the perfect solution if you do not want to pay upfront. By leasing a solar system you can bring down the installation cost to nothing, start saving money from day one, lock in your utility bill for the next 20 years and save yourself from cost inflation.
However, be advised, a SPPA usually requires a credit score of 700 or more, so you might have issues selling your home during the time the lease is active. You will also be handing over the special state given tax incentives and rebates which account for 50%-75% of the cost provided to the service provider.
Closing thoughts
Today, solar power is no longer a farfetched idea, meant for the rich and famous or people who wanted to desperately do something to save the environment; in fact it is beginning to make plain economic sense to most people. Solar power already costs less than grid electricity in 42 of America’s 50 largest cities, and more places are catching up. You can save a lot of money by going solar thanks to federal subsidies and leasing agreements that are available, so quit sitting on the fence and lookup solar power installers in your area.