Solar Panels Costs, Tax Credits, Incentives & Rebates

Solar Panels Costs, Tax Credits, Incentives & Rebates

Here’s what we’ll cover in this guide – feel free to jump to the section you’re interested in.

  1. How Much Do Solar Panels Cost?
  2. The Average Cost of a Home Solar System
  3. Solar Costs by State
  4. What Factors Impact the Cost of the Solar System Installation
  5. Inverters for Solar Panels
  6. Labor Costs to Install Solar
  7. Cost of Permits for Solar Panels
  8. Solar Panel Rebates and Tax Incentives
  9. Solar Financing and Ways to Pay for Solar Panels
  10. Solar Adds Value to Your Home
  11. Are Solar Panels Worth It?

How Much Do Solar Panels Cost?

As the cost of solar panels has decreased dramatically in recent years, more and more people are purchasing these environmentally friendly energy systems for their homes. In many cases, installing solar is a great financial investment and an investment in the health of our planet.

If you’re thinking about buying solar panels, it’s important to understand the cost of a solar energy system. You need to consider not only the price of the panels themselves but also the labor cost involved in installing them, as well as any applicable rebates or tax incentives. Finally, it’s good to understand the payback period on your investment based on energy cost savings.

The Average Cost of a Home Solar System

There are several variables that drive the cost and financial benefits of solar systems including the size of the system (how many panels), your geographic location, and local government and utility incentives.  That said, on average, a 10 kilowatt (kW) solar panel installation costs around $20,000 ($27,600, or $2.76/Watt, gross cost minus 26 percent with the tax credit factored in). While this is the average cost, the actual cost will typically be between about $17,600 and $23,200 after the federal tax credit.  This does not factor in other rebates and local tax incentives which we’ll discuss below. 

Solar Costs by State

While the $20,000 figure is a rough estimate for a 10 kilowatt (kW) system, the price per Watt ($2.76/Watt gross on average) varies based on where you live.  In sunnier, warmer places such as Florida, Arizona, and Southern California installers will typically charge less per Watt as the systems are bigger as they have higher average energy consumption per household due to running air conditioners in the summer months.  A bigger system is like buying in bulk and the per watt price comes down, but the total price may be comparable, or even higher.  In general most state average per watt prices is within $.50 of the national average of $2.76, making solar a compelling choice for homeowners across the country.

What factors impact the cost of a solar system installation?

Size of the Solar System & Net Metering

To offset 100% of electricity purchased from a utility, most houses would need 25-30 panels.  A solar panel typically produces about one kilowatt-hour (kWh) per day, so if your daily kWh usage is 30, you would need 30 solar panels to generate all of your energy needs.

Clearly larger solar systems with more panels and energy generated will cost more than smaller solar systems.  As discussed above, the price per watt is lower for a larger solar system, but the total price will typically be higher the more panels you have installed.  Another factor to consider is while a larger solar panel system may cost more upfront, it will save you more money over time.  Most states mandate that utilities pay you for the excess power you generate above what you use.  This is called net metering and is one incentive to install an adequate large system, as you will earn money for electricity you push back into the grid. In general, discussing your goals with your solar contractor is important to determine the best size solar system for your house.  

Roof Characteristics for Solar Panels

If your roof is south facing with an optimal pitch (30%) this will reduce the overall cost of the system due to ease of installation and fewer panels needed to generate the desired power.  If your roof has multiple pitches, sunlight, or other complexities, this can increase the total cost of installation.

Solar Panel Types, Costs, and Efficiencies

As with all things in life, there is a spectrum of prices based on the quality and characteristics of the solar system. The drivers of solar panel prices are typically efficiency, appearance, and warranties.  The different types of solar panels with associated costs are

Passive Emitter and Rear Cell (PERC) solar panels – are a new and exciting development in solar power technology.  The rear surface of the panels reflects sunlight back up into the solar cell, increasing the amount of energy generated.  This reflective property also helps keep the solar panel cooler. As a result, these are the most efficient panels with an efficiency rating 5% higher than monocrystalline panels.  The price per watt is also low at typically under $.65 per watt.

Monocrystalline solar panels – while these are the most expensive at $1 to $1.50 per watt, they are also the most efficient and last the longest.  These panels have an efficiency rating of 20%

Polycrystalline solar panels – these are slightly more affordable at $.90 to $1 per watt but are also less efficient. These panels are between 15-17% efficient.

Thin-film solar panels – these are the most affordable at $.70 to $1 per watt but have the downside of lasting only 14 to 17 years.  On the upside, they are better suited for high heat locations than other panels. Unlike crystalline panels which contain a lot of silicone, which drives up the price, thin-film solar panels use other materials.  Based on the type of material used efficiency ranges between 6 and 15%.

Panel (or module) cost Cost Per Watt Efficiency
Passive Emitter and Rear Cell (PERC) $.32 - .$65 Highest (5% more than monocrystalline)
Monocrystalline $1.0 - 1.50 20% and up
Polycrystalline  $.90 - $1.00 15-17%
Thin-film $.43 - .70 6-15% depending on material

Inverters for Solar Panels

Outside of the panels themselves, the other major piece of equipment in a solar system is called an inverter.  When the sun shines on solar panels they generate direct current (DC) power.  Your home and the electrical grid run on alternating current (AC) and the job of the inverter is to convert DC power to AC so it can be used in your home or sold back to the grid through net metering.  

There are 3 main types of inverters, each with cost implications on the system: 

String inverters – most affordable. The most basic and lowest cost is called a string inverter. These are typically mounted to the side of your house and are reliable options.  The one downside is that they are best suited for roofs that get consistent sun as shading on one panel can reduce the output of all panels when connected to a string inverter.  

Power Optimizers – mid-range price. Power Optimizers: To mitigate this reduction in output, the homeowner can either add power optimizers, which mount by the panels, and “condition” the power before it reaches the inverter.  This also provides the benefit of monitoring the power generation from each panel individually.  

Microinverters – highest performance, but more expensive.  Finally, microinverters are the highest performance, but most expensive option. These consist of a small inverter mounted by and dedicated to each panel.  These are good for roofs that have multiple pitches or are sometimes shaded by trees, chimneys, or other obstructions.

Labor Costs to Install Solar

While you may think that the majority of the cost of a solar system is the cost of the panels, inverters, and other equipment, the majority (65% in 2020) of the cost was to install the system.  Labor and permitting are often referred to as ‘soft costs’. While solar equipment costs have fallen dramatically in recent years, soft costs have remained relatively consistent.  These soft costs are unfortunately higher in the U.S. than they are in other countries and there are major efforts underway to bring these costs down.  One of these major initiatives is Project SunShot from the U.S. Department of Energy which funds initiatives like enabling contractors to design solar systems remotely using satellite imagery.

Cost of Permits for Solar Panels

Permits have historically added up to $1 per watt to the cost of installing solar panels and required several months to obtain.  Typically your contractor will need to obtain a few permits and pay a fee (known as an interconnection fee) to hook your solar system up to the electrical grid.  In line with President Biden’s mission of getting to net zero emissions by 2050, the DOE has launched an initiative called SolarApp+ to streamline the interconnection process, reducing installation time and costs.

Solar Panel Rebates and Tax Incentives

The federal government along with state and local governments and utilities can all provide incentives for going solar.  While these vary by location, the federal solar tax credit is usually one of the most significant cost offsets.  This tax credit is a dollar-for-dollar reduction in your federal income taxes. So for example a $5,000 tax credit reduces your tax liability by $5,000.  The federal tax credit can be claimed on a percentage of the total cost of the solar equipment, permitting, installation and sales taxes. This federal tax credit is currently 26% of the total cost for installations through 2022.  Unless further amended by the federal government, the credit is slated to drop to 22%.

Solar Financing and Ways to Pay for Solar Panels

There are three primary ways to pay for a solar system.  These are a cash purchase, a solar loan, and a solar lease, also known as a power purchase agreement.

If you have enough federal tax liability to maximize the federal solar tax credit and want to maximize your energy cost savings, the cash purchase option may be best for you.  

Solar loans are available from many types of lenders including credit unions, national banks, public-private partnerships, utilities, municipalities, and even solar-specific lenders.  They’re also available as secured loans (which typically use your home as collateral) or unsecured loans, which will often have a higher interest rate.  Solar loans can be a good option for someone that wants to own their system and is willing to maintain it, but does not have the entire project capital available at the time of purchase.

Financing a solar project with a power purchase agreement (PPA) is akin to leasing or renting your solar system.  While the system is located on your property, you do not own it and the solar company will handle any needed maintenance.  The panels power your home and you pay the PPA company a set rate for each kilowatt-hour.  Outside of not having to maintain the system, the rate you pay to the PPA company is typically lower than that you’d pay to a utility.  But, you don’t get the benefit of generating free power once the system is paid off.  One downside is that you would not be eligible for federal (other) tax incentives and rebates. 

Solar Adds Value to Your Home

A 2019 Zilow study found that homes with solar panels sold for 4.1% more on average than comparable homes.  Given the median home price in the U.S., this equates to $9,274 in additional sales price.  This however is an average and in some markets (like New York), homes with solar panels sold for a 5.4% premium, or almost $24,000 more than a comparable home.  This significant added value to your home should be taken into consideration when thinking about the investment in a solar system.

Are solar panels worth it?

There are many great reasons to go solar, both financial and environmental.  

From a financial perspective: with the abundance of federal and local tax incentives and rebates, solar panels can pay for themselves in as little as 5-7 years.  Given that solar panels last over 25 years, that many years of free, clean energy.  Additionally, you will be protected from rising energy prices from utilities, as you are in effect your own utility powered by the sun!

From an environmental perspective, solar is a star (no pun intended).  According to the EPA the electricity sector accounts for 25% of greenhouse gas emissions, from coal and gas-burning power plants.  Reducing our reliance on these outdated climate-change fueling sources of energy is critically important for the future livability of our planet.  Additionally, as you move towards replacing natural gas-powered appliances in your home with electric appliances, your solar system becomes even more important.  One residential solar system reduces the 3-4 tons of carbon emissions annually, the same as planting 100 trees every year!

Contractors

Finding the right contractor can be the key to having solar panels and systems installed correctly and safely, and is certainly easier than doing it yourself. Beyond word-of-mouth recommendations, local building inspectors or trade groups may have a list of licensed contractors in your area.

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