Solar power is often referred to as “free electricity”. Is it really free?
There are costs associated with financing, installing, and running solar energy systems. And, none of them come cheap.
If you have to make such heavy investments in buying, setting up, and maintaining the system, why is solar energy referred to as “free”? There has to be some logic, some reason for this.
Solar installations indeed offer enormous environmental benefits. But not everyone can afford to spend so much money, however good it may be for the common good. Naturally, homeowners who are planning to go solar analyze the financial implications and benefits of installing solar panels.
The questions that pop up in the minds of solar shoppers are:
How much does it cost to install a solar panel setup?
How long will it take for solar panels to pay for themselves?
Let us delve deeper into the matter and find some answers to these questions.
Factors affecting the cost of a solar panel system
When trying to estimate the cost of a residential solar system, you will come across many variable factors. Some of them are based on your choices like the type of solar panels and the brands you choose. However, many of the factors affecting the system are out of your hand; they are based on your location. For example, the availability of sunlight, incentives, and rebates, and installation cost.
Here is a list of the main factors influencing the cost of a home solar installation.
Amount of sunlight received
The availability of sunlight for energy production plays a huge role in the efficiency of the solar system and its profitability. The more sunlight received, the smaller the size of the system. Due to your location or the lie of the rooftop, if the solar installation is receiving inadequate sunlight, you will have to install more solar panels to generate more electricity to meet your energy demand.
Insufficient sunlight has a tumbling effect on all aspects of the solar spend. This means higher equipment cost, installation cost, and maintenance cost.
Layout and suitability of the rooftop
If you have a south-facing rooftop, slanting at a 30° angle, it offers the perfect setup for going solar. However, most homes are not built with solar potential in mind. Some may have steep roofs, flat roofs, roofs in multiple levels, or have skylights that need to remain unblocked.
Multiple-level rooftops necessitate installing solar panels in bits and pieces using separate racking systems. This increases the cost of the mounting system and the labor charges. And the type of roofs is also important to determine the mounting system. Ultimately, the layout of the rooftops influences the efficiency and productivity of the system as well as its cost and cost-effectiveness.
Type of solar technology and mounting system
Solar panels are not the same. They come in three varieties based on the semiconductor material used in their manufacture. They are monocrystalline, polycrystalline, and thin-film.
Monocrystalline: Offering the highest efficiency among all types, monocrystalline panels are also the costliest. Each solar cell is made from a single pure silicon crystal and comes in black color. The efficiency level is above 20%.
Polycrystalline: Also known as multi-crystalline, it is a cheaper and more popular option but low on efficiency. They are made by melting together fragments of silicon crystals in a mold and then cut into wafers. These come in blue color and have efficiency in the range of 15-17%.
Thin-film: Unlike the other two, a variety of materials are used in the manufacture of thin-film solar cells. Cadmium telluride (CdTe), amorphous silicon (a-Si), and Copper Indium Gallium Selenide (CIGS) are the most common among them. Thinner and flexible, thin-film solar cells may be mounted on rooftops using racking systems or stuck using adhesives. More aesthetic and easier to install, thin-film panels have the lowest efficiency level of all three at 11%.
Among the three, CdTe panels are the cheapest and CIGS panels the most expensive. However, more than the cost of the panels themselves, the installation cost for thin-film solar cells is substantially lower than monocrystalline and polycrystalline panels, as they are lighter, more maneuverable, and easier to install.
The energy demand you want to fulfill with solar installation determines its size and thereby its cost. You will get an idea of your energy consumption by checking your energy bills for the past few months.
As cost is an important factor, it is advisable to increase the energy efficiency of your home electrical system before solar shopping. The idea is to reduce energy usage to bring down the overall spend on energy, as saving energy is less expensive than generating it.
Achieving energy efficiency means eliminating devices with high energy consumption, finding lower energy alternatives, and/or limiting the use of energy-guzzling appliances, wherever possible. Here are some suggestions for increasing energy efficiency.
- Replace incandescent light bulbs with CFL or LED ones
- Replace electric heater with a propane one
- Switching off appliances when not in use. Keeping TV, computers, etc on standby mode gives rise to phantom load.
- Replace outdated appliances with new high-energy-efficient ones. Look for the Energy Star® label
- Replace electrical devices and appliances with ones running on alternative energy wherever possible. For example, water heaters, electric stoves
- Check your home electrical system for leaks and wastage and upgrade if necessary.
Solar awareness of your location
Higher solar awareness means more homes with solar installations. This translates to higher competition in the sales and service aspect of solar power. The presence of more players in the market means higher competition that can bring the prices and rates down. This is especially true in the case of labor costs.
More solar awareness also means more incentives and rebates from local authorities and utility companies. The role of NGOs is also significant.
Local choices of brands and price of solar equipment
High demand for solar equipment in an area brings in more manufacturers, brands, outlets, and installers to the scene. The market forces of supply and demand will come into effect and bring down the prices naturally.
If you are staying in an area where more and more energy consumers are switching to solar, you will have more choices and lower prices while solar shopping.
Local labor cost for solar installation
Labor cost varies considerably across the states. As a general rule of thumb, it can be said that the higher the competition, the lower the labor fees. This means, in a high solar-conscious state like California, the installation cost is lower than in some of its less solar-aware counterparts like Kansas and Oklahoma.
Localized incentives and rebates for solar
Solar Incentives and rebates can go a long way in making solar installations cost-effective for those with tight budgets. While the federal solar tax credit remains the same for everyone, localized incentives for going solar can still make a huge difference.
With many U.S. states passing solar laws and/or setting ambitious clean energy goals for themselves and other solar-related entities like utility companies in their states, it makes a huge difference where you are located to compute the cost of going solar. Long-term and time-specific incentives and rebates are more in those states with stiff targets.
From discounts for cash purchases and solar loans to solar leases, Power Purchase Agreements (PPAs), and community solar arrangement, going solar is now easier than ever before.
Again, solar awareness and clean energy goals play vital roles in the availability of options for solar shoppers. This means some of the options are unavailable in states with lower solar awareness.
Associated costs of installing a solar panel system
Solar panels are the most visible part of solar equipment. Besides panels, it needs a mounting system, inverter, and an optional solar battery for storing the electricity generated.
Solar equipment does form a major share of the solar installation cost. The additional costs include permit fees and labor costs.
Here is a list of additional costs for installing solar panels.
Permit fees and inspection fees: As solar panel installation requires electrical and construction work, permitting and inspection process is a necessary step in going solar. Usually, the solar installer will handle the logistics and paperwork and charge you lump sum fees for this bureaucratic procedure.
Labor cost: This depends on a variety of factors, including your location, layout of your rooftop, the type of mounting system, size of the solar system, and additional equipment like a solar battery. The bigger the system, the more complex the layout of the rooftop, and the more equipment that needs installation, the more the labor cost. Moreover, the labor charges differ across states and regions.
With the steady decline in the solar panel cost in recent years, the share of labor cost in a solar installation is rising. As solar awareness increases and more and more homeowners switch to solar power, more players are expected in the solar installer market. This will give rise to more competition and the labor costs are expected to fall as a result.
Be it the cost of the solar system or associated costs, the overall price quoted by different solar installers varies vastly. The main reasons for this difference are the brand and quality of solar equipment included, besides their spend on marketing and sales initiatives.
It is recommended to shortlist at least three installers in your area based on the reviews and feedback both online and offline. Get quotes from all of them and compare them before deciding on the solar installer. A quote for solar installation should be an all-inclusive price for installing the system on your rooftop.
Solar panel cost by size
The cost of a solar system increases as its size gets bigger. The size of a solar system is determined by energy usage.
Here is a ballpoint figure of how much the solar system costs based on its energy-generating capacity. The calculation is made by taking an average of system costs across the states. It may be noted that in the calculation of the average cost, incentives and rebates have not been included as they differ from state to state.
Solar panel cost by location
The cost of solar installation varies vastly from state to state. For the sake of uniformity for comparison, the prices given are for 6-kW and 10-kW solar systems, which are the popular sizes for solar systems in many states. However, it is unfair to compare them based on size alone, as energy usage differs by a huge margin across the states.
How to estimate the size of the solar panel system for your home?
The two main factors to consider for arriving at the perfect size of the solar panel system for your home are the solar irradiance in your location and your energy usage.
The solar potential of your location can be understood from this map by National Renewable Energy Laboratory (NREL).
Again, the availability of sunlight for energy production also depends on the layout of your rooftop and the presence of trees in the vicinity. These aspects are assessed by solar companies at the time of inspecting the premises for preparing quotes.
Once you are aware of the solar potential of your home, the next step is to find out your monthly and annual energy consumption. This is a simple task as it requires collecting data from your past electricity bills. An average of the monthly figures would give a reasonable estimate of your energy usage.
An average residential energy consumer uses 909 kWh per month and 10909 kWh per year, as per the U.S. Energy Information Administration (EIA) data.
Averaging across the states, a 3-kW system generates 3600-4800kWh per year, a 5-kW system produces 6000-8000kWh annually, and a 10-kWh system can generate 12,000-16,000kWh in a year.
If your home receives 3-4 hours of sunshine per day, a 5-6 kW solar system would be sufficient to meet your energy needs. In case you are located in less sunny areas, a 10-kW system would do a decent job.
Another cost estimation that is helpful for solar shoppers is the cost per watt of solar energy generated. The general rule of thumb is, the sunnier the location and the bigger the system, the lower the cost per watt.
However, to bring down the cost per watt, it would be foolish to install a bigger system than required, as the advantage is offset by the higher system cost and cost of installation.
This balancing act is not easy to understand or implement. There are many online tools available that can help you with assessing the performance of the potential solar installation. PVWatts® Calculator is a cost calculator developed by National Renewable Energy Laboratory (NREL). It is a useful tool for homeowners, small building owners, installers, and manufacturers.
How many solar panels do you need to meet your energy needs?
Once you have your energy usage computed and the system size narrowed down, it is time to choose the panels.
Solar panels come in a variety of efficiency levels and capacities. Depending on the solar technology – monocrystalline, polycrystalline, and thin-film – the efficiency levels of solar panels come in the range of 11-20%. When you are opting for higher efficiency panels, you will need fewer of them to meet your energy needs.
The energy output of solar panels also depends on the number of solar cells it has. The power output ratings of home solar panels come in the range of 250-400 watts depending on technology and the number of cells. It represents the energy output of the panel under ideal conditions.
The 250-watt solar panels are the most commonly used ones in the residential solar panel system. For a 3-kW system, you need 12 of them, for a 5-kW system 20, and a 10-kW system 40.
However, if the climatic conditions in your location are less than ideal, you may need more solar panels to produce the same energy output.
The average area of a 250-watt panel across different efficiency levels is 16.5sqft. This means a 5-kW system requires a rooftop space of 330sqft to accommodate the panels.
What is the return on investment of solar panel systems? How can you improve the ROI?
The return on investment refers to the payback by the system. This can be calculated by comparing the amount spent on purchasing, installing, and maintaining the solar panel system with the amount gained from it such as incentives, rebates, and savings in energy bills.
As all these figures vary from state to state and area to area, it is not easy to generalize ROI for solar systems accurately. On average, it is found that the payback period for solar systems is 7-8 years. That is a solar system pays for itself within 8 years.
The ROI is higher in states with higher electricity rates as the bill savings will be higher. Another factor is the availability of sunshine. In the states offering net metering arrangements, the ROI will be higher, as it allows consumers to sell the excess solar energy generated for credits or payment.
What are the other choices for going solar?
The upfront investment for solar installation is high, though incentives and rebates are meant to soften the blow. Not everyone can afford to purchase or finance a solar panel system.
For those who are facing constraints in finding funds for buying the system, there are choices available like solar leasing, Power Purchase Agreement (PPA), and community solar. In most of these arrangements, the initial investment is very low or even zero. There are many advantages and some disadvantages associated with each one of these financing plans.
Now that we have a better idea of the cost of solar panels, it is time to go back to our original question. When you are spending so much on a solar system, why is it referred to as free electricity?
The sun’s energy is free and abundant. But we need to invest in installing a solar system to tap the potential and convert it into a usable form.
There is another way of looking at the question. With the array of incentives and rebates on offer for solar installations, most of the initial investment can be recovered in the first year itself. The savings on electricity bills will cover the rest of the investment in a few more years.
Once the system pays for itself, the electricity it generates may be called “free” for the remainder of its long lifespan.
The cost of solar panels has dropped by a whopping 99% in the last four decades; most of this happening in the last decade. Developing newer technologies and improving older ones have helped bring down the cost of solar panels and the rest of the solar equipment considerably. All these developments, together with the attractive benefits of going solar, make this the perfect time to switch to clean energy.