Why are Solar Panels So Expensive?

Why are Solar Panels So Expensive

Solar energy is a comparatively new concept that is remarkably different from other types of energy resources – both renewable and nonrenewable. Solar power is generated without any moving parts in the installation, unlike the rest. All the rest convert different forms of energy into electrical energy using the age-old concept of turning the turbine. There is nothing new to invent, only scope for improving the efficiency level with technology.

When we say solar panels are expensive, it is in comparison with the cost of generating electricity from other resources. That comparison is similar to comparing apples and oranges.

So, how much does it cost to install solar panels?

Cost breakdown of solar power installation

The most expensive part of a solar installation is the hardware, consisting of solar panels, collectors, inverter, and battery. It makes up 25% of the total cost. 55% of the cost of a new solar installation is made up of soft costs. This includes labor, permits, overhead, and other cost factors like sales tax and transaction fees. Marketing and sales round off the cost breakdown with a contribution of 20% of the total cost.


Solar panel: The solar panels are expensive because the semiconductor material used in it is costly and it involves a great deal of effort and energy to purify it. Silicon is the most commonly used semiconductor material in solar panels. But the newer thin-film solar panels use the compound cadmium telluride. This has lowered the price of solar energy considerably.

Inverter: There are three kinds of inverters for solar installation – centralized inverters, string inverters, and power optimizers. While centralized inverters are connected to the whole system, the more efficient string inverters and power optimizers are individually attached to each panel in the system and hence more expensive than centralized inverters. 

Battery: Though not an essential part of a solar installation, it is needed for uninterrupted power supply from it. As the sun is not always present to produce solar energy, a battery can store energy for later use, when the sun is not up. However, a battery adds to the cost of the installation.

Mounting system: Whether a small-scale solar installation on a rooftop or yard or a large-scale one, a mounting framework is unavoidable but drives up the cost. The mounting framework comes equipped with tracking systems to improve efficiency and increase energy production. But the more complex the mounting system, the more expensive it gets.

Soft Costs

Labor: In a domestic solar installation, a roof with multiple levels and unusual angles and shapes results in adding to the labor cost. Clearing the vegetation for maximum exposure to the sun also can escalate the total cost of installation. The existing home electrical system may require modifications or upgrade to make it compatible. This is also a costly exercise.

In large utility-scale solar installations, labor is the main constituent of the solar farm cost breakdown. Clearing large tracts of land of vegetation and existing structures involves effort and time. Fixing the mounting system, installing the solar panels, and connecting them up to the centralized inverter is no easy task.

Permits and warranties: These are essential and unavoidable parts of solar installations, but adds to the cost.

Marketing and sales

It is estimated that a whopping 20% of a domestic solar installation comes from educating the public about the benefits of installing a solar system. As more and more become aware of its existence and benefits, it is possible to make solar energy cost-effective. That day will come when consumers start relying on the internet for information and shopping for solar installations.

You may be interested to read Powering a House with Solar Panels: Myths & Facts

What is the payback period?

There is no denying that the initial solar installation cost is on the higher side. That is one of the prime disadvantages of solar energy. However, the lifespan of installation is estimated to be a minimum of 20-25 years. Most manufacturers offer a warranty for this period, making solar power a viable long-term investment. 

Like in the case of any long-term investment, the profit-loss calculation needs to be done on a long-term basis. By installing a solar system, it is possible to save money on electrical bills over a long period. This saved money will eventually pay for the system itself. The time taken to recoup your initial investment is known as the payback period.

Every watt of energy produced after the payback period is free of cost and the profit made on the investment.

What does the future hold for solar power?

The International Renewable Energy Agency (Irena) in its Renewable Power Generation Costs in 2019 report says, 

“Since 2010, the cost of energy has dropped by 82% for photovoltaic solar, by 47% for concentrated solar energy (CSP), by 39% for onshore wind and by 29% for wind offshore.”

Irena’s report attributes the cost reductions witnessed in the last decade to “improved technology, economies of scale, supply chain competitiveness and the growing experience of developers”. Irena contends that “the same amount of money invested in renewable energy sources is producing far more new capacity today than it was ten years ago”.

Much research and development are happening to improve efficiency and bring down the cost of solar electricity so that more people and governments embrace it. At present this is also adding to the cost of new installations.  With the rising prices of oil and natural gas and the falling costs of solar power installation for homes, the future looks bright for solar power.

Closing thoughts

Solar energy is expensive when considered as a short-term investment. The tax credits and other incentives offered makes it a profitable option in the long run. For a domestic consumer, the return on investment improves drastically by avoiding turnkey providers and opting for independent contractors or better still, doing it by self.

If you can generate more power than you need, you can make a profit by selling power to the grid. Installing a solar system increases the value of the property, as a property that can produce its own power is worth more than one that depends solely on the grid.

Over and above all this, you can enjoy being energy independent and feel good about doing your part in saving our planet by using green energy.

Looking for the best solar kit for your tiny house? Check out our top five picks and learn everything you need to know about small solar systems.

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