We all know that gasoline is priced in dollars per gallon. (Duh.) Wealso all know about how far we’ll be able to drive after shelling out 40 bucks for a tank of gas.
When it comes to solar power, however, not many of us know how the cost of solar panels is measured. Nor, for that matter, do we immediately see the relationship between the cost of solar power and the value of solar power. Unlike a tank of gas, the value of which is enjoyed(and used up) more or less immediately, solar panels deliver their value over a number of years.
With this in mind, the aim of this post is to answer twoquestions: (1) How much do solar panels cost? AND (2) Does the value ofsolar panels outweigh the cost? So, enough chit chat. Let’s get started.
How much do solar panels cost?
Solar photovoltaic (PV) panels — which turn the sun’s rays intoelectricity — are typically priced in dollars per watt ($/W). There are a few details related to this measure. You may sometimes hear some people talk about DC watts versus AC watts, for example, or refer to something called dollars per watt peak ($/Wp). But the main thing to remember isthat, when you buy a solar energy system, you’re paying for the ability — or “capacity” — to generate electricity now and into the future. Pretty cool, huh?
So, how much are you paying? What is the out-of-pocket cost of a solar PV system?
Since every solar home project is a litte different, the answervaries somewhat from house to house. And, since solar rebates and solartax credits are typically made available at the state and/or locallevel, it varies a bit from region to region. (Note that all U.S. homeowners with federal income tax liability can take advantage of a federal solar energy tax credit worth 30 percent of system costs.) Here are a few helpful resources on solar energy costs:
- (1) The Open PV Project, an undertaking of the National Renewable Energy Lab, relays pricinginformation from solar installers across the country. At the time thispost was written, the 2010 national average cost of solar PV was $7.62 per watt. Not all solar installation companies participate in the project, so the numbers aren’t perfect. But the data do provide a glimpse at how much,say, the average Arizona homeowner may be paying ($5.64/W) compared tothe average homeowner in New Jersey ($7.64/W).
- (2) Some states require solar installers to report the prices oftheir solar installations — and officials may withhold solar rebates ifnumbers aren’t submitted. The result is fairly comprehensive solar costdata. Pennsylvania’s Sunshine Solar Rebate Program, for example, is reporting a median cost of $5.92/W for residentialsolar energy projects — and a median system size of 8 kilowatts (kW). Go Solar California, a joint project project of the California EnergyCommisison and the California Public Utilities Commission, is meanwhilereporting quarterly updates on residential solar costs, which in 2010 are averaging around $7.50 per watt.
- (3) When in doubt, look for a rule of thumb. Our solar cost calculator, for example, uses a default value of $7.00/W for residential solarprojects. While this number may not be bulletproof, it’s a reasonableballpark figure to start. Remember that this pre-incentive figure willbe reduced by whatever solar rebates and tax credits that are available in your area.
- (4) Get at least two (preferably three) solar home energy quotesfrom qualified solar installers. Ultimately, it’s not until you see ahard proposal that you’ll be able to know how much solar panels willcost for your home.
As noted above, since each and every project is unique, it’s somewhat difficult to generalize. But, assuming a pre-incentive cost of $7.00/W, a typical 5-kW system would have a gross cost of $35,000 ($7.00/W *5,000 W = $35,000). Any solar rebates would reduce this gross costfurther, as would the 30 percent federal solar tax credit.
Does the value of solar panels outweigh the cost?
Like the previous answer, this one varies from project to project,and region to region. In states that are “good” for solar — like NewJersey, Pennsylvania, California, Arizona, Massachusetts Colorado andHawaii, among others — a solar panel system can pay for itself in aslittle as three to five years and provide reliable, long-term energysavings.
When considering a residential solar energy project, you should weigh the following factors, each of which contributes to solar panels’ return on investment:
- The price you pay for electricity. All else equal, homeowners whopay a relatively high per-kilowatt hour (kWh) price for theirelectricity will see the strongest financial return on their solar homeenergy system.
- The solar energy incentives available in your area. If you live in a state where you’ll be eligible to sell solar renewable energy credits (SRECs), a residential solar energy system will not only cut you’re electricbill — it will also generate income above and beyond utility savings.
- The amount of sunshine — or “insolation” — in your area. While mostof the U.S. gets plenty of sunlight to make solar a good proposition,solar energy systems do produce more power in sunnier regions.
- The likely impact solar will have on your home value. Generallyspeaking, solar panels reduce a home’s cost of ownership and,accordingly, increase its value.
A good quote will clearly demonstrate the year-over-year savings of a given system. It will also include a cash flow analysis that indicates a projected pay back period and return on investment (ROI).
Ultimately, it’s up to you, the homeowner, to decide what kind offinancial return you seek in a home energy upgrade, like installingsolar panels. Some individuals are content with a ten year payback — and understand that a solar panel system would continue to generateinflation-protected savings for at least another 15 years after that ten year mark. Other homeowners will look for a payback of, say, five years or less.
Here at GetSolar, we see many solar power projects that aredrastically cutting homeowners’ electricity bills and offering afavorable ROI — evidence that suggests, yes, the value of solar panelsfar exceeds the costs. To be honest, however, we also see inquiries from states where local solar incentives are weak and/or electricity isrelatively cheap. Examples include Kentucky, Alabama and Nevada. Rightnow in these areas, it’s difficult to say whether the value of solar isgreater than the costs. Faced with a 19-year payback and a return oninvestment in the low single digits, a homeowner in Nebraska, forexample, may be forgiven for his skepticism.
As solar panels become more affordable, and as more and more statestake steps to promote demand for solar power, we that the value of ahome solar energy system strengthens for all homeowners across thecountry. If you’re lucky enough to live in state where the value ofsolar already exceeds its cost, don’t miss out on a great opportunity!Thank your lucky stars, get prepared and request a quote today.