Are Solar Panels Worth the Cost? All You Need to Know

If you’re a homeowner who is considering a solar power system, you probably have a few questions to get out of the way before reaching a final decision. Getting familiarized with the technical features of solar panels is a good start, since you will know what they can do and what they cannot.

You should also consider the decision from a financial standpoint: having an idea of typical costs and savings is helpful.

There are many solar panel brands in the market, and their products look similar. High-quality solar brands are more expensive, but their benefits outweigh their higher price:

• A typical service life of 25 years or more, covered by a warranty.
• You get solar panels that meet international standards, which have been tested for electrical safety and fire safety.
• There are many qualified vendors and installers, approved by the top solar brands.

Unlike many other home improvements, solar panels are characterized by their predictable costs. The exact price will depend on the brand and installer, but many home solar systems fall in the range of $2.5 to $3.5 per watt of installed capacity. This means that prices between $15,000 and $21,000 are typical for a 6-kilowatt installation.

In the US, you get a percentage of this investment back as a federal tax credit, depending on the installation date: 26% for 2022, and 22% for 2023.

The savings achieved by solar panels are much more variable since they depend on external factors. Solar savings are determined in great part by local sunshine and electricity prices. Each PV module generates more kilowatt-hours if the local weather is sunny, and each kWh is worth more when electricity is expensive.

Here we will discuss solar panels from an investment standpoint, comparing their typical costs and savings. We will also discuss their pros and cons, providing useful facts for homeowners who are considering solar energy.

Real-World Solar Panel Costs, Based on Industry Data

With so many solar brands and installers in the market, you need to be extra careful to avoid a bad purchase. To get top performance, you should look for both product quality and installation service quality. Even the best solar panels can malfunction if they are not wired properly, and you will lose the warranty.

Having an idea of average solar costs is very useful when comparing offers. There are two reliable sources that provide updated pricing information, based on actual data from the solar industry: EnergySage and the Solar Energy Industries Association (SEIA).

According to EnergySage, you can expect to pay between $17,538 and $23,458 for a 7.4-kW home solar system, and the average price is $20,498. In terms of unit costs per watt, solar installations range from $2.37/W to $3.17/W, with an average cost of $2.77/W.

EnergySage calculates these values from thousands of installer quotes, covering many types of solar panels. This includes high-efficiency monocrystalline modules, but also less efficient and more affordable polycrystalline modules.

The SEIA reports a higher average price of $3.07/W in their Q2 2022 Solar Market Insight Report. Unlike the EnergySage pricing value, which considers all types of solar modules, the SEIA estimate only considers high-efficiency modules like those with monocrystalline PERC cells. This is why the average price is higher.

These are typical price figures, which means that most solar PV systems will have prices close to this range. If you get a solar offer that is much more expensive or much cheaper, there are many valid explanations, such as the following:

• Does the offer include an energy storage system? Typically, a home battery will add more than $10,000 to your solar energy system.
• Are solar incentives being subtracted from the final price? Some electric utility companies and local governments offer solar incentives that are paid directly to the company providing you with the system.
• Are you purchasing a premium solar panel brand? Keep in mind that top-efficiency brands like SunPower and Panasonic can have prices close to $4 per watt.

In any case, you should ask for a detailed breakdown of item prices when getting a solar offer, instead of a lump sum without details. This way, you know exactly how much you are paying for each component.

Beware if you get an excessively high price for a typical solar panel system without extra components, or if you get a very low price without any incentives subtracted. The first case is most likely a rip-off, and in the second example you’re probably getting poor quality.

Understanding Solar PV System Savings and Payback Periods

The price of a home solar system can be predicted with reasonable accuracy, based on its kilowatt capacity and the average costs reported by EnergySage and the SEIA. However, energy savings are more variable since they depend on local sunshine and electricity prices.

Two identical solar systems having a capacity of 6 kW can achieve very different results. You could ask the same installer to use the same module and inverter brands in two locations, and the results will vary.

With a 6-kW system, you can expect to generate over 10,000 kWh per year in a sunny location in California. In a less sunny place like Seattle, you might get around 7,500 kWh per year with the same 6-kW capacity.

We can estimate the savings achieved, using average electricity prices reported for the states of California and Washington. This data is available from the Energy Information Administration (EIA), and they reported the following values for April 2022 (latest data as of July 2022).

• Average residential tariff in California: 25.15 cents/kWh
• Average residential tariff in Washington: 10.12 cents/kWh

We have chosen these two locations for the comparison because they represent the most extreme scenarios. California is a very sunny state with expensive electricity, and Washington gets low sunshine while having cheap electricity. The following table compares the estimated savings in each case:

Note how the systems are identical, but the savings achieved by the first one are three times higher thanks to the abundant sunshine and expensive electricity. Below are two other examples, considering states with average electricity prices and decent sunshine: Texas and Florida.

As you can see in these examples, the savings achieved by solar panels can vary greatly depending on where the system is installed. Annual savings increase along with the amount of sunshine available and local electricity prices.

To know exactly how much, you can save with solar panels, you need to get a professional assessment of your rooftop and local sunshine conditions. Based on this information and your electric tariff, a qualified solar company can estimate your savings accurately.

Real-World Payback Period of a Home Solar System

Since the savings achieved by solar panels vary a lot depending on sunshine and kWh prices, the same applies for payback periods. EnergySage has estimated an average payback period of 8.7 years, which may sound like a long time.

However, you also need to consider that quality solar panels last for 25 years or more. If your solar PV system is exactly at the 8.7-year payback period, you will then have free electricity for 16.3 years.

Using the average price of $2.77 per watt, a 6-kW system can be expected to cost $16,620, and you get $4,321.20 (26%) as soon as you file your next tax declaration. With the net cost of $12,298.80, we can calculate typical payback periods under the four scenarios above.

Depending on your location, there might be solar incentive programs offering rebates or other financial benefits. If this is your case, the payback period can be shortened, sometimes to less than five years.

Pros and Cons of Solar Panels

Solar panels are a very reliable technology, assuming you purchase high-quality brands. They are very durable, and their maintenance needs very simple, making them ideal for homes. Of course, the main technical limitation of solar panels is their dependence on sunlight:

• They generate no electricity at night, and they only reach maximum output for a few hours around noon.
• During the early morning and late afternoon, you only get a fraction of the power output achieved at noon, since they get less sunshine.

Solar panels are cost effective when you synchronize them with the grid. All the electricity they generate is subtracted from your power bills, and you only pay for consumption that exceeds your solar generation.

On the other hand, if your intention is going off-grid, you cannot do it with solar panels alone. You need to combine them with a large enough battery system, capable of storing energy for nights and cloudy days. You also need a battery system if you intend to use solar panels as a backup power source during blackouts.

The following table summarizes the strong points of solar panels, as well as their limitations. Solar panels are very reliable when used in the right application, but you should not use them in applications for which they are not designed.