Our Solar Expert Answers Your Questions on Solar Panel System Costs – Part I

This blog is a part of an interview series where we sit down with our solar expert to get your burning questions answered. Stay tuned for Part 2.

How much does a solar panel system cost? This is one of the top questions on a homeowner’s mind when it comes to going solar. Considering a solar power system is a significant investment, it’s understandable that cost is a primary concern. But, before you make a decision, our solar experts say homeowners should also pay attention to a few other things.

Cost per Watt over Total System Cost

The critical cost comparison for solar panels is not the project’s total dollar value, but the cost per watt ($/W). Let’s say you received two quotes: System A is estimated at $20,000, and System B is $16,000. Don’t just focus on the total price difference. As discussed in this article, there are several factors that go into the total system cost.

Solar systems are sized in kilowatts, which measures the rate at which energy is produced (1 kW = 1,000 Watts). The system’s cost per watt is calculated as the total cost of the system divided by the system size in watts. If your installer estimated a 7 kW system for $20,000, your cost per watt is 20,000/7,000 = $2.86/W. In the table below, we have a comparison of the two systems. In this case, System B’s cost per watt is more expensive.

You can also compare the estimated cost per watt with that of the average figure in your state. According to the most recent EnergySage report, the average cost per watt in 2022 was $2.95 across the US, which widely varied from state to state.

What factors are considered for the system size? Your home’s electricity use is a good place to start; providing the previous 12 month’s electricity bills should give your installer a sufficient understanding of your home’s current electricity use. But, if you’re planning to purchase an EV or a home renovation or electrification project (such as upgrading your gas furnace to a heat pump), it is important to let the installer know about it.

Another factor for the system sizing could be your roof’s solar potential. Not every part of your roof has the same exposure to the sun due to the orientation and angle of the roof, as well as shading from nearby trees and other obstructions. Also, local, state, and federal regulations limit where solar panels can be installed on roofs, and typically require 18 to 36-inch setbacks from most of the roof’s ridges and valleys; these setbacks provide adequate space for first responders in case of an emergency. Your installer will assess your roof and propose where and how many solar panels are recommended for your system.

Lifetime Savings

Solar panels last for about 25 years, so it is critical to consider how your system will perform over time. Most estimates show a 25-year projected financial analysis, including utility savings over the term, return on investment, and levelized cost of energy (LCOE). You might be familiar with utility savings and return on investment, but what is LCOE? It is the expected average cost per kilowatt-hour (kWh) of energy from your solar system over the lifetime (net installation cost ÷ expected lifetime energy production). The cost/kWh is easily comparable to your utility’s electricity cost, which can be noticeably lower with solar compared to your utility today (at this article’s publication). If the utility’s rate system stays the same, the cost differential only increases in the future, as electricity costs from utilities are expected to rise a few percent per year, compared with 0% increases with solar’s LCOE.

This is where it gets interesting: higher quality equipment will have higher initial installation costs, driving up the initial cost per watt, but it might produce more solar energy and deliver better lifetime savings. Let’s take a look at the real-world example below.

System D is almost $1,000 more costly but is estimated to provide over $9,000 more utility bill savings over the system’s lifetime. Why? It is because not all solar equipment is created equal; some identically-sized solar panels are more efficient, as certain panels can maintain power generation better in hot weather. If you live in a hot area, heat significantly affects solar energy production. While one panel may be more expensive upfront, it can turn out to be a more economical system in the long run. Different identically-sized solar inverters also have differing efficiencies, as some are better capable of handling peak energy during the highest-production times of the day.

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