The average American household paid $117 per month for electricity in 2020, according to the U.S. Energy Information Administration.
If you’re looking to lower your home energy costs, you may consider tapping into solar power as another option. But installing solar panels involves some pretty significant upfront costs, and it’s not always easy to determine just how much panels might save you in the long run.
If going solar is on your radar in the coming year, here’s a look at how much solar panels cost, potential tax benefits that can help offset those costs and whether solar is worth it.
If you’re considering a personal loan to finance solar panels, Credible lets you easily compare personal loan rates from various lenders.
- How much do solar panels cost?
- Factors that affect the cost of solar panels
- Are there any tax incentives for installing solar panels?
- How much do solar panels save?
- Benefits of solar panels
- Drawbacks of solar panels
- Are solar panels worth it?
- Other ways to save on energy costs
Nationwide, installing a residential solar panel system costs an average of $24,733, according to HomeAdvisor, with most homeowners paying somewhere between $17,181 and $32,285.
But several factors can impact that price beyond the obvious costs of labor and materials. For example, because solar panels are normally installed on a roof, you may need to factor that cost into the project if your roof needs repairs or to be replaced. You may also need to remove trees that are in the way before the installation.
Assuming your home is solar-ready, three main factors affect the cost of installing solar panels at your home.
Three types of solar panels are common in residential areas:
- Monocrystalline — Monocrystalline solar panels are the most common type of solar panel, and they take up less space than other options. They can handle high temperatures, have a life expectancy of 25 to 35 years and usually come with a 25-year warranty. But they’re usually the most expensive option.
- Polycrystalline — Polycrystalline solar panels are usually more affordable than monocrystalline panels. But they don’t generate as much power and aren’t as effective in high-temperature or low-light areas. Polycrystalline solar panels have a life expectancy of 23 to 27 years.
- Amorphous — Amorphous, or thin film, solar panels are more flexible and lightweight than the first two options and perform well in high-temperature and low-light areas. But they don’t last as long as monocrystalline or polycrystalline panels, with a lifespan of just 14 to 17 years.
The cost of solar panels also varies from region to region. Some utility companies and municipalities offer incentives to property owners who install solar panels, which can help offset the out-of-pocket cost for homeowners.
Labor is another factor that can vary by region. Labor costs make up approximately 15% of the total cost of installing solar, according to HomeAdvisor, so areas with higher average wages will have higher solar costs.
Several characteristics of your roof can impact the solar panel installation cost, including:
- Roof pitch — Installing solar on a roof with a steep pitch is generally more expensive than installation on a less-steep roof.
- Roof materials — Installers must use different kinds of mounting mechanisms on shingled roofs than they do on metal roofs, and these differences can affect the cost of installation.
- Size — If you have a large home, you may choose to install a larger system. Larger systems require more panels and take longer to install, which can drive up the cost versus a smaller system.
- Distance to incoming mains — If your solar system is installed near the incoming electrical mains, the cost of labor and materials will be lower than it would be if the system is far away from the incoming mains.
In an effort to encourage property owners to use solar, the federal government and some states offer tax credits for solar-powered systems.
Federal solar tax credits
The residential energy efficient property credit provides a credit worth a percentage of your total costs of installing solar electric property, solar water heaters and certain other alternative energy equipment on or after Dec. 31, 2020.
The percentage you can claim depends on when you installed the equipment. Your tax credit is 30% of the cost for systems installed in 2017 through 2019, 26% if the installation took place between 2020 and 2022 and 22% for installations performed in 2023.
Currently, the credit expires starting in 2024 unless Congress renews it.
Local solar incentives
Several states offer tax credits, rebates and other incentives to encourage residents to install solar.
The type and amount of incentives available and the rules for claiming them vary by state. You can find details on the incentives available in your state via the Database of State Incentives for Renewables & Efficiency (DSIRE), a database maintained by the North Carolina Clean Energy Technology Center at North Carolina State University.
Installing solar panels on your home can save you money. The question is, how much can you save? That depends on a number of factors, such as:
- Direct hours of sunlight — Areas that don’t get as much sun won’t save as much as sunny states like Arizona, California, Florida or Hawaii.
- The size and angle of your roof — The slope of your roof can impact energy output. The ideal roof slope is 15 to 45 degrees, according to Tesla, and anything beyond 45 degrees limits your energy production.
- Local electricity rates — The higher your local rates, the more you can save by switching to solar.
The average homeowner reduces their electricity costs by $650 to $1,500 annually, according to HomeAdvisor.
So, if you paid $20,000 to install solar on your home and expect to save an average of $1,000 per year, it would take you 20 years to break even on your solar installation costs.
But you should also take into account federal and state incentives. Say you qualify for a federal tax credit worth up to 26% of your costs and a state credit worth $1,000. Then, your total costs to install solar would be only $13,800 ($20,000 minus the $5,200 federal tax credit minus the $1,000 state tax credit). Then it would take you just under 14 years to recoup your costs.
Solar panels: Leasing vs. buying
Purchasing and installing a solar system on your home involves some pretty significant upfront costs. Some property owners may want to reduce their energy use but can’t afford the high cost of buying a system outright or don’t feel comfortable taking on a big loan to finance those costs.
In that situation, leasing a solar system may be an option. Under a solar lease, the solar company owns the equipment, and the homeowner owns the power it produces.
Some advantages of solar leasing include:
- You’ll enjoy greater upfront savings.
- You can potentially avoid responsibility for maintaining and repairing the system (although you should always read the contract to ensure you understand the terms).
Some of the downsides to leasing include:
- Leased systems are generally ineligible for federal or state tax credits and other incentives.
- Leasing usually costs more over the life of the contract because you need to make lease payments for 20 to 25 years.
- Solar leases generally don’t increase the home’s value, and selling a home with a solar lease can be challenging.
If you’re considering installing a solar panel system on your home, here are some benefits to consider:
- Cost savings — Installing solar panels can lower your monthly utility bills by $650 to $1,500 per year, on average.
- Increased home value — Purchasing and installing solar panels on your home can increase your property value. Home values increase by an average of $20 for every $1 reduction in annual utility bills, according to the National Renewable Energy Laboratory. So, a solar energy system that reduces your power bills by $200 per year would increase your home’s value by $4,000.
- Positive environmental impact — Solar energy doesn’t produce air pollution or greenhouse gases once installed. Switching from standard utilities to solar energy is like eliminating the emissions created by a car that drives 18,000 miles per year, according to EnergySage.
Like any decision, choosing solar has some downsides as well. These can include:
- Not efficient for every location or roof type — Not all locations and roofs get the same amount of daily sunlight. For example, if you live far from the equator, your roof is north-facing, or trees or other obstructions block your solar panels, your solar panels won’t be able to produce energy efficiently.
- High initial costs — Installing solar panels comes with high upfront costs, which makes them unaffordable for many property owners.
- Take up a lot of space — The more energy you want to produce, the more panels you need. Solar panels take up a lot of space. So if your roof isn’t big enough to fit the number of solar panels you want, you may not be able to offset your electricity bill entirely.
Before investing in solar panels, you should consider your return on investment. Installing solar panels comes with high upfront costs. But you can get a rough estimate of how long it’ll take for you to break even with this formula:
Estimated payoff period = (Total System Cost - Upfront Incentives) / (Annual Savings + Incentives)
EnergySage’s Solar Calculator can help you estimate how much you can save based on your location, roof, electricity rates and incentives available in your area.
It’s also important to do your research and get quotes from multiple vendors before settling on one to ensure you’re getting the best deal.
If switching to solar isn’t right for you, here are a few other ideas for reducing your energy costs:
- Purchase energy-efficient appliances. The typical household could reduce its energy bills by 24% or more by upgrading to energy-efficient appliances, according to Energy Star.
- Unplug electronics when not in use. Electronics and small appliances, including televisions, microwaves and printers, use standby power even when they’re turned off. This "vampire energy load" accounts for 5% to 10% of the total electricity use in the average home, according to Harvard University. Unplugging electronics and appliances when you’re not using them can help reduce your electricity usage.
- Take advantage of off-peak energy hours. Some utility companies encourage customers to use electricity during off-peak hours by offering lower rates during certain hours of the day. Call your power company to ask whether they offer time-based electricity rates. If they do, running your dishwasher, washing machine and dryer during these hours can lower your energy bills.