Why are solar panels so expensive?

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Often the most important question households ask before going solar is: how expensive are solar panels? But how much solar panels cost can vary, because the main factors that impact price are location-specific. Plus, different studies calculate the cost of going solar in different ways, resulting in a wide range of estimates.

Market Conditions

Over the past few years, a market oversupply has led to a sharp decline in solar panel price. According to a Department of Energy report, the average pre-incentive cost of installing a PV system fell by 17 percent from 2009 to 2010 thanks to:

  • declining wholesale module prices
  • falling non-module costs (mounting hardware, labor, permits and fees, shipping and taxes)
  • economies of scale: as installations increase, cost decreases.

Because of rising grid electricity price and the decrease in the cost of PV, some argue that residential PV systems have already reached grid parity(when the cost of solar is the same as drawing energy from the grid). But local factors, described below, will be key in deciding whether going solar is cost effective for your household.

First Solar employees at an installation in Nevada. Credit: First Solar

Local Factors

Various factors that are contingent on your location impact the cost of going solar. These include:

  • available solar radiation: the more sun that hits the panels, the more electricity is produced.
  • panel placement: panels should be mounted to maximise the amount of radiation that reaches them. In the northern hemisphere, the optimum solar panel location is a south-facing roof. Usually 100 square ft of unshaded south-facing roof can produce 1 KW of electricity.
  • energy demand: The more energy your household uses, the more solar panels you need. According to the DOE, systems rated between 1 and 5 KW are usually enough to meet the needs of home and small business owners.
  • system efficiency and size: generally, the bigger the system, the lower the cost per kWh.
  • grid-tied vs. going off the grid: most households opt to stay connected to the grid. Going off the grid requires batteries to store power – these batteries can be quite expensive.
  • tax credits: there are a variety of federal and state tax credits for home solar.

These factors strongly impact how long it takes for the savings from going solar to pay for the original system (the payback period). Households that already take measures to conserve energy, and that are located in regions with plenty of sun and preferable tax credits, will find going solar most affordable.

Financing Options

Nowadays there are a variety of ways to pay for home solar energy systems. While the cost of buying and installing a home solar system has fallen over the past few years, other options exist for those not looking to pay thousands of dollars up front. These include:

  • energy efficient mortgages are offered by banks for purchases of new homes with solar energy systems, as well as refinancing options for the addition of a solar energy system to an existing home.
  • leasing a home solar energy system
  • solar PPAs are agreements wherein a third party owns the system, and the customer only pays for the electricity generated.

Third-party owned systems (whether leased or under a PPA) are gaining popularity, and make the switch to solar much more affordable.

So is going solar more expensive than staying on the grid?

Unfortunately, there is no clear cut answer to the question “why are solar panels expensive?” As detailed above, the cost of going solar really depends on your location. Solar energy is already viable in most states in the U.S. And for households who want to avoid the up-front cost, third-party owned home solar energy systems are the most cost-effective option.

 

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