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Why Are Solar Panels So Expensive?

You are most probably considering installing solar panels on your home’s roof. After all, they are a sustainable means of energy compared to fossil fuels, and energy costs are less pricey in the long term.

However, the prices may make you wonder why solar panels are expensive.

You are not alone.

The cost of going solar can be overwhelming or even make you think it’s not possible to go fully solar.

Solar panels are expensive because of the equipment cost. Plus, there are soft costs, such as a professional installation that’s safe and compliant with manufacturer warranties and local codes.

This, of course, is the short answer. The full story behind the expenses depends on various factors. We go through these factors below, offer tips on how to reduce your solar installation costs, explore tax credits and incentives available, and answer some frequently asked questions.

picture of a woman looking at solar panels and being shocked at how expenisive

How Much Does a Solar System Cost?

Solar panel costs depend on the amount of energy your home needs. The average installation cost is about $2 to $3 per watt. A typical home requires about 6 kilowatts, which will set you back between $12,000 and $18,000 in total.

Larger homes consume more energy, with costs reaching the region of between $20,000 and $30,000.

While the figures are pricey, solar panels are cheaper than they once were. According to the Solar Energy Industries Association (SEIA), average costs have dropped by 70% since 2010. Systems that go for $16,000 today would have cost you about $25,000 in 2015—and we expect further drops in the next few years.

So why are solar systems so expensive?

Manufacturing Costs

Solar panel manufacturing requires different materials and expensive processes. Silicon cells are a critical component of solar photovoltaic. Silicon has an atomic number 14 on the periodic table, and it’s a nonmetal with conductive properties that allow it to convert sunlight into electricity. 

Light interacts with a silicon cell, setting electrons in motion and starting the flow of electricity, which creates the “photovoltaic effect.” Silicon comes in various cell structures: 

  • Monocrystalline: These silicon panels cost about $1 to $1.50 per watt. Manufacturers make the solar panels from a single large silicon block that is converted into silicon wafer formats. Producing individual monocrystalline wafers is labor-intensive, which makes them expensive to manufacture. 
  • Polycrystalline: They cost between $0.70 and $1 per watt. Polycrystalline panels are produced by melting several silicon crystals together. However, these solar panels are less efficient than monocrystalline cells and also less expensive. They have a bluish hue that we often associate with some solar panels. 
  • Amorphous silicon cells: These cells help manufacture thin-film solar panels that cost between $1 and $1.50 a watt. The solar panels have non-crystalline amorphous silicon cells that are attached to metal, plastic, glass, or another substrate. These panels are bendable and lean, unlike your standard solar panel. 

However, silicon cells can’t produce electricity for your home or business on their own. They are paired with a wiring and metal casing, allowing electrons in the solar cell to escape and supply power. 

Most solar panels rely on silver parts. Silver is an excellent material for electrodes, and silver-coated silicon wafers are often the foundation of traditional photovoltaic cells. The metal is expensive despite engineers’ efforts to minimize the use of silver.

The basic framework of many solar panels is steel, thanks to its price and rigidity. However, producing steel depends on a steady supply of magnesium. Some solar panels have an aluminum metal frame to protect the system against inclement weather. The frames also help mount the solar panel at the desired angle.

A solar system also needs an inverter for converting solar electricity into a usable form. The inverter changes DC to AC, which is what home appliances use.

Account for batteries if you opt for an off-grid system. These batteries depend on expensive rare minerals and elements – such as lithium – to store energy.

The material costs of solar panels significantly increase when you factor in copper cabling, glass, and other synthetic compounds that go into the system. As such, production costs become a large part of the price.

Installation Costs

Getting the right solar system installers for your project is critical—and can be pricey. The average installation project may involve hiring three workers for eight hours. Also, remember to factor in costs such as tools, transportation, and the potential need to hire electricians for sub-panel installation.

Make sure that the solar installer provides quality system installation. If you’re going to all this trouble, make sure the people you’re hiring are viable.

Solar panel mounts can set you back anywhere between $10 to $3,000 each, depending on whether you’re using a fixed, adjustable, or motorized tracking mount. Like silicon cell types, the least expensive option is often less efficient.

Common mounting options and their costs are:

  • Fixed solar panel mounts: These mounts cost about $10 to $15 each. They hold your solar panels stationary. Use fixed solar mounts if you’re in a region where there is continuous sunlight, so adjustments are unnecessary to maximize energy production. 
  • Adjustable solar panel mounts: They cost about $50 each. Adjustable mounts allow tilting your solar panels depending on the intensity of the sun and season. Adjusting the panels to soak more sunlight increases energy production. Further, you can also lay the panels flat to avoid wind damage. 
  • Tracking solar panel mounts: These units will cost you between $500 and $3,000 each. Tracking mounts follow the arch of the sun and offer maximum efficiency. The initial cost is high compared to other mounts, but the tracking system adds 45% more energy production to the system. 

Required permit prices vary depending on your city and state ordinances. Expect the inspection and permit fees to take up about 3% of the overall project budget. The prices usually roll into the overall cost of installing the solar system.

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How to Reduce Solar Installation Costs

A major component of your solar system relates to its installation and other contractor expenses. Here are some steps that will help you reduce these costs and make installing your solar system cheaper.

Compare Multiple Quotes

It pays if you don’t sign the first solar energy installation quote you receive. Consider multiple contractors in your area. Perhaps your friends or work colleagues can make recommendations.

Some solar paneling companies offer all-in-one solutions that cover everything from the initial equipment purchase to installation. While such companies are a convenience, they come at a considerable premium.

Save more money by purchasing the solar system equipment yourself and then hiring a contractor for the installation. Independent contractors may charge about $1 per watt compared to $3.50 by an all-in-one outfit.

Choose installers with a proven track record and that offer roof warranty. The latter is critical for your solar system installation. A warranty also saves you money by avoiding maintenance costs associated with poor workmanship.

Consider DIY Installation

You can reduce the installation costs even further by installing your solar system. While daunting, the internet provides a wealth of information to take you through the process of basic solar system installation.

DIY solar installation, however, requires expertise and skills because of the weight, complexity, bulkiness, and nature of the panels. Plus, carrying heavy solar panels up to the roof is a surefire way to ruin an otherwise relaxed Saturday afternoon.

Make sure you allocate more time than a professional installer might. Installing your solar panel also involves accurate measurements, making electrical connections, and acquiring permits.

Many DIY installers work on minor projects, such as installing panels on an RV or shed, first before installing the panels on their homes.

Don’t Go Overboard

When buying a solar system for the home, it’s tempting to get something too big for your requirements.

Here are some quick steps to help you calculate the number of solar panels you need:

  1. Work out the average daily energy usage in kilowatt-hours.
  2. Decide how much power will come from the solar system.
  3. Measure the space available for the system.
  4. Find out the average daily peak solar hours for your location.
  5. Work out the number and type of solar panels required to fulfill your energy needs.

If the calculations seem very complicated, use these sites and enter information about your location and space. You will then receive feedback on the number of solar panels you need.

Another simple solution is to get an outside contractor. The provider will assess your home and make recommendations about your solar system.

Warranty and Service Contracts Add up

It’s a huge mistake to assume that all parts of solar installation costs are open to reduction. You may have to pay a little extra for warranties and service contracts. While they add up your installation costs, warranty and service contracts provide peace of mind.

For example:

  • Solar PV panels have standard warranties for 12 to 25 years
  • Batteries provide 5 to 10-year standard warranties
  • And most inverters have 10 to 25-year warranties

Manufacturer and installer warranties cover you in case of solar system issues and problems. Also, consider paying extra for a comprehensive warranty and dependable support and maintenance. Make sure you check the paperwork carefully before signing.

Tax Credits, Incentives & Rebates

Fortunately, there are excellent financial incentives for making the switch to solar. These incentives mean that home solar installations are still affordable.

Federal Tax Credits & Incentives

The federal government offers tax credits and incentives for adding solar panels to your home. But the credits are often temporary, so take advantage of them before they expire.

Federal tax credits and incentives include:

  • The Solar ITC for residential and commercial projects: The Federal Solar Investment Tax Credit (ITC) allows you to deduct 26% of the solar system installation cost from your federal taxes. ITC applies to residential and commercial systems, and there’s no cap on the value.
  • Federal tax credit for solar backup batteries: Solar batteries are also eligible for the federal tax credit in residential and commercial settings. However, eligibility requirements for each case are slightly different. Plus, the batteries need to be installed at least 12 months after your solar panels.
  • USDA grants for solar: The United States Department of Agriculture offers Rural Energy for America Program (REAP) grants. These grants provide guaranteed grant funding and loan financing to rural small business owners and agricultural producers to buy and install solar systems.

Local Tax Credits & Incentives

At the state, county, city, or town level, your locality may provide additional solar incentive programs. The Database of State Incentives for Renewables and Efficiency (DSIRE) is an excellent source for current incentives in your location.

Here are some common local tax credits and incentives:

  • State tax credit: The state tax credits for installing solar systems don’t reduce your federal tax credits and vice versa. However, the taxable income you report on federal taxes is higher when you receive a state tax credit. The Tax Cuts and Jobs Act of 2017 set a $10,000 limit on state and local tax deductions.
  • Cash rebates: Some utility companies, municipalities, and states provide up-front rebates for installing solar panel systems. These rebates are available for a limited time and disappear once a target number of solar systems is installed in your location. Solar rebates can reduce your installation costs by up to 20%.
  • Solar Renewable Energy Certificates (SRECs): Most states require utilities to produce or buy a set percentage of their electricity via renewable sources, including solar. If you live in such a state, your solar panel system creates SRECs you sell to utility companies.
  • Performance-Based Incentives (PBIs): PBI pays you for each kilowatt-hour credit your solar system generates. A PBI program is an incentive for electricity produced, while SREC represents the environmental attributes of generating solar power.
  • Rebate from State Government: These rebates also don’t reduce your federal tax credit. For instance, installing an $18,000 PV solar system before December 31, 2022 means you get a one-time rebate of $1,000. But your federal tax credit is calculated as 26% of $18,000.
  • Rebates from an electric utility for installing solar: Subsidies you receive for installing a solar system are usually excluded from income tax thanks to a federal law exemption. We subtract the utility rebate for solar system installation from the system costs before calculating the tax credit. This means 26% of total system cost minus one-time rebate fee, using the example above.
  • Accelerated and bonus depreciation solar incentives for businesses: Accelerated depreciation allows businesses to write off the value of their solar panel system via the Modified Accelerated Cost Recovery System (MACRS). The system helps reduce your business’ tax burden while accelerating the return on investment.
  • Subsidized loans: You might be eligible for a solar panel system finance purchase at a reduced interest rate through a subsidized solar loan. Such loans are available from the state, non-governmental organizations, and utility companies.

Do You Qualify for Any Rebates?

Whether you qualify for any of the solar incentive programs depends on several factors, including:

  • Incentives available in your state
  • Whether you have a tax liability
  • Your annual income

Note that some states don’t provide solar incentives. However, going solar in such a state still makes financial sense, but not due to state legislation.

But anybody can qualify for the federal tax credit. However, you need to make some income, so you’re an active taxpayer. Annual income determines how much you owe, and making enough means you can claim both federal and state solar tax credits. You can also claim credits over several years if your tax liability is less than your total amount of credits.

A low income (below the median income) may also help you qualify for low-income rebates and grants that reduce the price of going solar. It’s free in some places.

You don’t qualify for any financial incentives if you get your solar panel system through a Power-Purchase Agreement (PPA) or lease. Instead, the company installing the system can claim federal and state tax credits and SRECs. But you’ll still find the per-kWh price from your solar installer is lower than for most people in states without the incentive.

FAQs

Here are frequently asked questions about solar panels.

Yes, solar panels help you save money.

A solar panel in your home helps the environment by reducing greenhouse emissions. The system also allows you to keep more money in the bank monthly.

You save by using less utility electricity, which comes out clearly once you cut enough from your electricity bills to recoup the cost of installing a solar panel system. Plus, you’ll get more money should you decide to sell your home.

No, solar panels are not a gimmick.

Solar energy is a proven, affordable, and clean electricity source for your home or business. Recent technological advancements in photovoltaic panels are making solar power a viable option for more people.

Solar panel prices have dropped drastically. In 1977, solar photovoltaic cells would set you back about $77 per watt of power. Today, solar cells cost as low as $0.13, which is 600 times less.

According to Swanson’s Law, the price of solar drops by 20% for every doubling of shipped products. The entire global economy is shifting toward renewable energy, which helps improve manufacturing volume.

Some locations simplify permitting requirements for solar installations and hire dedicated solar inspectors. Both actions help offset the cost of each installation.

Solar permitting requirements in the US vary by state and local jurisdiction. Most of the process involves filling out paperwork by installers. Las Vegas, for example, cuts down on permitting times from 90 days to just minutes using a nearly immediate virtual permitting portal.

Other areas have a dedicated team of solar energy system inspectors. These professionals inspect all systems within their jurisdiction.

Larger solar installation companies markup their quotes to two or three times the equipment cost, which turns a $10,000 system into a $30,000 job. You can save a sizable amount of cash by installing the unit yourself or hiring an independent contractor.

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