The cost of solar panels has dropped significantly in the last decade as illustrated in Figure 1 from a
2021 benchmark study by the NREL (National Renewable Energy Laboratory), with costs in 2020 approximately 36% of comparable costs in 2010, adjusted for inflation. 2024
information from EnergySage, the rooftop solar system marketplace, shows the average cost of installed systems across the us at $2.86/watt, or slightly higher than NREL. However, in addition to installed cost, there are two other keys to determining how cost effective a new rooftop solar system will be:
- US Investment Tax Credits (ITC) can be used to deduct 30% of the cost of a residential solar system from federal taxes. The US Congress voted at the end of 2022 to extend the solar ITC of 30% for another 10 years, which will continue to subsidize the cost of new systems and make solar systems more attractive to consumers. In addition, many states have additional credits that consumers have access to.
- Net metering allows the owner to sell excess electricity back to the utility. This allows the solar system owner to essentially utilize the electrical grid as a power storage and back-up system to overcome the mismatch between fluctuating solar generated electricity and usage. For more information on this topic and a discussion of the challenges facing net metering, see OWOE: What is net metering?
To understand the true cost effectiveness of a home solar system, we can examine the cost and benefit of the average rooftop solar system presented in
OWOE: What is the average size of a rooftop solar system?. With the average home in the US requiring 21 panels at 320W each, the total system would be 6,720W. At $2.86/W, the retail cost would be $19,100. Taking the ITC drops the effective cost to $13,400.
On the benefit side,
2024 US Bureau of Labor Statistics data for electricity rates across the US range from a low of 12.6 cents/kW-h for St. Louis to a high of 42.8 cents/kW-h for Honolulu, with a national average of 17.3 cents/kW-h. Using our average home usage of 10,600kW-h per year results in 10,600 x 0.173 = $1,835 yearly electricity cost.
Assuming an average rate of increase of electricity of 3% per year, a simple calculation of payback time for this hypothetical system is approximately 9 years with no ITC and 6-1/2 years with the ITC. Given that the life of a typical rooftop solar system is 25 years, a homeowner can expect to save a significant amount on their electricity bills over that period after repaying themselves the cost of the system.
Final caveats:
- All the above calculations are based on an insolation value of 5; economics in areas with less solar energy would not be as robust.
- Payback time is directly impacted by actual costs of the system, electricity usage, and electricity cost.
- All calculations assume "pure" net metering, i.e., the utility buys back excess power at the same retail rate as it sells it to the homeowner. While many states and/or localities have pure net metering, some do not, and California, for example has new net metering rules that have significantly reduced the value of a rooftop solar system (again, see OWOE).
And, finally, many companies provide the option to install a system with no upfront cost to the customer. The company provides the equipment, installs it, and maintains it in return for a contract to purchase a minimum amount of electricity at a fixed price over a fixed period of time. This price is usually significantly lower than the utility company's price. Of course, any income gained by returning excess electricity back to the grid belongs to the system owner and not the customer.
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