When shopping for a home solar system, sometimes the quoted price can leave you wondering why someone would move forward with something that seems so expensive.
When compared with the status quo, electricity delivered from the utility, the price may not seem so high after all. First, pv magazine will examine the status quo, and how much you can expect to pay for power if you don’t get solar panels. Then, we will examine the average cost of solar arrays today and introduce incentives that boost home solar value.
The cost of doing nothing
Generally, early adopters have financially benefited from going solar by securing price certainty and stemming the impact of steadily increasing utility-bill costs.
End-use residential electric customers pay an average of $0.138/kWh in the United States, according to the Energy Information Administration (EIA). In California, that rate is $0.256/kWh, it averages $0.246/kWh across New England, $0.126/kWh in the South Atlantic region, and $0.124/kWh in the Mountain West region.
EIA reports that the average home uses 893 kWh per month, so based on the average retail rate of $0.138/kWh, that’s an electric bill of about $123 monthly, or $229 monthly in California.
Over the last 20 years, EIA data show that retail electricity prices have increased 59% across the United States, or 2.95% each year. That means in 20 years, the average monthly bill across the US would increase to $213 a month, and in California monthly bills would be $398 on average.
This means based on historical rates, the average US homeowner can expect to pay $39,460 over the next 20 years on electricity bills. On average, Californians could pay $73,465 over 20 years.
Recent global events show just how unstable prices can be for commodities, and energy is no exception here. What will your utility bill cost in 20 years?
These estimated bills also assume that energy use in the home is constant over 20 years, but as the United States electrifies its homes, adds more devices, and adopts electric vehicles, it is fair to expect that many homeowners will use more electricity going forward.
Image: Wikimedia Commons
Image: Wikimedia
Another factor that may exacerbate rate raising is the upgrade of the national transmission grid. The infrastructure that delivers power to our homes is aging and in need of critical upgrades, and it is estimated that a staggering $500 billion will be spent on transmission buildout by 2035. This half-trillion-dollar cost gets passed down to homeowners in the form of raised utility bill rates.
The benefit of backup power may increase as time goes on as well. Power outages are on the rise across the United States, and analysis of EIA data by the Associated Press shows that outages related to severe weather events have doubled in the last 20 years. Climate change-fueled storms are expected to continue to rise, so the role of battery backup in providing reliable energy may increase significantly.
The truth is, we don’t know how much power will cost in 20 years. Though it has increased 59% across the nation in the last 20 years, there is no way to be certain what it will cost going forward. That is where solar has a benefit over the status quo. By purchasing solar, you are securing price certainty going forward, making it easier to budget and plan for the future.
So how do these costs compare to going solar?
Cost of solar
As a general trend, prices for solar have fallen. In 2010, it cost about $40,000 to install a residential solar system, and since then, prices have fallen by as much as 70%, and about 37% in the last five years. However, prices have increased slightly in 2022 due to shipping costs, materials costs, and possible tariffs being placed on imported solar goods, and these pressures aren’t expected to be alleviated in the near-term.
When comparing quotes, the best metric for an apples-to-apples comparison is the cost per watt. Price benchmarking by the National Renewable Energy Laboratory shows the average cost per watt for the nation was $2.65/W DC in 2021, and the average system size was 7.15 kW. So, an average system would cost about $18,950. With 12.5 kWh of battery energy storage, the average cost was $4.26/W, representing an average price tag of $30,460 with batteries included.
Image: Pixabay
Image: Pixabay
The prices above do not include any incentives. Currently, the federal government applies a 26% investment tax credit to the system, bringing down system costs for those who qualify to $14,023 without batteries, and $22,540 with batteries. Compared to the potential $39,460 in utility bills, buying a solar system outright in cash appears to show a clear financial benefit.
Many homeowners will need financing to buy a solar system. Shorter terms can achieve rates as low as 2.99% or less, but financing for a 20-year solar loan typically lands between 5% to 8% or more. Based on 20-year, 7% annual percentage rate terms, a $14,000 system would total about $26,000 in loan payments over 20 years, and the system with batteries included would total about $42,000 in loan payments.
Often when you adopt solar, the utility will still charge you a grid access fee even if your system produces 100% of your needs. These vary from utility to utility but are often around $10 a month. Over 20 years, that equates to about $2,400 that you’ll still need to pay to the utility, plus any costs for energy you use beyond what your system provides.
Based on these average figures, a homeowner could expect to see as much as $12,000 in savings with a 20-year financed system. Homeowners in regions whose retail energy price exceeds the national average could see savings in multiples of that figure.
Image: SolarEdge
Image: SolarEdge
Though in this example batteries appear to be marginally more expensive than the status quo over a 20-year term, they improve the home by adding the crucial service of backup power, and increasingly are being approved to participate in grid services, potentially unlocking additional revenue streams for homeowners.
Another thing to note is most solar systems are warranted for 25 years rather than the 20 used in the status quo example. A panel can last a good 35 years, and though it will begin to produce less in old age, any power produced by a panel you own is money back in your pocket.
Incentives and home value
Many states have additional incentives to boost the value of solar, too. Checking the Database of State Incentives for Renewables (DSIRE) will show the incentives available in your state, and a solar representative should be able to walk you through these benefits when you receive a quote. State incentives change frequently and vary widely, and in some cases are quite rich, offering thousands of dollars in additional benefits.
Another factor to consider is home value. A study by Zillow found that solar arrays increase a home value by 4.1% on average. For a $375,000 home, that’s an increase of $15,375 in value. In most states home solar is exempt from property taxes, making it a great way to boost value without paying taxes for it.
Bottom line
We’ve shared a lot of data on national averages and the potential cost of power going forward, but is solar for you? In the past, early adopters have been rewarded for going solar, and celebrate when they see $0 electric bills paid to the utility company.
Each home is different, each utility is different, and each homeowner has different needs, so evaluating whether solar is right for your home will take a little time and analysis. Representatives from solar companies will walk you through this analysis, and it’s generally a good rule of thumb to get at least three quotes for comparison.
A great resource for starting your research is the Solar Calculator developed by informational site SolarReviews. The calculator offers a quote and savings estimate based on local rates and incentives available to your area. The website also features reviews of installers, equipment, and more.
Some people will save tens of thousands of dollars in the long run with solar, while others may witness more modest savings. Solar will also provide the home clean, local energy, making an impact both on mitigating climate change and in supporting local jobs.
One indisputable benefit of solar is that it will offer greater clarity into what your electricity bills will cost over the next couple of decades, rather than leaving you exposed to whatever rates the utility company decides to charge in the future.
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“EIA reports that the average home uses 893 kWh per month, so based on the average retail rate of $0.138/kWh, that’s an electric bill of about $123 monthly, or $229 monthly in California.”
The EIA reports average monthly electricity consumption and average monthly utility bills by state. California’s average monthly bill is listed at $116.94. This is slightly below average for the United States.
Average numbers don’t capture the potential value of solar in places like California because we tiered rates.
https://www.eia.gov/electricity/sales_revenue_price/pdf/table5_a.pdf
you are right so it is more practical for heavy users who live in mansions , for instance. even tax credits are not necessary for them who are paying the highest tiered rates in califrnia. Politiicans dont care about math and they want to be reelected .. Lower income homeowners dont understand math very well. Rooftop solar installers are selling hard core!
itis climate change, stupid.. We should maximize our efforts on cutting down fossi fuel production with renewables , as simple as that! We still haven’t cut down at all! it is still level or growing for past 10 years. Our domestic oil/gas production almost tripled.
We are confusing energy independence with climate change in some kind of strange patriotic frenzy .
Brett,
According to the BP Statistical Review electricity production from fossil fuels declined by 498 TWh between 2010 and 2020. We’ve got another 2500 TWh to go but we’ve definitely made progress.
https://www.bp.com/en/global/corporate/energy-economics/statistical-review-of-world-energy.html
We’re currently adding around 100 TWh of additional wind and solar per year. The vast majority of the RE production increases (over 95% in the last 10 years) have come from utility scale with and solar project.
this is somewhat surprising to me given that the info is published by an oil corporation . BP
It should be accurate if not honest. it is encouraging overall.
Not one word about maintenance costs, storm damage costs, or the costs when the panel mounts cause your roof to leak. Also the costs involved in removing and replacing for roof replacement or repair.
Not a true reflection of the overall costs.
“End-use residential electric customers pay an average of $0.138/kWh in the United States, according to the Energy Information Administration (EIA). In California, the rate is $0.256/kWh,” is old data before the increases in California on March 1, 2022. The new rate in California after the March 1 increase is $.275/kWh and the cost per Kilo Watt hour of solar in a 7.15 kW system, when pro-rated over 25 years is $.112 per Kilo Watt Hour without batteries. If 12.5 kWh of battery storage is added or the equivalent of one Tesla Power Wall with a second power wall after 12 years as a replacement for the end of life, the price doubles to $.224 per kWh over 25 years. The utilities have rate increases planed in California to make Electricity $.40 per kWh within the next 5 years so in California getting solar makes a lot of sense unless the CPUC puts the proposed NEM-3.0 fees and energy credit reduction in place. If that happens, today’s battery systems can run completely off grid and re-wiring a home’ distribution panel to only use the utility power on certain circuits or as a backup to the battery system would continue to give value to rooftop solar and batteries but would detract from the current less equipment and rewiring required for NEM-2.0 in California. Getting in on NEM-2.0 and being grandfathered into the lower utility fees and detractors would make sense right now while the Federal tax credits are still at 26% in any utility district that charges more than $.25 per kilo watt hour for electricity.
Those who have purchased an EV to replace a gas powered vehicle will also see a significant reduction in their vehicle costs, fuel and maintenance, if they “refill” with self generated PV electricity.
A few thoughts.
Deregulated states have rates 2-Cents/kWh or 20% higher than regulated states. Hence why residential solar had greater penetration there, vs regulated Florida at a measly 0.5% to 1% depending on the utility provider. State subsidies/rebates (aka: hidden taxes mostly on non-solar folks) also spawned more rapid growth.
However utility “rates” numbers typically do not include utility fees and taxes, 18% in St Petersburg as a Duke customer. Although Duke’s rates have been flat at 11.5C/kWh since 2014, the year before I installed my 9.4kW west facing solar system.
With 18% utility fees and taxes it averaged 13.7C/kWh and a recent ~14% increase just pushed that to 15.5 C/kWh.
Those without suitable shade free roofs for solar might consider simply buying DUKE stock (DUK @ $107/sh) paying a 3.7% dividend, especially ibstead of financing a solar system at 2.6% or whatever. That’s a 6.3% better day-one ROI by comparison to a 0.1% MM or savings account, and 6.3% of $19,000 in DUK would knock $100 off your monthly electric bill or city utility (water/sewer) bill for that matter. Plus it can move with you if the need arises. And it’s 2X or more better alternative than signing up for Duke’s recently launxhed Clean Energy Connection “questionable solar” program.
Be sure to factor in roof type, age, repairs and/or replacement before you go solar. It’ll cost you a few $-Thousand to remove and replace a solar array to reroof. And mount your inverter indoors in an air-conditioned space where it will run cooler and cleaner than outside or in a garage.
As for batteries, unlike solar panels, they’ll need replacement 10+ years out, especially in Florida. So my 16kW nat gas Generac was a more economical alternative. Infrequent hours to a few days long outtages didn’t justify two to three Power Walls needed to equal its 60A 240V split phase output that can run my heat-pump and other appliances and lighting.
Buy a raised seam metal roof with a 50 year warranty, like I have, and your re-roofing worries are over.
The article is misleading because it ignores the loss of opportunity when investing X amount outright in solar.
If one pays $15k for installing a system, he loses the opportunity to invest the said amount. Investing in an index fund with an average rate of return of 6% (which historically is fairly low), will net him $48K after 20 years. Compared to the $39K saved, solar is a far worse investment. Let alone the risk and maintenance required.
Another point missed is that with net metering going away in most states, much of the solar array production is sold to the utility at the export rate and bought at a much higher rate leading to a clear deficit for the residential consumer.
In Arizona, the export rate is currently at 7.8c per KWh and the buyback rate is at 13c. After 10 years, the export rate drops to 2c a KWh. This means that a system without batteries will offload all its production during the day when occupants are away at 2c and will buy back from the grid at 13c when the occupants return home at night. A terrible tradeoff by any means. Solar only makes sense with batteries which balloons the cost even further.
The utility monopolies have bought (eehh, I meant lobbied) the state legistrators to make residential solar unaffortable by killing net Metering in most states. Combined with the greedy predatory practices of most installers, this sector is doing far worse than it should.
You are correct about missing out on investments if it was not for the fact the federal government is fronting you 26% in tax credits for the solar system and utility rates have been doubling every 12 to 15 years and in some states like California doubling every 8 years. I started installing my own off grid system in 2007 with a few thousand dollars’ worth of solar panels, charge controllers’ inverters and batteries each year and in 2007 the cost was 13 cents per kilo watt hour. Today it is 27 cents per kilo watt hour and climbing up to 40 cents with the planned rate increase over the next 5 years. What really made a difference in my case is that I designed a plug and play system that anyone can build with parts purchased from Home Depot and Walmart. Since it does not connect to the grid, the utility does not need to know you have it. As it gets bigger, you just plug in more lights and appliances and add additional pure sine wave inverters. There is no limit to the number of solar tax credits you can get over the years just as long as it is for your primary home, and it is new equipment that is up and running by the end of the tax year. The secret is keeping it low voltage, under 50 volts, until you get to the appliance the boost it up with a UL approved pure sine wave inverter and always fuse the wires for the maximum allowed current. My system is 12 volts since Recreational vehicles have had 12 volts systems for years and the parts are cheaper. Uninterruptable power supplies make great inverters and can also recharge your batteries on cloudy days plus switch to utility using a remote-control wall switch.
My problem with these calculations is that they don’t factor in the time value of money. If I had bought an S&P 500 ETF instead of my solar system, which would be the better deal in 15 years? I suspect that rooftop solar is great for the environment, but may not be a bargain, especially in CA where the PUC is determined to tax it into oblivion .
why is it that everybody still ignores how too much carbon input is involved to install rooftop solar? Contractors make too many trips to households to complete each tiny project usualy around 5 KWh .. it is much less carbon input where you “mass produce” solar at solar farms. There is less packing, unpacking, transporation, planning etc etc to put a watt out there.. people are more concerned about land use than climate change. I also wonder if people are also more concerned about falling fossil fuel production than climate change as well. Isn’t that what we are aiming to do ? to cut down fossil fuel production which still has not occurred at all! What are we are we really thinking ?? Are we kidding ourselves? now there is anti circumventing investigation… We still dont want to make our own solar panels here at all.
I can go on and on .. we will still have worsening climate change and same old dumb politics as always!
This is why I chose the Tesla Solar Glass Roof. Instead of oil-based composition shingles, I got Silicone glass Shingles that also produce energy. One contractor to do it all and warrantee it all. Tesla originally wanted to give a lifetime warrantee but being that is so ambiguous, they made it the industry standard of 25 years. In many parts of Europe, they have stained glass windows over 400 years old and this will be the last roof my home will ever need.
Solar roofs as opposed to rooftop solar hopefully will become the norm but for now are prohibited expensive.
if people are really concerned about land use , I urge them to go to google map via satellite view to look down at all the oil rigs and all the land used up .. Try around Midland Texas.. it is a sight to be awed at from satellite! Try north of Midland Texas which it is hard to miss ! Come to think of it.. many of the oil wells will be shut downand the land abandoned unused.. There is so much land being used by the oil /gas producers across America and around the world. if you are familar with the locations of major oil fields around the world and use google map via satellite view to look for them yu wil be amazed at how much land is already used up!
The utility rates provided haven’t been adjusted for inflation.
Electronics won’t last life of panels
Net metering could cause future grid imbalances
Reroofing will be needed and maybe it won’t make sense to reinstall an ‘old’ system
Panel prices have plummeted yet without continued tax credits the numbers still don’t work
Financing costs will only be increasing
The excess power during the day has zero value if it can’t be used ; you can only charge an EV if it’s at home during the day
Efficiency has peaked and cost only will rise with demand for metals
So no, residential solar isn’t worth it
Why csnnot anyone sell off grid room air conditioners with solar panels ? It is one of the simplest money saving ideas i can think of.. No battery storage needed just inverter to power your AC wtih solar panels.. Also room heaters during winter time. it helps stretch your firewood use.. 3 kwh solar panels to power your infrared heater non stop. if you need two heaters then you neded 6 kwh. Another idea is you can add a normal attic fan with your room AC .. Those available solar attic fans ae too weak for the hot weather area. you need 100-200 watt attic fan to keep your attic cool during the daytime. then switch to normal household current during nighttime to draw in cool night air to cool attic to gvie you a good start next day.
Solar people have no imagination and they are just copycats..They have engineering degrees but dont use their heads at all.
You have made a lot of good points that need to be considered before investing in some kind of solar system. The roofing and re-roofing issue is covered if you get a Tesla Solar Glass Roof that the whole roof and solar is guaranteed for 25 years. The other issues are very important to consider but if one uses most of the electricity, they produce up daily and only put a small amount back onto the grid, there monthly electrical bill will be substantially reduced. Most people will not be getting and EV because the net savings over the cost of electric vehicles is not there yet especially if you need to buy a replacement battery at some point. I am retired and doing everything all day in and around my home using most of my electricity during daylight hours, so I am timing my solar electrical production with my usage in real time. people who leave the home to work during the daylight hours and have to do laundry, dishes, cooking after the sun sets and would be at a disadvantage to the utilities cutting the values to their solar output. So, unless those people had batteries that were getting charged while away, would be not inclined to even consider solar until battery prices come down and longevity of batteries increases.
Comparing an investment in the stock market and then paying your electric bills from the earnings in the stock market has been put forward here so let’s talk about that. I have a $300.00 per month electric bill or $3,600.00 annually. Inflation will have that price going up by at least 3% every year if not more. This would be for about 1,200 kilo watt hours per month of electricity purchased from the utility. For every watt of solar installed, you get back 1.23 Kilo watt hours of energy annually. 14,000 kilo watt hours / 1.23 = 11,707 watts of solar panels needed to supply my home. let us consider a 12,000-watt solar panel system for this exercise. A 12,000-watt system costs $36,000.00 to purchase, install and connect to the grid. The Federal Government gives you an upfront tax credit of $9,360.00 that can be taken the first year or spread out over many tax years with carry over. The net cost of the 12,000-watt solar panel system is now $26,640.00 and this is what we invest into the S&P 500 index fund with an average taxable return of 10%. Since the gains are taxed at 15% the real return is 8.5%. $26,640.00 X 8.5% = $2,264.40 after taxes but you still have to pay the $3,600.00 utility bill so you have to take some principal from your investment as well as the profits so now you only have $24,375.60 left of your investment. The next year inflation makes the utility bill higher or $3,708.00 and the return on your investment is less after taxes or $2,071. 88 so you have to make up the deference of $1,637.00 from your principle again leaving $22,738.00. Carry this calculation on and the principle would be gone in 17 years as the utility bill got bigger and the returns got smaller. To keep up with inflation and match the investment in the “taxable” stock market and come out even, I calculated one would need a contiguous taxable stock market return of 15% to match what the rooftop solar system would give you in savings. The added value that solar brings to the market value of the home is also an asset. The sooner you “invest” in solar, the bigger the return you will get.
Adjusted for inflation, electric prices have been flat over the past 20 years while wages have increased . The Zillow report from 2019 stating a 4-1 % premium has been updated in 2021 with 1.4 %; perhaps the next report will be negative , or not made public, as buyers would rather install new if at all. Residential solar is great, if you’re not on the grid. Or don’t feel any shame in having everyone else subsidize the installation.
carbon input for rooftop solar is much higher than utility solar farm per watt.
Until this year, when everything, including gas and electric charges have gone up 9% or more in California on March 1, 2022, in the PG&E area. With the adoption of Energy Star appliances, CFL and LED lighting, the average homeowner’s monthly usage of electrical usage has dropped by about 20% but the monthly bills have been going up faster than inflation if the usage had remained the same in 2022 as it was in 2002. Only through conservation have the electrical bills been the same compared to inflation not that price per kilo watt hour have not gone up. The less we use, the more they have to charge to cover infrastructure and legacy costs. When the national average for electricity is 13 cents per Kilo Watt Hour and PG&E is pushing 29 cents or more per kilo watt hour, there has to be a problem in California that the rest of the nation does not have. As I have said in my previous posts, it is the utilities pricing of electrical power that is spurring rooftop solar in California because it pays back double the rates offered in other states. Oh look, My PG&E bill just came in with two proposed residential rate increase being applied for totaling another 3 cents per kilo watt hours this year. That gives me another annual 12 % total increase I will NOT be paying because of my rooftop solar. Market down 10%, rooftop solar profits up 12% so far this year.
Update on PG&E billing prices for June through September 2022. Non-Peak time electricity, not exceeding 10 kilo watt hours a day is 25 cents per kilo watt hour. All non-peak electricity exceeding 10 kilo watt hours per day is 34 cents per kilo watt hour. All peak time energy over 10 kilo watts for all energy consumed by a household is 49 cents per kilowatt hour from 4:00 PM to 9:00 PM daily. A typical home, with air conditioning, during those months uses approximately $500.00 per month of PG&E electricity without solar panels. A home with 12,000 watts of solar panels, without batteries, pays just a $10.00 connection fee per month for electricity for those same 4 peak priced months.
Chuck brings up good points. I’m a tree hugger and have panels, but:
1. Putting new panels on an old roof is dumb.
2. In California (and other states) the utility companies own the PUC which is in the process of formulating a tax on solar panels plus virtual elimination of the sale of excess power. The goal really is to kill rooftop solar.
So, at least in California, at least for the foreseeable future, I agree that rooftop solar in not advisable.
This fear of what the CPUC and utilities are going to do has stopped solar adoption before. That is why I built a system, next to my house, that was off grid, at first, with batteries. The only way the utility can get you is if you tie your panels to the grid. With batteries and standalone systems that can power your home without even being on the grid will be the way of the future. Yes, it costs more per kilo watt hour produced than many utilities charge for their electricity but in some states, like California and Hawaii, being off grid is they only way to go since their electricity prices and connection charges are sky high.
Why would any home buyer pay a 4.1 % premium for a dated system when they can purchase new for less. I would not use Zillow as an unbiased source .
I have not done enough due diligence , but it seems like CA , with the greatest amount of residential solar, with the highest utility rates justifying even more solar, is going to put the grid out of business.
With residential solar being only 30% of the total load on the grid and industry, commercial and government being 70%, I doubt the utilities will go out of business if even 50% of the residences went to solar because that would only be 15% of California’s total usage today. But wait! Electric cars will add another 50% draw on the grid by 2035 so the utilities will be selling more, not less electrical energy and that will require more infrastructure and that means higher costs passed onto customers.
“Over the last 20 years, EIA data show that retail electricity prices have increased 59% across the United States, or 2.95% each year.”
That’s not how exponential growth works! A yearly 2.95% increase over 20 years would be an overall increase of about 79%.
Thank you for such an informative post! However, I think that the benefits of installation solar panels go much further beyond just how efficient solar panels are. Aside from the ability to generate electricity for home use, homeowners benefit from other perks that include boosting the home’s value. With consumers making the push toward renewable energy use, a home with a solar panel system becomes very attractive to buyers. In this already hot seller’s market, solar installation can help fetch top dollar when selling your home.
A big elephant in the room not discussed here is the contract and, yes, lien on your home if financed. If you sell, you either have to move the panels, or the new homeowner has to adopt the contract. A complication not many think about.