Solar Cost Factors
Solar Cost Factors
Prices vary based on building and system configuration, the type and brand of equipment used and what company does the installation. The type and quality of panel as well as the size of the array affects the final price of an installation. Manufacturers price their products based on their efficiency and longevity. Panels that retain their efficiency longer are usually more expensive. Monocrystalline units are the costliest but generate the most watts per area, so you will need fewer panels and not as much space. Building integrated panels are also on the expensive end, but they are a good choice if appearance is important.
Your location can also have a big impact on the final price of a solar energy project. The Federal government and most states offer financial incentives to make buying and installing systems more affordable. Prices also depend on local weather conditions. Due to limited sun hours per day, the cost per kilowatt installed in the Northeastern US is higher than in sunnier areas found in the Southern and Western US.
Grid-Tie versus Off-Grid Installations
Grid-tie solar installations are connected to the utility company’s power lines. If the home or business needs more electricity than it can produce it draws energy from the grid and if it is producing excess electricity, it injects it into the electrical grid. Electricity added to the grid is credited to the homeowner or business’ electricity bill. When power is drawn from the grid, this electricity credit is reduced. This process is called “net-metering” and is accomplished with a bi-directional or smart meter.
There are also grid-tied installations that reserve power in a battery backup that is used during power outages. They charge the batteries so that continuous power is available, even if the utility grid is down. When the outage is fixed, net-metering resumes.
Note: This data does not take tax, installation, battery backup systems or racking into consideration and are before deducting any rebates or tax credits. They are based on 5 hours of insolated sunshine per day.
Off-grid systems are usually implemented in locations that are too remote to receive service from a utility. These systems can generate AC power that can run regular appliances and electric devices. They store power in batteries that are used to supply power when sunlight is not available. Those that generate DC power are used to power remote telecommunications gear, appliances used in boats and recreational vehicles as well as farm equipment. DC is less expensive than AC because it does not require an inverter. AC systems can power common home appliances.
Note: This data does not take tax, installation, battery backup systems or racking into consideration and are before deducting any rebates or tax credits. They are based on 5 hours of insolated sunshine per day.
Payback Period Breakdown
The decision to install a solar energy system is often driven by environmental concerns and/or economic incentives. Either way, it offers an ROI in line with other home improvement and remodeling projects. To calculate the payback period for the project, first find out the final installed cost per watt, the electricity cost per kWh in the area, and the average number of sunlight hours in the location. Once you know this information, you can use the graph below to figure out approximately what the payback time would be.
The included chart displays how the value of electricity generated (cents per kWh) and the cost per watt paid to install a system (dollars per watt) affect the payback period. The less expensive the system was to put in and higher the electricity rate is in the area, the shorter the payback period is. For example, if the average electricity rate in your area is $0.30 per kWh and the system was $4 per watt to install, then you can expect the payback time to be just under 10 years. Payback time can be affected by financial incentives, the financing rates and weather conditions. Locations such as the UK, Germany and Japan get much less sunlight (as low as 2.5 sun hours per day) which can increase the cost per watt to $8 and the payback period to 25 years.
Financial Incentive Programs
The US federal government and most states offer business and residential tax incentives and rebates on the purchase and installation of solar energy systems. The federal tax credit covers a substantial portion of the cost of installation. State and local governments and local utilities also offer rebates and credits to help defray costs. Depending on your location, financial incentives and rebates can cover between 10% and 60% of the total. Details for the 26% federal residential renewable energy tax credit (and many other incentives) can be found here: Database of State Incentives for Renewables & Efficiency®
Many countries have also enacted feed in tariffs that help guarantee a reasonable rate of return on renewable energy projects, which encourages the development of and investment in renewable energy sources. These programs typically involve owners being paid a much higher rate per watt they add to the grid than the price they pay for buying electricity from the grid. They essentially sell all the power they produce to the utility/government at a high price and buy back what they need at a much lower cost. Some banks allow solar system installations to be rolled into a mortgage or offer special rates and terms to finance installations.
Over the last 20 years, the cost of these systems has decreased by a factor of 7. As the residential and commercial demand for solar panels increases and the efficiency of the technology improves, they will continue to drop and overall return on investment will rise. For more information, visit the US Department of Energy’s SunShot Initiative.
