solar panels

How Much Do Home Solar Power Systems Cost?

Summary: The fair market 2016 installed price for a home solar power system is $900 to $1,200 per panel. A tax credit reduces the cost by 30%. Larger systems should cost less, per panel, than smaller systems. One 285 to 320 watt solar panel will produce 30 to 41 kilowatt-hours of net usable electricity per month, on average, in Florida, with the direction the panels will face being the most important of several factors. South facing roofs are best.

If you research solar power system prices online, you will usually see prices quoted per watt of peak output. Rooftop home systems installed by a licensed contractor currently run around $3.00 to $4.00 per watt. A solar panel’s peak output is often referred to as its “nameplate wattage.” Unfortunately, prices based upon nameplate wattage don’t mean much to the average homeowner. Nameplate wattage doesn’t allow you to relate the price to how much electricity the system will produce on your roof.

So here’s an easier to understand and more useful explanation of solar power system pricing:

The current fair market installed price for a home solar power system is $900 to $1,200 per solar panel. That’s a total price for everything: solar panels, inverter(s), mounting hardware, wiring, delivery and installation labor, permits and other administrative costs. Because some costs (like delivery, connecting the system to your home’s electric service panel and permit fees) are about the same for all home systems, systems with more panels should cost less per panel than smaller systems. A financed home solar power system with 32 panels and about 9 kilowatts of nameplate capacity should have a 2016 installed price of about $900 to $1,100 per panel, or about $28,800 to $35,200.

A smaller “starter” system with, say, 16 panels and about 5 kilowatts of nameplate capacity should have a 2016 installed price of about $1,100 to $1,200 per panel, or about $17,600 to $19,200.

What can increase the price. Your total system price may be about $1,500 to $2,500 higher if your electric service panel’s capacity needs to be increased. Our microinverter-based systems need one unused 20 amp circuit and circuit breaker position in your service panel for each 16 solar panels. In addition to a service panel upgrade, if needed, you might be charged $1,000 to $2,000 extra if you have a two-story house, a house with an unusually steep roof (an 8:12 or greater pitch) or a slippery or fragile roof (for example, a standing seam metal roof or a roof with glazed tile).

And these prices are for roof-mounted systems that follow the roof’s contours. Systems mounted on ground racks are more expensive due to the additional cost of the raised racks and the concrete pad or footings that anchor the racks to the ground.

You will also pay more—and possibly a whole lot more—if you buy a solar power system from a company that uses expensive customer acquisition methods like telemarketing (unsolicited phone calls to homeowners) and high-presure commission salespeople. American Solar does not use either of these marketing methods.

What can reduce the price. A large expanse of south-facing roof offers an effective price reduction because the same solar panels will produce about 15% more solar electricity on a south-facing roof than on an east- or west-facing roof.

The Federal Solar Tax Credit

Solar power system purchasers are entitled to a federal income tax credit equal to 30% of the installed cost of the system. A tax credit is subtracted from your tax bill, so its cash value is the full amount of the credit. In other words, a $10,000 tax credit is worth $10,000 to you. This is a lot better than a tax deduction, which is subtracted from your income, not the tax you owe. A tax deduction is only worth the amount of the deduction multiplied by a taxpayer’s effective tax rate. For example, at a tax rate of 25%, a $10,000 deduction is worth $10,000 x 25% = $2,500.

The bottom line is that a $30,000 solar power system has an effective net cost of just $21,000 after the 30% solar tax credit. So the tax credit is a really big deal.

The tax credit is not subject to a maximum amount and it can be taken against the alternative minimum tax. If the tax credit exceeds your income tax liability for the year the system is placed in service, the excess amount can be carried forward to future tax years until it is used in full. A W-2 employee can change the number of personal exemptions on IRS Form W-4, to temporarily reduce withholding and realize the cash value of the tax credit more quickly. A self-employed person can reduce quarterly estimated tax payments. Or the taxpayer can just wait until filing the income tax return for the year during which the solar power system is placed in service, to realize the cash value of the tax credit. You should seek the advice of your tax professional to determine which approach is best for you.

Zero Down, Low Interest Financing

Solar loan financing programs are designed to eliminate the upfront cost of going solar and leverage the value of the 30% solar tax credit. The most popular financing programs do not require any cash down payment.

Loan financing specially designed for home solar power is usually structured as two separate loans. The first loan, for 30% of the purchase price (the same amount as the tax credit), is a 12 months “same as cash,” or zero interest, loan. The homeowner has a year to pay off the same as cash loan using the extra personal income received as a result of the 30% solar tax credit (Remember that a tax credit is subtracted from the tax you owe, so it’s worth the full amount of the credit.) Because of the tax credit, this part of the system price quite literally costs nothing as long as the same as cash loan is paid off within one year.

The second loan, for the remaining 70% of the purchase price, is a conventional unsecured installment loan. The most popular interest rate and term is 2.99% for 144 months (12 years). An alternative structure, 5.99% for 240 months (20 years), offers lower monthly payments and better cash flow—after electric bill savings—but takes longer to pay off.

In our opinion, the 2.99% for 144 months is a better deal because the loan is paid off eight years faster. And if inflation in utility electric rates only matches the 3.968% per year over the 45 years from 1970 to 2015, the yearly electric bill savings provided by the solar power system should be greater than the loan payments in just seven years. And of course, the loan payments end at 12 years.

One of our solar advisors can provide specific numbers based upon your particular energy use, available roof area and utility company.

How to Relate These Numbers to Your Electric Bill

Each 285- to 320-watt solar panel on your roof can produce about 30 to 41 kilowatt-hours of net usable electricity, during an average month, in Florida. A solar panel’s energy output depends upon its size, efficiency, the panel tilt angle (which is the same as the roof slope for most systems), and most important of all, the direction the solar panels face. South is best. East- and west-facing solar panels produce about 15% less electricity than south-facing panels. North-facing installations should be avoided if possible, as the energy production is about 24% less than for south-facing panels.

Let’s say you have a roof that faces southeast and a solar panel that can produce an average of 36 kilowatt-hours (kWh) of net usable electricity per month, when facing southeast at your roof’s slope. If your home uses about 1,500 kilowatt-hours during an average month, then you would need about 1,500 kWh / 36 kWh per panel per month = 42 solar panels, to completely eliminate your average electric bill.

What “eliminate” means. It’s important to understand that “eliminate your electric bill” means eliminating your net consumption of utility electricity on an average basis, over the course of a year or more. You will still use utility electricity during rainy and overcast daytime weather, at night, and at any other time when your power consumption is greater than than the simultaneous electricity production of your solar panels. Your utility will credit you for the excess electricity produced by your system during the peak sunlight hours.

(We expect to start selling the Enphase AC battery storage system during early 2017, which will allow our customers to store excess electricity produced during the peak sunlight hours for use in the early morning, late afternoon and overnight hours.)

Your solar power savings will vary each month. Most people are surprised to learn that heat reduces the efficiency of solar power panels. Solar panels actually produce the most electricity during the spring, when high available solar energy combines with cooler air temperatures. Solar electricity production is lowest during the winter. While colder weather increases solar panel efficiency, winter days are shorter. Also, the sun is at a lower angle in the sky, so sunlight has to travel through more of Earth’s atmosphere. This results in more sunlight being reflected away from Earth’s surface by the atmosphere.

We can give you a price and a solar electricity production estimate based upon your specific roof. We can estimate how many solar panels will fit on your roof using satellite imagery. Our design software then calculates the estimated energy production for the performance characteristics of a specific solar panel and inverter combination, your roof slope angle, and the direction(s) your solar panels will face. The software calculates expected performance in 15 minute increments for each day of the year, based upon 30 years of average sunlight and weather data for your location.