More than 700,000 US homeowners installed solar panels in 2022, according to the Solar Energy Industries Association (SEIA). The best solar panels come with a 25-year product warranty, and they can save you thousands of dollars in power bills during their lifespan.
Electricity prices increased by more than 10% between March 2022 and March 2023, as you can see in the latest Consumer Price Index Report. However, rising electricity prices also create a greater incentive to install solar panels for your home, since their potential savings increase.
- Under favorable sunlight conditions, a 5-kilowatt home solar system can be expected to generate over 7,000 kilowatt-hours per year in the US.
- Depending on local tariffs, this electricity output can save $1,000 – $2,000 in annual power bills.
In this guide, we will discuss the typical costs and savings you can expect when installing a home solar system in the US. We will also explain how to estimate the number of solar panels needed for your home, while providing an overview of the solar incentives available in the US.
How Do Solar Panels Work?
Solar panels use a photovoltaic material such as silicon to convert sunlight into electric power.
- When a solar cell is exposed to sunlight, the energy contained in light particles (photons) is transferred to the electrons in the photovoltaic material.
- The electrons start moving when they gain energy, producing voltage and current.
- Multiple solar panels can be wired together to add up their electricity output.
However, the electric power generated by solar panels cannot be used directly by typical home appliances. Solar panels produce direct current (DC), just like a battery, while home devices need alternating current (AC) like that provided by the local grid. A solar inverter is used to convert DC power into AC power, making it usable by home appliances.
Solar inverters can also synchronize with the AC voltage supplied by the local power grid, which means you can use both power sources at once. For example, if your home is using 5 kW and your solar panels are generating 3 kW, the other 2 kW are drawn automatically from the grid.
How Much Do Solar Panels Cost in 2023?
The Solar Energy Industries Association (SEIA) and consulting firm Wood Mackenzie publish the quarterly Solar Market Insight, which contains detailed information about the US solar industry. Each edition of the report contains updated cost information for solar panel systems of all sizes: residential, commercial and utility-scale. During the last decade, the price of solar energy systems dropped by 53%.
The March 2023 Solar Market Insight reported an average price of $3.30/watt for home solar systems. Based on this figure, you can expect to pay the following prices for systems ranging from 4 kW to 10 kW. The table also shows net prices after subtracting the 30% solar federal tax credit, which is a nationwide incentive.
|Solar System Size||Typical Price||30% Federal Tax Credit||Net Price after Tax Credit|
See the full solar panel costs guide here
The solar federal tax credit is officially called the Clean Energy Investment Tax Credit (ITC).
- This incentive was created in 2006, and it has been a major driver of solar energy adoption in the US.
- The ITC was being phased out in 2024, but the Inflation Reduction Act extended the benefit for 10 years.
- The previous version of the ITC was only available for solar panels, but the Act extended the benefit to other renewable generation systems such as wind turbines.
Depending on where you live, the price of your home solar system can be even lower than in the table above. Consider that labor costs vary by location, and some states have additional incentives which can be combined with the federal tax credit.
Paying the full cost of your home solar system upfront is an option. However, there are ways to distribute your project costs over time:
- Taking a low-interest solar loan: Your solar installation is completed with loaned capital, and you pay over time with the savings achieved.
- Leasing your solar panels: The company providing your solar system remains as the owner, and you sign a contract where you agree to pay a fixed monthly fee for a specified time. Solar leases typically last more than 10 years.
- Signing a Power Purchase Agreement (PPA): A solar PPA is similar to a lease, but instead of paying a fixed monthly fee, you are charged for the electricity generated each month. This means you pay more during summer months where the panels are more productive, and less during the winter months.
When you use a solar loan, you are the legal owner of the system from the start. This means you are entitled to the 30% federal tax credit and any other incentives available locally. On the other hand, when you sign a solar lease or PPA, all incentives are claimed by the company who owns the system.
How Much Can I Save With a Home Solar System?
The power bill savings achieved by solar panels depend on two main factors:
- Local sunshine
- Electric tariffs
More sunshine increases the electricity output of your solar panels, while higher tariffs increase the value of each kilowatt-hour generated. In both cases, your annual savings increase.
To determine the productivity of solar panels in any location, you can use the Global Solar Atlas developed by the World Bank Group. To obtain your kWh price, you can check your latest electric bill. You can also check the monthly electricity price data published by the US Energy Information Administration (EIA), and look for your state.
Step 1 – Estimate Solar Panel Productivity with the Global Solar Atlas
You can find your location on the Global Solar Atlas by writing the name of your city on the search bar, by inputting your coordinates, or simply by scrolling to your location and zooming in. When you click on the map, it will display detailed information about sunlight conditions in your location, but we only need one value to estimate solar panel productivity:
- Specific photovoltaic power output (PVOUT specific)
The specific photovoltaic power output is displayed in kilowatt-hours per kilowatt of peak capacity (kWh/kWp). For example, if the Atlas displays a PVOUT value of 1,500 kWh/kWp in your location, and your home solar system has a capacity of 6-kW, you can estimate its productivity by multiplying both values.
- Estimated kWh Output = 1,500 kWh/kWp x 6 kW of capacity = 9,000 kWh/year
Using the Global Solar Atlas, you can estimate the productivity of a solar panel system in any location. However, this does not replace a site assessment and system design from a professional solar installer. Once you ask for solar quotes, you will get a more detailed calculation of your annual electricity output.
Step 2 – Estimate Your Annual Power Bill Savings
After estimating the electricity output of your solar panels, you can estimate the dollar savings by multiplying the annual kWh output and the local kWh price. According to US EIA data, the average electricity prices for homeowners was 15.96 cents/kWh.
- Expected savings = 9,000 kWh/year x $0.1596/kWh = $1,436/year
This is a savings estimate for a solar system generating 9,000 kWh per year, assuming the US average electricity price. As you can see in the electricity price data published by the EIA, there are states like New York and California with electric tariffs of over 20 cents/kWh, and states like Massachusetts and Connecticut with tariffs of over 30 cents/kWh.
- 9,000 kWh of solar electricity is worth $1,800 at 20 cents/kWh, $2,250 at 25 cents/kWh, and $2,700 at 30 cents/kWh.
- As you might expect, solar panels have a shorter payback period in places with expensive electricity.
Step 3 – Estimate the Simple Payback Period and Return on Investment
Based on price data from the March 2023 Solar Market Insight, you can expect to pay $13,860 for a 6-kW home solar system (after deducting the 30% tax credit). The following table estimates the simple payback period and annual ROI at different electricity prices, assuming an output of 1,500 kWh/year.
|Electricity Price||Annual Savings (6-kW Solar System Generating 9,000 kWh)||Simple Payback Period||Annual ROI|
|15.96 cents/kWh(US average)||$1,436||9.7 years||10.4%|
|20 cents/kWh||$1,800||7.7 years||13.0%|
|25 cents/kWh||$2,250||6.2 years||16.2%|
|30 cents/kWh||$2,700||5.1 years||19.5%|
At the average US electricity price, home solar systems typically have a payback period of less than 10 years. However, a payback period of less than 6 years is possible in states with expensive electricity or additional solar incentives. For example, New York state gives you a 25% income tax credit of up to $5,000, which can be combined with the 30% federal tax credit for a total tax incentive of 55%.
Also consider that high-quality solar panels have a typical service life of 25 years or more, and many brands now offer a 25-year product warranty. A payback period of 10 years only represents 40% of the warranty period, which means your return on investment is assured.
If you can get a low-interest solar loan, and annual savings are higher than loan payments, the payback period essentially becomes zero. In this case, the electricity savings generated by your solar panels are enough to fully pay the loan, while leaving net savings in your pocket from the first year of operation.
How Many Solar Panels Do I Need For My Home?
The Global Solar Atlas can also be used to estimate the number of solar panels needed for a residential property. If you know your annual consumption (in kWh) and the productivity of solar panels in your location (kWh/kWp), you can estimate the system size needed in kilowatts.
- According to the US Energy Information Administration, the average home consumes 10,632 kWh per year.
- In a site with a solar panel productivity of 1,500 kWh/kWp, you need 7.1 kilowatts of capacity (7,100 W) to generate this electricity output.
The solar panels used in homes have a typical capacity of 330-400 watts, and the number of panels needed to reach 7,100W will depend on their individual wattage. You can simply divide the total system wattage by the individual panel wattage, and round up the value to the nearest whole number:
|Individual Panel Wattage||Number Needed for 7.1 kW||Total System Wattage|
|330W||7,100W / 330W = 22 panels||7,260 W|
|360W||7,100W / 360W = 20 panels||7,200 W|
|380W||7,100W / 380W = 19 panels||7,220 W|
|400W||7,100W / 400W = 18 panels||7,200 W|
In this example, the homeowner can expect to install between 18 and 22 panels. You can repeat this procedure for any combination of annual home consumption and local sunshine.
What Solar Incentives Are Available in the US?
There are many types of solar incentives, which improve the ROI of photovoltaic systems. The following table summarizes the main types of incentives available in the US, and keep in mind that their availability varies depending on your location:
|Type of Solar Incentive||Description|
|30% Investment Tax Credit (ITC)||This is a nationwide incentive. After going solar, you can deduct 30% of your system costs from your next IRS declaration. If your tax burden is not high enough to use the full incentive in one year, the difference can be rolled over to the next year.|
|Solar State Tax Credit||Some states have local income tax credits for solar owners, which can be added to the federal ITC.|
|Sales Tax Exemption||Solar energy systems are exempt from the sales tax in some states, which represents an immediate discount.|
|Property Tax Exemption||Solar panels increase the value of your home, and this would normally result in higher property taxes. However, some states have introduced exemptions for this increase in property value.|
For example, if the value of a $300,000 home increases to $330,000 after installing solar panels, taxes are still calculated based on a property value of $300,000.
|Solar Rebate Programs||Some state governments and utility programs offer direct cash incentives for homeowners who install solar power systems. They generally offer a fixed incentive per system, or a variable incentive per kilowatt installed.|
|Solar Renewable Energy Certificates (SREC)||SRECs are a type of solar incentive used by some states with renewable energy mandates for local power companies. You earn one SREC for every 1,000 kWh generated by your solar panels, and local energy companies can purchase them as a way to meet their renewable energy targets.|
When SREC programs are available, your solar panels not only lower your power bills. They also generate certificates that can be sold for additional income.
|Performance-Based Incentives (PBI)||Performance-Based Incentives (PBI) are direct cash payments for generating solar electricity. However, this type of incentive is very rare.|
The Solar Massachusetts Renewable Target (SMART) is an example of a program that uses PBIs.
NOTE: Solar incentive programs have eligibility requirements, to make sure their funds are used in high-quality installations. Generally, solar incentive programs require the installation to be completed by professionals, which means DIY solar projects are not eligible.
Of all the solar incentives described above, only the federal tax credit is available nationwide. The availability of other incentives varies depending on your state, city and utility company.
What Is Net Metering and How Does It Benefit Solar Owners?
Solar power systems offer an excellent ROI, but they have a key technical limitation. Since photovoltaic modules depend on sunlight, they cannot provide electricity “on demand” like a coal or gas generator. Many homes are empty during the day, and the power output of solar panels tends to exceed home consumption in the hours around noon.
- To deal with surplus solar generation in homes and businesses, many state governments have introduced a net metering policy.
- With net metering, you can send excess solar energy to the grid. Surplus production is measured and subtracted from your next power bill.
Generally, the kWh price paid for excess solar energy is lower than the kWh price billed for consumption. However, without net metering, you would get zero credit for solar energy sent to the grid.
Do I Need a Battery System for my Solar Panels?
Adding a home battery to your solar panel system is optional, but it offers several benefits. Stand-alone solar panels can only provide electricity when sunshine is available, but a battery can store electricity to be used at any time. For example, if the battery has been charged during the day, you can use solar electricity at night.
The price of a solar battery varies depending on its brand and capacity, but you can generally expect to pay more than $10,000. Solar batteries also qualify for the 30% federal tax credit, and some state governments and utility companies have incentive programs for energy storage.
If your only goal is saving on power bills, installing solar panels is enough. However, batteries are necessary in off-grid solar systems, since you cannot fall back to the grid at night. You will also need a battery if you plan to use your solar panels as a backup electricity source during blackouts. Solar panels alone cannot provide a stable voltage when isolated from the grid.
Solar Panel Installation: What You Need to Know
Generally, a home solar system can be installed in less than a week. However, getting the installation approved with the local building department and utility company can take several weeks. Solar panels use several installation methods, and the best option varies depending on your type of roof:
|Solar Panel Mounting Method||Description|
|Penetrating mounts||Holes are drilled directly on your roof structure, and the solar panel racking system is attached with bolts. This mounting method is used for shingle roofs, tile roofs, and metal roofs without seams.|
|Clamping mounts||This installation method is designed for standing seam metal roofs. The solar panel racking system is clamped to the roof seams, with no drilling required.|
|Ballasted mounts||Ballasted mounts use weight to hold down your solar panels, and they are normally made of concrete. |
However, ballated mounts can only be used in flat roofs with enough strength to bear their weight. They are more common in commercial and residential settings.
If you’re considering solar panels, we strongly recommend looking for a professional installation company. DIY projects are not recommended due to the risks involved. Most likely, you will not get approval from the local building department and utility company, and you will void manufacturer warranties.
Solar panel installations involve work at height and high voltages. Each module can generate over 35 volts, which means that a circuit of 10 panels can exceed 350 V. There are solar panel kits that are designed specifically for DIY projects, where the voltages are much lower (typically 12V – 24V). These DIY kits also have a portable design, which means they can be easily set up on your backyard or a balcony.