April 25, 2016 By 38 Comments

We often get asked how much it would cost to install enough photovoltaic (PV) solar panels on a house or business building to generate one’s own electrical energy. There are web sites to help with this, and Solar Power Authority even has a free solar calculator and quote tool, but they can be confusing unless you’re a technologist — so I’ve developed some simple guidelines (below) that will help put cost in perspective.

In the USA, a rule of thumb is that the average house consumes electricity at the rate of 1 kW per hour (kWh). There are about 730 hours in each month, and the average price of a kWh of electricity is $0.10. So an average monthly bill would be around $73 for 730 kWh of electricity.

Of course, this can vary considerably if you have non-standard items such as a hot-tub, or some electrical appliances running continuously. Extended computer use, plasma screen TVs and video games consoles can also make an impact. Your usage will increase significantly in months when you run an air conditioning unit, as well. Finally, the cost of electricity varies widely across the USA, from as low as $0.07/kWh in West Virginia to as much as $0.24/kWh in Hawaii. You’ll have to adjust my guidelines accordingly, because they apply to an average home with average consumption and average electricity costs.

A conservative value to use as a solar panel’s generating capacity is 10 watts/sq. ft. This represents a panel conversion efficiency of about 12%, which is typical. This means that for every kW you generate, you need about 100 sq. ft. of solar panels. If the sun shone 24 hours a day, you could put up 100 sq. ft. of panels and have enough energy to power the average home.

But, as we all know, the sun is available only during daylight hours, and the amount available per day is highly dependent on the extent of cloud cover. Also, the length of each day is dependent on the season. Fortunately, there are resources on the web to help you figure out how many hours per day (on average) you can count on the sun to shine, based on where you live.

The averages across the USA vary from around 3 hours per day in places like Seattle, Chicago, and Pittsburgh, to 5 or 6 hours per day in states like Colorado and California, to a high of 7 hours per day in Arizona. What that means is that the size of the panel array required can vary, anywhere from 400 sq. ft. to 800 sq. ft. (i.e., 4 kW to 8 kW), depending on where you live. You’ll need more panels if you live in a location that gets less sunshine per day, and fewer if you live in a location that gets more.

If your utility company allows you to have net metering — that is, they supply you with a special meter that will spin backwards when you generate more electricity than you use — your annual bill can average out at zero. Because of shorter days in the winter, you’ll likely be a net purchaser of electricity in that season and a net producer in the summer months. A grid-tied system like this is different than off-grid systems used in remote locations with no electrical service; those require batteries, which can significantly increase overall system costs.

At the time of this writing, the installed cost of solar panels was between $7-$9 per watt: A 5 kW system would cost around $25,000-$35,000. Many utility companies offer incentives, and some subsidize as much as 50% of system costs. Even at half the cost, though, a system that generates an average $75 of electricity per month could take a long time to pay for itself.

For example: A system that costs $18,000 has a payback period of about 20 years. The cost of a solar panel today is around $3 per watt, and the extra cost of installation brings costs up to $5- $6 per watt. Note: Installation costs for PV systems include both labor and the electronics needed to tie the solar array into your existing electrical system.

Standard Solar System Components

This brings up an important point: it takes more than a solar panel to get a PV system up and running, though. In fact, there are generally four components in every PV system:

  1. Solar panels – captures sun’s energy and converts it to electricity
  2. Controller – protects batteries by regulating the flow of electricity
  3. Batteries – store electricity for later use
  4. Inverter – converts energy stored in a battery to voltage needed to run standard electrical equipment


The entire system is what drives the cost of solar up and equipment like batteries need to be replaced over time.

The good news is that the costs for solar panels are expected to continue to drop, as thin film panels from companies like First Solar, Nanosolar, and AVA Solar become available to the residential market. Right now, though, First Solar is only selling to commercial customers. Nanosolar and AVA Solar have yet to ramp up their production facilities. It will be interesting to see where this all goes in the next year or two, since these companies are talking about very aggressive price targets — in the order of $1-2 per watt — and volumes that are several times today’s total output.

Assuming that installation and auxiliary equipment costs can be reduced to around $1 per watt, then a 5 kW system may cost as little as $10,000, and the payback period would be 10 years, even without subsidies. This makes PV solar installations much more attractive. Of course, all this assumes that electric rates stay constant.

However, they are likely to rise as fuel and other infrastructure costs increase, so payback periods may be even shorter in the future. In the meantime, expect to see more PV solar panels installed on roofs, especially in areas with favorable solar conditions or with higher-than-average electricity rates.

Want to get an idea for how much you can save? Here’s a calculator you can use to find out!

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  • Anumele Raja says:

    This is the best information I got about solar power. We purchased a home and moved in last month. I want to install a Solar PV system. We use about 1,000 KWH per month. We will get about 5 hours of usable sunlight because we will in Saratoga, Northern California. To generate 40 KWH needed per day I need to install a 8 KW system. When the cost comes to about $15,000 then I will go ahead and install it. I even studied making my own solar panels. Your article is the best I have read so far.

    • jj says:

      I too was curious to better understand the costs of Solar Panels. Just saw an ad from Solar City that claims “no money down” and they finance all costs. The fine prints shows this: “A 3 kW system starts at $25-$100 per month with an annual increase of 0-2.9% each year for 20-30 years”

      So it looks like they are in the banking or subscription business and want people to take out a loan for 30 years that each year could go up by up to 2.9% add on interest on top of what you first sign the contract at. Can you imagine? In spite of the claim of lowering your electric bill it’s a suckers game to trap you into a long term loan that overall is likely to be a lot more expensive than your monthly electric bill. With significantly lower rates from electric utilities, my bill shrunk from ~ 200/month to around $ 80.00/month. Buyer beware!

    • Hal Levin says:

      You will get about 2x hours in summer compared to winter. I am over the hill in Santa Cruz and have had Solar PV fo 9 years now, I read the meter each morning, so I have a lot of data. But the length of the day in summer is much more than in winter, as you know.

  • Tom Fiorillo says:

    I installed a 7280 (56 Kyocera 130GT panels) watt array 2.5 years ago on Long Island. The system is ground mounted, a couple of degrees off true south with a 35 degree tilt. I used 35 degrees because most online solar calculators (NREL and Kyocera) showed that angle to give the highest annual output. We net meter. December output is a little lower with latitude tilt, 42 degrees, but higher on summer afternoons when the grid needs it. So far for 2.5 years we’ve had about 25,000 kwh of output. We installed the system ourselves and the cost was about $47,000. It’s 560 sq. ft. I think it was the best investment I ever made.

  • Larry M says:

    800 billion at 2$ per watt = 400 billion watts enough to provide the electrical heating and cooling for every house in the us. Saving 90 billion a year. Let the consumer keep half send half the savings to the goverment. pays off the fed in 20 years. Plus the stimulus that the consumers provide spending the savings. My head is spinning

    • Peter says:

      It doesn’t scale Larry. You still need generators because the sun does not shine 24/7. The problem with solar has never been the cost of generation but the cost of storage. Right now for the individual consumer the power grid can be used as a battery but if everyone tries to do all at once the battery breaks. You need to add in the cost of maintaining that battery which means the cost of generation stations used when the sun don’t shine and the wind doesn’t blow and Hoover damn doesn’t hold any more water.

  • GK says:

    It is still too expensive. No one breaks even if they account for the Cost of Capital (say, 6%). All breakeven analyses of 18 years or so are done without accounting for the time value of money.

    • JOJO says:

      Doesn’t apply. You’re assuming one use that same capital to pay their electrical bill.

    • Rick says:

      GK – Thank you! While I am all for alternative energy, a standard for the industry seems to be payback period. Somewhat useful, but not like a present value analysis.

  • WhiteSites says:

    Great article, would love to see an updated article that includes more recent prices. Even though powering my home sounds great, I was thinking more about the investment side. Lets say I only need 1500 KWH / month. If I produced 3000 KWH / month, would my utility pay me for my additional power?

  • Dave says:

    Great article, I have a quote for a 200kw system at about $855,000 for all the parts including about 800 panels. What would be a reasonable cost to put all the parts together prior to hook up to sell to the grid? the system will be roof mounted at 30 degrees. I have been quoted $600,000 for installation but that just does not seem right at all.

    • BookFla says:

      That kind of investment you should get multiple bids from both OEM and system installers. Create a document stating what you want and then send out as a Request For Quote (RFQ’s). That way you can compare systems and invaraibly you can learn from the process

  • Court Rye says:

    Hey Dave, yeah, that’s a lot of money but it sounds like you’re wanting to install a huge solar array. I’ve got a solar panel installation cost calculator you can try at https://www.solarpowerauthority.com/calculator/ that provides quotes for both residential and commercial installations.
    Hopefully this tool will help you find some better rates or at least confirm the one you got. $600K is a lot of money but it’s money well spent as far as I’m concerned. Also, WhiteSites, the calculator should help you find some more recent solar cost estimates and apply your location and energy provider to the mix.

  • John Kimball says:

    Good article.
    My company has been in solar for 20 years and I have been it almost twice that long. When I started selling solar panels they were $7.00/watt, from the factory I worked for.
    Today my company sells them for as low as $1/watt.
    We sell the rest of the equipment (inverters, disconnects, cable etc.) for an average of a $1/watt.
    According to David Katz of AEE Solar, a pioneer in the PV business for 40 years, the average PV installation be between $1.00 and $1.50/watt.
    The difference of $3.50/watt installed compared to your estimate of $7 to $9/watt in Jan. of 2008.
    One of the problems that is keeping PV from becoming cost effective is the charges that installers are charging customers. In many cases we have seen the cost is often more than the system. In one case it was if the installers on the roof would have been making the equivalent of $300 to $600 per hour. Of course the contractor’s company is making that.
    Why don’t you look into the inflated costs contractors are injecting into a single system quote. It’s important that people get a seperate quote for their system and their installation.

    • Don Dunn says:

      That sounds very logical to me.. I have two different neighbors that had solar systems installed. The salesman came out very slick presented a nice system and they bought it. Then when it came for installation they sent out for guys none of them spoke English and it took him quite a while then install the system. So you know someone at the top is making all that money it’s probably the installation company

  • joe cook says:

    In an average house would it be wise to use solar and wind energy.

  • Court Rye says:

    Hey Joe, It’s really hard to answer that question. First I would consider whether you have cash or will be charged interest on a loan for the system (that will make it cost more) but before this step you need to determine whether solar will even work in your geography (will it be blocked by trees? Does your roof face the sun? Do you have property and permission to install them off of your roof if need be? Will they get vandalized?)
    There is a lot to consider and it’s hard to pin down an “average house”. What are your views on the future price of energy? Does your city/state have a power purchase agreement? Will you be using the electricity to power an EV or plugin in the future?
    In my opinion solar is the easiest to do when compared with large scale wind but you could also consider small wind turbines. In that case you need to determine if there is wind where you live (this has nothing to do with the average US house, it’s about your location). Wind is cheaper but very inconsistent in some places.
    In my view, if you are excited about renewable energy and can afford to have some systems put in place then do your homework on state incentives and consider installing it yourself or get a quote from a local installer. We have a free solar quote system on this site at https://www.solarpowerauthority.com/calculator/ share what you come up with and decide on doing. Note that there are several “state guides” under Rebate Programs listed on the left menu. What state do you live in?

  • Judith in Reston, VA says:

    I’m guessing since my house is heated with gas solar power wouldn’t help at all, since that is my highest utility bill???

  • Court Rye says:

    Hey Judith, I wouldn’t say that solar won’t help you “at all” because most people still use a fair amount of electricity even if their house is heated by gas. Things like TV, lights, computers, laundry, dish washer all use electricity. I have also seen very affordable portable electric heaters that could help to heat individual rooms at night depending on how your house is laid out.
    You could definitely mitigate your natural gas usage each month with a bit of planning. Solar is expensive but if you can offset the way you use natural gas it might be worth it.

  • david kohlhagen says:

    Thank you for the info, it was informative as easy to understand. Sounds to me waiting a couple years is the way to go. We are putting on a new roof this fall and thought while that’s being done I would look into it. Thanks dgk

  • mack says:

    Only 20 Years ago, solar energy cost 7 times as much. Advanced technologies have contributed to the enormous decrease in price, but it is mainly due to the increase in manufacturing volumes, as more and more people realise the benefits of solar energy.

  • Katie Hendrix says:

    They did the math wrong. The pay off would be much sooner. If you take into account that you would be saving that $73/ month, you could reinvest it into paying off the cost of the solar panels, which would in turn reduce your interest rate and the overall time it takes. So instead of just keeping the money, you use it to pay off the loan to buy the equipment.
    If you are paying $0.13 / watt like I am, then if you end up paying about $150/ month like on average at my place, then you end up using 1154 watts a month. >>( 150/.13 )>(1154 watts *$9[/watt])<<
    SO.. this is where it gets interesting. If instead for the next couple years you take that $150 a month and use it to pay off the loan for the panels at let’s go crazy and say a 6% APR, it would only take you 7 years and 2 months to pay it off. (you can use an excel spreadsheet and get the same answer) Once that time is up, then you are just making a profit off of the electricity you are using. The fact that you don’t pay anything in and of itself is a gain. Just because you don’t get a literal “paycheck” doesn’t mean that you aren’t saving money in the long run. I would much rather not pay for my electricity for the rest of my life then not take advantage of it because i want to see the actual profitability. Also, the example you used would pay for itself in the same allotted amount of time. For any amount of electricity you use /month, it should pay itself off in about the same amount of time. So, instead of that 20 years, it is less than half that time. If you are looking for an actual paycheck, then you could always buy more panels than necessary. Which i would recommend. Sorry for the rant, I just thought that it should be addressed.

    • Anuj Sharma says:

      That’s a very interesting reference…. I work for a solar company and will definitely use this as my sales pitch :-)

  • Katie Hendrix says:

    The time value of money doesn’t necessarily apply here. Your electricity expenses are more of a sunk cost. The money you would be spending on your electricity would not earn you any interest to begin with. Plus, even if you were not to get a loan, if you consider the fact that most venues that you can invest your money in tend to have an interest rate of near and around 1%, you would not be making very much money off of it sitting in a bank. In fact, after, if you consider my other post, 7 years, you would be making more money than you would be if you had in fact invested else where. $18,000 would make you $15 a month in a bank at 1% (simple interest, of course this would go up a couple cents every month, but it would not exceed at most $17/ month depending on the compounding within 7 years) you would be making $260 a month based on a $18,000 investment. That’s about 17%. 17 times more money sounds like a heck of a good deal to me. Plus the fact that you are helping out the environment and all that fun stuff.

  • Greetings! Very useful advice in this particular article!

    It’s the little changes that produce the most important changes.
    Many thanks for sharing!

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  • Alton g. battle says:

    The more homes that have alternative clean power, the better off we will all be

  • Jake Kubiski says:

    I’ve been in this business for a long time and now I can see a noticeable increase of solar energy thanks to low cost that it is having. We are in Canada and a lot of people have started to learn about the huge benefits about energy solar. I appreciate all that information you folks are sharing

  • Rudy S. says:

    Cost is not the only consideration. In today’s toxic political environment and power grid weaknesses one can’t predict what will happen in the near future. Grids can be hacked and damages to it could take weeks or months to repair. Plus,more and more people are buying plug in electric cars which use lots of power that will tax the grid to the point of brownouts.
    Most of us can’t live without electricity because we’ve been so accustomed to it being available every time you throw a switch.

  • Bobb says:

    Great article with lots of facts. It’s helped me understand the cost for my house.
    Payback time is an interesting issue, including future price of electricity as well as the independence offered.

  • Designing a tiny solar power system for a camping trailer
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