We all know that gasoline is priced in dollars per gallon. (Duh.) We also all know about how far we’ll be able to drive after shelling out 40 bucks for a tank of gas.

When it comes to solar power, however, not many of us know how the cost of solar panels is measured. Nor, for that matter, do we immediately see the relationship between the cost of solar power and the value of solar power. Unlike a tank of gas, the value of which is enjoyed (and used up) more or less immediately, solar panels deliver their value over a number of years.

Solar panels "make back" their cost via electricity savings

With this in mind, the aim of this post is to answer two questions: (1) How much do solar panels cost? AND (2) Does the value of solar panels outweigh the cost? So, enough chit chat. Let’s get started.

How much do solar panels cost? –> Try our free solar cost calculator.

Solar photovoltaic (PV) panels — which turn the sun’s rays into electricity — are typically priced in dollars per watt ($/W). There are a few details related to this measure. You may sometimes hear some people talk about DC watts versus AC watts, for example, or refer to something called dollars per watt peak ($/Wp). But the main thing to remember is that, when you buy a solar energy system, you’re paying for the ability — or “capacity” — to generate electricity now and into the future. Pretty cool, huh?

An example of a solar home energy system.

So, how much are you paying? What is the out-of-pocket cost of a solar PV system?

>> Info-graphic: How does solar power work?

Since every solar home project is a litte different, the answer varies somewhat from house to house. And, since solar rebates and solar tax credits are typically made available at the state and/or local level, it varies a bit from region to region. (Note that all U.S. homeowners with federal income tax liability can take advantage of a federal solar energy tax credit worth 30 percent of system costs.) Here are a few helpful resources on solar energy costs:

  • (1) The Open PV Project, an undertaking of the National Renewable Energy Lab, relays pricing information from solar installers across the country. At the time this post was written, the 2010 national average cost of solar PV was $7.62 per watt. Not all solar installation companies participate in the project, so the numbers aren’t perfect. But the data do provide a glimpse at how much, say, the average Arizona homeowner may be paying ($5.64/W) compared to the average homeowner in New Jersey ($7.64/W).
  • (2) Some states require solar installers to report the prices of their solar installations — and officials may withhold solar rebates if numbers aren’t submitted. The result is fairly comprehensive solar cost data. Pennsylvania’s Sunshine Solar Rebate Program, for example, is reporting a median cost of $5.92/W for residential solar energy projects — and a median system size of 8 kilowatts (kW). Go Solar California, a joint project project of the California Energy Commisison and the California Public Utilities Commission, is meanwhile reporting quarterly updates on residential solar costs, which in 2010 are averaging around $7.50 per watt.
  • (3) When in doubt, look for a rule of thumb. Our solar cost calculator, for example, uses a default value of $7.00/W for residential solar projects. While this number may not be bulletproof, it’s a reasonable ballpark figure to start. Remember that this pre-incentive figure will be reduced by whatever solar rebates and tax credits that are available in your area.
  • (4) Get at least two (preferably three) solar home energy quotes from qualified solar installers. Ultimately, it’s not until you see a hard proposal that you’ll be able to know how much solar panels will cost for your home.

As noted above, since each and every project is unique, it’s somewhat difficult to generalize. But, assuming a pre-incentive cost of $7.00/W, a typical 5-kW system would have a gross cost of $35,000 ($7.00/W * 5,000 W = $35,000). Any solar rebates would reduce this gross cost further, as would the 30 percent federal solar tax credit.

Does the value of solar panels outweigh the cost?

Like the previous answer, this one varies from project to project, and region to region. In states that are “good” for solar — like New Jersey, Pennsylvania, California, Arizona, Massachusetts Colorado and Hawaii, among others — a solar panel system can pay for itself in as little as three to five years and provide reliable, long-term energy savings.

When considering a residential solar energy project, you should weigh the following factors, each of which contributes to solar panels’ return on investment:

  • The price you pay for electricity. All else equal, homeowners who pay a relatively high per-kilowatt hour (kWh) price for their electricity will see the strongest financial return on their solar home energy system.
  • The amount of sunshine — or “insolation” — in your area. While most of the U.S. gets plenty of sunlight to make solar a good proposition, solar energy systems do produce more power in sunnier regions.
  • The likely impact solar will have on your home value. Generally speaking, solar panels reduce a home’s cost of ownership and, accordingly, increase its value.

A good quote will clearly demonstrate the year-over-year savings of a given system. It will also include a cash flow analysis that indicates a projected pay back period and return on investment (ROI).

Ultimately, it’s up to you, the homeowner, to decide what kind of financial return you seek in a home energy upgrade, like installing solar panels. Some individuals are content with a ten year payback — and understand that a solar panel system would continue to generate inflation-protected savings for at least another 15 years after that ten year mark. Other homeowners will look for a payback of, say, five years or less.

Here at GetSolar, we see many solar power projects that are drastically cutting homeowners’ electricity bills and offering a favorable ROI — evidence that suggests, yes, the value of solar panels far exceeds the costs. To be honest, however, we also see inquiries from states where local solar incentives are weak and/or electricity is relatively cheap. Examples include Kentucky, Alabama and Nevada. Right now in these areas, it’s difficult to say whether the value of solar is greater than the costs. Faced with a 19-year payback and a return on investment in the low single digits, a homeowner in Nebraska, for example, may be forgiven for his skepticism.

As solar panels become more affordable, and as more and more states take steps to promote demand for solar power, we hope and expect that the value of a home solar energy system strengthens for all homeowners across the country. If you’re lucky enough to live in state where the value of solar already exceeds its cost, don’t miss out on a great opportunity! Thank your lucky stars, get prepared and request a quote today.