With talk of “green shoots of recovery” and “glimmers of hope” in the U.S. economy, there’s a distinct possibility that consumers may actually start spending money again (gasp!). And with a 30-percent federal renewable energy tax credit* — plus a number of new, state-sponsored solar incentive programs either in place or soon on their way (see: Virginia, Texas, New Hampshire and Pennsylvania) — what better time to consider installing a solar photovoltaic (PV) panel system?

Which brings us to question numero uno: how much do solar panels cost?

The short answer is that it depends on a number of different factors. Examples include: how much sunlight you get; how much money your state or utility allocates for solar rebates and/or production-based incentives; whether or not your state offers a solar tax credit; what type of customer you are (residential, small commercial, large commercial, industrial); the size of your system; the type of PV panel you buy; and, if you’re financing the purchase, the rate at which you’re able to borrow.

Shopping usually isn’t like this. As consumers, we’re used to unambiguous price tags and instant gratification. We’re also used to products that cost about the same regardless of where they’re purchased. For instance, differences in state sales tax aside, it makes sense that a flatscreen TV purchased in California costs about the same as it would if purchased in, say, Tennessee. Moreover, we’d expect that the TV would work more or less the same in both locations. The same can’t be said of solar PV panels.

The lack of a straightforward, universal answer to the “solar cost” question can be discouraging. It doesn’t have to be. For now, it’s important to know that you won’t get a truly reliable cost estimate until a solar energy professional conducts a site visit and prepares a quote. In the interim, there are two useful ways to think about cost when it comes to solar PV: (1) in price per watt ($/W), and (2) in price per kilowatt-hour ($/kWh).

$/watt**

Solar panels come in watts, a measure of electrical power. Accordingly, prices are often quoted in dollars per watt. A quick-and-dirty way to get a ball park price range is to assume you’ll pay between $8 and $10 per watt, including the inverter, labor and wiring. A 2.8 kW residential solar energy system, for example, could consist of 10, 280-watt solar panels (10 panels X 280 watts/panel = 2,800 watts, or 2.8 kilowatts). Applying the rule of thumb above, total installed costs could run anywhere from $22,400 to $28,000. In practice, you’d pay 30 percent less this amount, thanks to the federal renewbable energy tax credit. In addition, any state- and/or utility-sponsored solar incentives available in your area may reduce out-of-pocket costs even further.

Berkeley National Laboratory recently released a great report (PDF) on U.S. solar installed costs. It’s worth a read, especially if you’re interested in figuring out which parts of the country boast the cheapest installed costs — and why.

$/kWh

In a way, when you install a solar PV system you’re purchasing, upfront, a portion of your future electricity needs. Think about it: a typical PV panel system will produce electricity over the course of 25 years or more. If we take into account upfront installed costs — plus panel degradation, inverter replacement, inflation, borrowing costs, etc. — what would each one of those kWh cost to produce? In other words, what would be the system’s levelized cost of electricity (LCOE)? Usually express in $/kWh, and most commonly used among energy industry wonks in discussing utility-scale projects, LCOE figures approximate the cost of all the electricity generated by a given energy system over the course of its useful lifetime.

For instance, a solar PV system might offer an estimated levelized cost of 16 cents/kWh. If you’re already paying your utility an average of 12 cents/kWh — and you expect to be paying 18 cents/kWh within five years (because of inflation) — you’d be stupid not to install the solar panels: over the course of the panels’ lifetime, they offer a cheaper per-kWh rate than your utility. Levelized cost estimates are helpful because they enable the buyer to compare apples to apples — or, more literally, kWhs to kWhs.

Beware, however: while straightforward in theory, levelized cost is a bit hairier in practice. This is because an immense number of assumptions are needed to produce the figures. Not all solar panel installers will calculate LCOE when quoting a system, but if they do, these numbers should be taken with a grain of salt. Here’s a useful take on the topic (as it relates to solar energy farms), courtesy of Morgansolar:

Personally, I never trust it when solar panel providers quote $/kWh unless they’re willing to give you the model they used.  It’s site specific and there are hundreds of variables that can have a HUGE impact on the final result.  (At a conference, a speaker tried to get away with “Using standard metrics and a reasonable interest rate, we got an LCOE of…”  Pure weasel words.  Where?  What metrics and what interest rate?  Give me your model or don’t waste my time.

At very least, I hope this overview provides a bit of clarity on how the cost of solar energy is commonly measured. If you’ve got questions or comments, don’t hesitate to post them here.