A Solar Quote Breakdown
“The price of inaction is far greater than the cost of making a mistake.”Meister Eckhart
As solar panels become more widely adopted throughout the world and particularly in the United States, prices have been dropping steadily as larger and larger manufacturers enter the market. With each major manufacturer that begins to produce solar at scale, the price decreases, and the efficiency of panel production increases. Now what I mean by efficiency of panel production is the carbon footprint needed to create a solar panel since everything from a book to a car requires a certain amount of carbon energy to produce, and solar is no different. Go back 15-20 years, and the common argument was that solar panels were not really green at all because of the massive amount of carbon energy used to create them. And 15-20 years ago, that was mostly correct; however, in the past few years, the process of creating them has become more efficient to the point of offsetting the carbon footprint to create the panels to about 1-2 years of continuous use on your roof. So, it’s safe to say that solar panels are most definitely carbon friendly for the environment.
Now saving the planet is really cool, and I believe that the choices we make now to protect the planet are a huge concern for future generations. If I can leave the planet better for my son and protect his future, I am willing to pay and sacrifice to make that happen. But here’s the good news… going solar is actually a boon to your wallet as well, allowing average homeowners to save anywhere from $100-$300 or more a month, depending on their current energy usage.
The problem with solar is that the market is a bit fragmented and confusing, much like the current state of energy here in the US. For instance, many people are surprised to learn that there are actually two major grids (or interconnects) in the US and a handful of smaller ones that power the US and Canada. For simplicity’s sake, let’s discuss the three most important ones for US consumers, which are The Eastern Interconnection, The Western Interconnection, and The Texas Interconnection. Yes, Texas has its own electric grid, but does it really surprise anyone that Texas would do its own thing?
The issue with these interconnects is that the power generally flows hundreds or even thousands of miles and, of course, over that distance, significant energy loss occurs. The great thing about solar is that because the energy generated is so close to the source, there really is little to no lost energy. So solar can obviously be a great investment, but the problem lies in figuring out just who to trust and ensuring that you get the best deal possible.
Average Cost of a Residential Solar Panel System
Now you might be saying, “Jon, can’t you just give me a price and tell me how much it costs?” And unfortunately, it’s not quite that simple. Let me start by offering an average range of solar prices that could be anywhere from about $25,000 to $100,000 or more, and it really depends on your location and needs. If going solar was simple, it would be as easy as shopping for a car, where we could go to the store, pick out our favorite colored panel and haggle over the price. However, it’s not, so let's work together to help you better understand just what goes into a solar savings proposal you might receive from a local solar rep.
The first thing you need to do is look at your utility bill and calculate the number of kilowatts of energy you use in a year. Now check carefully because most electric bills include the last 13 months of energy usage, so you can compare the usage from the same month a year ago when looking at it. When I work with customers, I typically create a spreadsheet and enter each month, along with the monthly kilowatt usage and auto-calculate (I’m not always good at math)! This will spit out a number which will commonly be 10,000 kilowatts or more (in most cases, much more). After I have that information, I will write it down and look closer to my most current month's usage. Take the total bill amount you were charged and divide that by the kilowatts of usage for the month, and it will give you the energy cost per kilowatt that you are paying.
Here is a chart from 2020 (trust me, the prices have increased sharply across the board) that shows the average kilowatt hour pricing for energy by state. Check to ensure your calculations align with the state average, but remember prices increase almost every month, so it will be north of what you see on the chart. As a quick rule of thumb, if you are paying more than .10 cents, you can probably save with solar, and if you are paying less than .10 cents, it will most likely be a bill swap of trading an electric bill versus paying monthly on your panels until you own them outright. Obviously, once you pay the balance of the solar panels, they will continue generating electricity for you without having to make further payments towards them. So, even with a bill swap, it generally makes sense to switch to solar as it will increase the equity of your home and eventually, you will be paying nothing for the panels while they continue to produce energy. Today, most panels claim to continue to create at least 80% of their original energy production after 25 years, and they are often warrantied for 30 years, meaning there is a good chance they will continue to last for a long time past the warranty period.
Can I Install My Own Panels and Save?
The short answer is ABSOLUTELY! However, installing solar panels is still a huge financial commitment and incredibly difficult unless you are an experienced DIY’er who understands electrical, carpentry, roofing, and most importantly, the legalities of pulling permits and ensuring you stay up to code. If you have that unique set of skills, I encourage you to check out companies like Solar Wholesale or Tandem Solar Systems, which claim to provide DIY equipment to install your own solar panels. I have not used them and do not know anyone else who has, so I can’t speak to the quality, reliability, or service of the product. However, this might be a good route to take if you’re a handyman with more time than money.
By doing it yourself, you essentially save on labor, but you will be taking on the issues of legal compliance and tax issues and often will not be warrantied should something happen to your roof, solar panels, or worse, your neighborhood's electric grid. Now, I’m not trying to scare you and think that DIY solar is a good route for some people, just understand it’s not as simple as assembling an IKEA bookcase; there is a real danger both financially and physically if you make a mistake. Lastly, you will need several able-bodied helpers for about 2-3 days while you complete the work.
What are my options to hire a professional?
As a solar consultant, I obviously encourage people to use a professional for the process, when at all possible, but that doesn’t mean not preparing in advance. I believe it’s in a homeowner’s best interest to understand the process of solar installation and what makes up the bulk of costs on a project. This all starts with calculating the average cost per kilowatt on your home and then adjusting it out by at least 4% a year for inflation. Obviously, inflation changes, so during periods of higher inflation, you can be sure those costs will be passed through from your energy company to you in the form of increasingly higher bills. I use 4% on my calculations because if I show a higher yearly increase in electric bills, which I have seen as much as 10% a year, it’s hard for people to wrap their minds around what their bill is projected to be in 10-20 years down the road. In 10-20 years, your electric bill will be astronomically higher than it is now, but it’s important to remember that if you are still working, hopefully, your wage increases much higher with it. That said, one of the benefits of solar is the ability to lock in your energy costs for the length of your loan, at which point the cost of panels drops off altogether. I won't ever say free because to stay tied to the electric grid, you will always pay a nominal monthly fee to the utility company. Often, this is as low as $10 a month, but to be transparent, $10 is not free.
I compare it to the ability to lock in the cost of gasoline 20 years ago when it was under $1 a gallon and what that would do for my finances today in a world where 7 11 is both the name of the gas station and the price for a gallon of gas ($7.11). So, let's recap what you should know when you sit down with a professional:
• Average current prices for a kilowatt of energy in your state
• Your yearly electric usage in kilowatts
• Your monthly utility bill divided by the number of kilowatts used
• The price you expect your bill to be in 5, 10, 20 years based on inflation and adjusted fees
Armed with that information, you will be prepared to work with a professional because you will have a frame of reference for your current and future electric needs.
What goes into the price of professional solar installation?
The main components of solar are:
• The solar panels - Also includes all physical components, solar inverter
• Labor for the contractors - The construction of your solar panel system, pulling permits, working with HOA, balancing the system, and ensuring compliance with local codes
• Sales Representatives Commission - This is similar to a real estate agents commission structure
• Financing - Ignore this if paying cash, otherwise you will be subject to standard financing fees
• Additional Add Ons - This could include warranty (some companies include this standard), battery backup systems, additional components needed for solar optimization, etc.
• The characteristics of your home - The ideal roof will have a southern facing exposure, plenty of square footage without excess curves or obstacles, and the proper pitch for the panels to sit on.
Let’s discuss these in more detail so you better understand what you are actually paying for and will understand the costs when presented with a solar proposal.
The Solar Panels + Inverter = Around ⅓ of total cost
Just like all manufactured products, not all solar panels are created equal. There are lower quality panels, and there are higher quality panels. Some panel brands are made from companies you may never have heard of and, because of that, are forced to sell a cheaper product. Likewise, some major manufacturers are also in the panel business and can sell for a premium based on name recognition alone. You can find imported panels made overseas, and you can find domestically produced panels made in the US. Some panels are attractive and sleek, and some panels are a bit of an eyesore. Your job is to make heads or tails of what is the best panel for your situation for the best price. Like panels, consumers come in all shapes and sizes as well, and while you might be interested in the lowest cost panel, your neighbor might only be interested in domestically produced panels, even if the cost is more expensive.
A good solar consultant will walk you through a few options while determining what is most important to you and your family. The easiest way to ensure you get what you are looking for is to know what you want. Are you looking for the cheapest option? Domestically produced or imported? Prettiest or most powerful? These are just some factors that determine what panels will work best for you. I suggest homeowners write down the following and place them in order of importance to them.
• Energy Production
• Country of Manufacture
• Life Expectancy or Warranty
Armed with your priorities, you can better navigate the ever-growing solar options available for your home. Now you already know what the panels do, but it’s important to understand what the other large component, The Inverter, does. The inverter is responsible for turning the sunlight into electricity that can power your home. When the sunlight hits your home, it creates Direct Current energy (DC), and the inverter transforms that into Alternating Current (AC), which your home can then use. The panels cost around ¼ of the total system cost, and the inverter is about 10% of total system costs. So together, they represent around ⅓ of the total system cost.
Contractor Labor and Operational Costs = Around ⅔ of total cost
(Includes contractor, sales commission, financing and really everything else)
Much like any home improvement cost, the bulk of your expenses are for the labor and operating costs of the business doing the installation. While the installation of the panels takes roughly 1-3 days to complete, much of the work is done behind the scenes. This includes:
• Installing the panels
• Pulling permits
• Working with HOA
• Balancing the system
• Ensuring compliance with local codes
• Initial monitoring to ensure it is working properly
When you have a system installed, there will typically be a project manager who works with the sales representative who you met with. The rep will explain what you are looking for, what was discussed, timelines for completion, etc. The project manager will then interface with the contractor, begin pulling permits and find out what local rules are in place and how to follow them. The contractor will schedule, organize the team, ensure components will arrive as scheduled and are in working order, then complete the actual installation. Once that is done, they will make sure it is working as needed and will continue to work for the life expectancy of the system itself.
The company the sales rep works for will get paid, the rep gets paid, the contractor gets paid, and the government will get paid in the form of permit fees and taxes on the components. The benefit of working with a company rather than installing it yourself is that it is truly a time-consuming process to ensure everything is done correctly from a legal standpoint and from a craftsmanship standpoint. Additionally, the panels themselves are much cheaper when purchased at scale rather than purchased yourself. There are people to hold responsible if something goes wrong, and the company rather than the homeowner accepts liability for any issues. The downside to working with a company is not cheap; were you to purchase everything yourself, you might save anywhere from 30% - 50% of the overall cost of paying someone else to do it. And that savings is really the cost of your time, and most people value their time much more than someone else's, so in the end, it may be an even trade.
No matter how you slice it, paying in cash will get you the best deal for solar. That said, not too many people have $20,000 sitting in their account at any given time. Because of this fact, cash purchases are the least common way of buying a solar panel system. Most people choose to finance the project, which will add roughly 10%-15% to the total cost. As someone who studied finance in college, I believe in the time value of money, and so if you can finance something for several years and benefit from a fixed rate, it may be in your best interest. For most, the monthly payment you make in 10 years will have a smaller impact on your finances due to inflation and other factors. As I have said before, solar is like locking in the price of gasoline. Twenty years ago, $2 a gallon of gas probably felt pretty expensive to some; however, no one would think that was expensive today. Conversely, sometimes there is more value in having that $20,000 in the bank and make payments because that makes you feel more comfortable and sleep better at night. The choice is yours, and there is no right or wrong answer between paying cash or financing; it is just a matter of preference for you.
Lastly, the third option of getting solar is through a solar lease program. With that, you will not benefit from any government tax incentives because you will not own the panels on your roof. You will be paying on a monthly basis to the solar company rather than the electric company. It’s not my favorite, as I’m the kind of person who would rather own than lease a car, but it is a great way to lock in your rate and ensure you are insulated from the frequent utility price hikes and inflation pressure.
For many people, solar is more than just saving money and the planet. They are interested in the peace of mind of knowing that they are protected if the power goes out. For that, you need a battery backup system installed along with your solar panels to ensure that when the neighborhood loses power, you don’t. Battery backups are not cheap by any means from a cost perspective, but if you are looking for peace of mind, they are tough to beat. All solar reps will have information about battery backup systems, and if you can wrap it into a financing plan that fits your budget, I always say why not. It really just comes down to what you want to pay monthly and what you expect for that payment.
Another add-on that may or may not come standard is a warranty. I believe that every homeowner should think twice before purchasing a system without one because they remove much of the potential issues they could face. If it’s not included standard, ask what warranty options are available. In the rare instance that one is not offered from the company you are thinking about working with, I would look elsewhere because that is a sign they don’t believe in their product.
The Characteristics of Your Home
Another factor in the overall pricing of your system is how your roof is configured. This includes the pitch of the rooftop, any obstacles that reduce the number of panels, and the direction it’s facing. Obviously, any tree or building coverage needs to be addressed as well to help eliminate any barriers to the most efficient solar production. If your roof has a few issues that prevent the panels from working at peak efficiency, not all hope is lost. It just means you may need additional panels to generate the overall energy you were hoping for.
Final Words on Solar Panel Costs
With any large purchase, sticker shock is common, and solar is no different. Where the difference lies is in the monthly costs. A common tactic in the car industry is to focus on the monthly cost because it distracts from the overall cost of a new car. However, that monthly cost really matters in the solar industry because if you can get those monthly costs right, you can save money. You need to remember that you’re going to pay for energy no matter what, so even if you were going to pay $100,000 for a solar panel system, if it reduces what you pay in electricity and helps put more money in your pocket, it makes sense. Identify the reasons you want to go solar, the price you’re currently paying for electricity, and meet with reps until someone can lower your monthly costs. Just because one quote came back above your expectations does not mean that all will. Like cars, some brands are more expensive than others, but unlike cars, if it looks good, fits your budget, and does the job you need it to, no one cares what it is.
Let's discuss your energy goals and find out if solar makes sense for you with a short virtual meeting.
- Solar for $0 down
- Save up to 50% on your energy bills
- Increase your home value
- Get clean renewable energy
- Get a 30-year warranty
- Customized proposal and best value
Let's talk about going solar!
Jon Nelsen | Solar Consultant