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The Cost of Going Solar and How To Do the Math

A survey published by the National Academy of Sciences earlier this week highlighted the fact that going solar isn’t high on the list of energy saving measures that consumers can take. In fact, more survey respondents said they would buy energy efficient lights, appliances and cars or “sleep more” if they had to choose a single most effective action they could take to conserve energy.

The researchers of the study concluded that cost is a big stumbling block to adopting energy efficient technologies because their subjects cited curtailing current energy consumption, like turning off the lights and hopping on public transit, as the top choices over buying new greener tech.

Which brings us to the topic of: just how expensive are solar electric systems these days and how to do you compare them? I spoke with Molly Sterkel, program manager for the California Solar Initiative, to get some answers. California is the largest solar state in the country, thanks in part to the CSI incentive that gives rebates for installing smaller solar energy system owners (less than 30-kilowatts). Owners of systems 30-kilowatt or larger get payments on the electricity produced. Most homeowners install systems less than 10KW.

As it turns out, there is a lot of pricing information floating around that isn’t easily comparable. Over the past two years, solar panel manufacturers and their component suppliers have reported a steep drop in the costs of materials (up to 50 percent) along with the prices for which they sell their equipment. Back in May, Bloomberg Energy Finance’s Jenny Chase told me that major crystalline silicon solar panel makers were selling their goods at EUR 1.7 ($2.16) per watt and large solar power projects were being built at EU 2.7 ($3.43) per watt. In December 2008, the market research firm said the manufacturers were selling silicon-based panels at around $4 per watt.

But the lower costs and prices for manufacturers tend to translate into more savings for whole-sale purchases for large, megawatt-size projects. Consumers will pay more because they buy from retailers (installers), and the size of a typical system hovers from 3KW to 5KW.

Retail prices haven’t seen a dramatic fall. Check out this helpful retail price index by Solarbuzz for solar panels of all flavors in the U.S. and Europe. In the U.S., the retail prices have fallen almost 14 percent from $4.84 per watt in January 2009 to $4.17 per watt this month (excluding sales taxes), if you buy only one panel from a dealer.

A solar energy system is made up more than just solar panels; it comes with racks and other parts, and you have to consider the labor cost as well. Solar panels typically make up about 50 percent of the cost of installing a system. The homepage of Go Solar California, the umbrella term for the state’s solar programs, showed that the average price for a solar energy system at less than 10KW is $9.21 per watt. Sterkel pointed out that the number is an average of all the small systems installed over time, and it’s not adjusted for inflation.

So a better set of numbers would come from the CSI progress report posted in July this year, she said. Figure 9 of the report showed how much a buyer would pay for solar energy systems of less than 10KW, and the graph showed a gradual decline, from $10.04 per watt in the first quarter of 2007 to $8.49 per watt in the fourth quarter of 2009. That’s roughly a 15 percent drop. And it’s about an 8 percent cut from the beginning of 2008 to the end of 2009.

Sterkel pointed out that the financing options available to consumers, such as leases or power purchase agreements, have likely countered the effect of a big drop in solar panel prices. In a power-purchase agreement, homeowners pay for the solar electricity generated from the system on their rooftop, but the system is owned by their installer or an investor who financed the installation.

“It’s in our data that third-party systems cost more on average than” systems owned directly by consumers, Sterkel said. “People need to be aware that that’s what goes into a system’s cost, if financing is part of the system.”

One tricky thing about reading the CSI Progress Report chart is that the 10KW system size comes from a formula set by the California Energy Commission, and it’s in AC (alternating current). The same metric is used throughout the report. Solar panel manufacturers, on the other hand, typically discuss their prices in DC (direct current) because that’s the rating they use to describe the generation capacity of their panels. Solar panels are connected to one or more inverters in order to convert the DC to AC for feeding the grid, and the energy loss during the conversion means the AC number is lower. As a result, the cost-per-watt for a system rated in AC would be higher than in DC.

So, yes, it takes some math to get a better comparison of costs. But now you know where and what to look for. The price of a system depends mostly on its size, the brand of solar panels and other parts, as well as the local labor cost.  Sterkel said consumers should always get bids from three contractors in order to do a good price comparison. According to this CSI page, California consumers are likely see an average price of around $8.50 per watt. That means about $34,000 for a 4KW system, the average size of a residential system.

For more research on solar check out GigaOM Pro (subscription required):

Home Energy Management: Consumer Attitudes and Choices

15 Responses to “The Cost of Going Solar and How To Do the Math”

  1. I noticed tha you seemed to be talking about the Silicon Crystal based solar cell systems. But, isin’t there a new thin film non-Siliocon based thiun film technology that is even cheaper?
    Also, no discussion of power storage was included in the post. Is all access power generated fed into the public grid?

    • Most of the solar electric systems sold today use cyrstalline silicon solar cells. Which thin-film technology are you referring to? Thin films can be cheaper but they aren’t as efficient at converting sunlight into electricity. So you will need more thin film panels to generate the same amount of power. That rule doesn’t work well for residential rooftops, where space is limited.

      Excess power goes to the grid. Solar energy storage is too new and a concern of utilities, not home and business owners.

  2. The example used to illustrate the current average system cost of $8.50/watt appears to have a math error. It say, “California consumers are likely see an average price of around $8.50 per watt. That means about $26,000 for a 4KW system, the average size of a residential system.” That calculates to $6.50/watt ($26,000 divided by 4,000 watts = $6.50).

    • Hi Gary, thanks for pointing it out. I took the two numbers from a CSI web page and should have double-checked them. CSI folks just old me that the mistake is indeed in the total cost. I’ve put the right number in the story.

  3. The Idea that you can sell your electric power most certainly appels to me.
    That way you can still make money from your solar ofen panel.
    It takes a long time though until you have “earned” the investment back though.

  4. Thanks Ucilia. THe CSI ‘raw’ database is a wealth of info – with almost 49,000 rows. You just saved me a bunch of time!

    For those eager to follow the math between the DC rating and AC rating that Ucilia has described, the average ‘Design Factor’ in the CSI database is 94.5% for the 41,000 systems 10 kW and under.

    Wrt to big box retail and DIY, I have seen modules marketed in BIC – a large consumer electronics store – in the Ginza District in Tokyo as well as in Milan’s fashion district at the Eco Shop. Though, struggling with the language(s), it wasn’t clear if these were for self-install or not.

    Regards, David

  5. Jeremy Dory

    Payback is much faster when you consider offsetting gas prices by charging an EV, like the LEAF from a PV system. We are talking 5 years or so on a 2kW system. Also, $8.50 per watt is insane, get a system with noob friendly Enphase micro inverters and install it yourself at about $3.50/W ($2.45/W after fed incentive). See to get an idea of what I am talking about.

    • Ucilia Wang

      Install it yourself?! Unless the plan is to line up the solar panels on the ground against a wall, otherwise how would a typical homeowner know how to anchor the racks that are necessary to hold the solar panels in place on a slanted roof? Then there is the wiring.

      • Jeremy Dory

        Well, I agree somewhat… It may not be entirely feasible for most people to do the installations themselves. The industry is moving towards more “user friendly” equipment, like solar panels with micro inverters built in. Soon it wont take much technical aptitude for folks to do their own installations. Once solar hits about < 1.50/W it will go mainstream and I bet Home Depot will have short workshops on how to do the install yourself.

    • I really don’t think people will or should be installing their own solar panels en masse anytime soon for a number of reasons.

      1) Most solar incentives from utilities or states require a company with a NABCEP-certified installer on the books to do the work.
      2) Orientation and tilt optimization is not easy to figure out. Just because you don’t have a shading issue in September does not mean you don’t have one in other parts of the year.
      3) Buying 8 panels on your own will be much more costly than a contractor buying 1,000 panels and doing your install out of their inventory, offsetting a large part of the labor savings the homeowner would hope for by doing it themselves.
      4) TIME! Very few homeowners have the time to do the research and commit the time to doing it properly to offset labor costs of a professional.

      If you want to save money, I’d recommend banding together with neighbors to (1) split up the research time and (2) bargain with contractors to get a lower price since they benefit from having multiple installations in a single neighborhood.

  6. Going solar in the U.S. today can cost between $10 and $4/watt. At $6 a watt, a resident in Texas (decent for solar, not great like Arizona or bad like Maine) can get a $2.50 rebate (some muni’s) and a 30% federal tax credit (30%) bringing the final cost to $2.45/watt. This is the cost that should matter to the consumer. A cost of $2.45/watt translated into about a 13 year payback if your electricity costs 11 cents. Paybacks vary based on a number of factors, but this is just one example of the “cost of solar”.

    The above article makes it clear that “doing the math” on a solar installation is virtually impossible for a homeowner or business to do themselves. Just placing a value on the amount of time it would take to figure it out (months) makes solar seem too expensive. On top of that, the information out there is, well, sub-par. We started our company to combat this problem. By providing financial analysis to homeowners and businesses free of cost, we help them “do the math” everyday, saving them time, and, in the end, money. Feel free to check us out if you need help “doing the math”!