Breakdown of Solar Panel Installation Cost

Rohan Mathew

Updated on:

Installing solar panels in your home needs you to consider the overall installation cost. Sun is the free energy source and savings are high, but you need to pay for panels and installation. There are several components associated with a residential solar panel system. Let’s break down the solar panel cost for a better understanding.

Solar panel cost breakdown 

Average panel cost currently = $3 – $4 per watt

Average PV system size = 5kW to 6kW [1kW = 1000 Watts]

Therefore, if you choose a 5kW PV system then the cost before 26% solar Income Tax Credit is equal to –

5,000 [Watts] x $3.26 [per Watt] = $16,300 for the system. 

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Hard cost vs. soft cost

Hard costs

The hard costs are the physical products of your solar panel system. It includes –

  • Solar panels – 25%

  • Solar mounting racks – 4%

  • Inverters – 10%

  • Storage batteries and more – 10%

The solar panel cost accounts for 25% to 30% of total system cost and there is an extra approximately 25% associated with an inverter, mounting, and electrical paraphernalia. 

Soft costs

Soft costs include –

  • Permit fee 2%

  • Sales tax 5%

  • An installers profit margin of 9%

  • Permitting installation labor 2%

  • Customer acquisition 9%

  • Transaction costs 6%

  • Indirect corporate costs 9%

  • Supply chain costs 12%

  • Installation labor 11%

The soft cost percentage is small but when you add up it shows a significant amount of 64%. Soft costs are necessary to run the business and solar energy companies need to pay employees, promote business, and earn a profit. 

How many panels are needed?

The number of solar panels you need to power your home will determine the overall solar system installation cost. For completely going off-grid, you will need a system that generates 100% power. On average homeowners need 25 to 35 solar panels for enjoying total energy independence. 

First, know your average kWh usage from the utility bill. For the monthly average divide the number by 12. If your monthly kWh is 300 then a daily average is 25kWh. 1 solar panel generates 1kWh [kilowatt-hour] daily. Your daily usage is 25 kWh, so you will need 25 solar panels. If you need to extra like heating the pool, then this will increase your energy costs. 

The solar panel cost including installation and equipment will differ from one state to another. You can even check the state rebate programs, which can help to reduce the upfront cost and cut your ROI period. 

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How much can you save by switching to a solar panel system?

The savings will depend on the location, climate, and your specific energy needs. For example, homeowners in LA save approximately $90,000, whereas residences in Oregon can save $38,000 over 20 years. The break-even period will depend on how much you paid from your pocket. It can take approximately 15 years. 

If you take the 26% federal solar tax credit, the majority of American homeowners break-even within seven years. Even if you installed a solar system that fulfills 100% of electricity needs, apply for monthly net metering credits. You can feed the extra power to the grid. Click here to know more about the solar panel installation cost.