Why Are Solar Panels so Expensive? Here’s a Breakdown of Solar System Costs

Solar power rising installation trend continues growing worldwide reaching to 400 gigawatts (GW) with a huge increase in new installations in 2017. Such numbers owe this exponential growth to two factors: policy determination and solar photovoltaic (PV) cost decrease.

The first factor is linked to global incentives, such as Production Tax Credits, Feed-in Tariff, Net Metering, and Auctions, activated by government agencies as a way to promote the development of the solar technology.

The second one is directly related to the feasibility of installing a solar power system at reasonable costs and eventually obtaining a positive revenue from such installation.

The latter statement includes many factors that influence the cost of a solar system and vary by:

• technology type

• geographical location

• market size

• system size and design

• policy incentives

• taxes

• local permits

• installer contractors

 Solar PV costs also vary depending on the application of the solar system, whether it is for utility scale, commercial or residential purposes. In this article we will focus on the residential solar photovoltaics.

Main factors affecting the cost of a solar system

Several elements must be taken into account to achieve the best cost-efficient performance of a home solar system. Some of them can be chosen by you (as a homeowner) while other cannot.

The first, is the selection of an off-grid or grid-connected system, such decision depends on three factors:

• The location of the installation;

• Reliability of the power utility;

• The importance of the load to be supplied by the panels.

If you have an access to a reliable power grid, then the best technical-economical solution is to connect your solar panels to the grid.

Grid-connected solar panels give you the option to use the grid electricity when prices are low and turn the photovoltaic system on when prices are high. This option will reduce your initial costs, as the energy load would not need to be supplied entirely by the PV system at all times.

Once you have figured out whether you should connect your solar panels to the grid, you will need to decide on the energy load that needs to be supplied by the solar system. This decision depends upon your expectations and your solar installer should provide the best array system configuration to supply requested load.

Components that need to be taken into consideration based on this decision are:

• solar panels
• inverters
• mounting racking system
• grid connection
• batteries (if necessary)

These components are what determines the hardware costs of a residential PV system.

Solar hardware components and their installation

Solar panels

Solar panels are the most important part of a photovoltaic system, because they transform solar energy into direct current (DC) electricity.

Currently, there are three types of solar panels on the market:

1. Monocrystalline solar panels
2. Polycrystalline solar panels
3. Thin-film modules

The best option for your purpose depends on your budget, quality expectations and efficiency. Better performance you expect, higher the costs will be but it may be worth it in the long run. The best solar panels that are currently available to homeowners have a long lasting performance with minimum maintenance requirements.

In general, low-cost modules are mainly made of polycrystalline solar panels, created by melting raw silicon which is way more economic and faster than manufacturing processes used to create monocrystalline panels.

Polycrystalline panels perform with an efficiency rate of nearly 14 to 18 percent and their lifespan is 23 to 27 years [1].

Monocrystalline panels come with higher efficiency (18 to 24 percent) and can be easily recognized for their homogeneous black look and rounded edges. These panels also have a longer lifetime (25–40 years) compared to other types. Their biggest disadvantage is their cost, as they are the most expensive solar panels in the market

Finally, thin-film panels have the lowest market share at the moment, but they have potential to be more integrated, as further developments take place. In general, they have around 7 to 14 percent efficiency rate and their costs are relatively low. You can easily recognize them for their flexibility.

Selection of a solar panel type will depend on space availability, efficiency requirements and costs from manufacturers.

Take into account that the price per watt is not the only important parameter in the long-term. The lifespan of solar panels is also significant. Monocrystalline solar panels will last longer than polycrystalline or the thin-film ones, and therefore providing better revenue in the long run.

Current average cost of solar panels is nearly USD $0.64 per watt in the United States [2].

Solar inverters

Inverters transform the DC electricity obtained directly from solar panels, or stored in batteries, into alternating current that households use.

Solar inverter options for residential purposes can be summarized as:

1. String Inverters
2. Microinverters
3. DC Power Optimized Inverters

Besides specific technical differences, one important factor that affects the selection of one or another type of inverter is the desired performance against shading of one or a group of solar panels from the whole array. Shading is undesirable because it diminishes efficiency of the whole solar system.

When String Inverters are selected, PV modules are connected in parallel. If one module is shaded, the whole inverter is affected.

On the other hand, DC Power Optimized and Microinverters allow independence of the performance of each solar panel. This means that even when one solar panel is shaded, the remaining panels will still produce energy at their maximum efficiency [3].

Cost differences can be dramatic:

• String Inverters cost around USD $0.15 per watt.

• AC and DC Power Optimized Inverters are around USD $0.17 per watt.

• Microinverters cost up to USD $0.40 per watt [3].

In most cases, DC Power Optimized Inverters are preferable, as overall efficiency is much greater than String Inverters achieve and total costs are more reasonable.

Average inverter cost contribution to home solar systems is near USD $0.21 per watt in the United States [2].

Mounting systems

For the classification of mounting systems is convenient to use the mobility of the module’s angle. There are:

1. Fixed mounting systems
2. Adjustable mounting systems
3. Tracking systems

Solar tracking systems are the most expensive option. They are also increasing efficiency of your solar photovoltaic panels because they follows the arch of the sun.

Fixed and adjustable mounting options are selected depending on your location. Fixed mounting systems demand a continuous sunlight, while adjustable systems are best suited for varying season latitudes–they allow you to tilt the angle of solar panels according to weather and position of the sun.

Overall cost for solar mounting system is around USD $0.12 per watt in the US [2].

Hardware costs vs non-hardware costs?

Now, here is an interesting part.

The main reason for a greater adoption of solar energy in global markets is the reduction of the so-called Balance of System Hardware Costs.

Hardware components mentioned above account for these hardware costs of a solar PV system, and according to the National Renewable Energy Laboratory (NREL), represent nearly 40 percent of the total solar installation cost [2].

A solar system installation cost breakdown:

This means that the reason why is solar energy still pretty expensive is affected by the non-hardware costs, the so-called soft costs associated with:

• incentive application

• permitting

• financing

• customer acquisition

• installation labor

• interconnection

• administrative procedures along with local taxes

Soft costs of residential solar PV systems

Soft costs account for 60 percent of the installation cost of a residential PV system!

Installation costs

The amount is different for every State. The reasons vary based on:

• the competitiveness between solar installers in the developed solar markets

• available solar resources

• State-level policies

• transportation costs

• market experience

In this sense, the market value of a residential solar PV can change drastically from one State to another.

Taking this fact into account, an overall cost of installation labor can be set at USD $0.3 per watt in the US [2].

Operation and maintenance costs (O&M)

One of the biggest advantages of renewable energy compared to traditional power plants are low O&M costs. That is why most people tend to think that solar PV technologies are free maintenance technologies.

Solar panels and mounting systems (especially fixed and adjustable systems) are very solid. Therefore, the necessary maintenance means cleaning solar panels two or three times a year. This is important as dirt or snow decrease efficiency of your solar panels, and can even reduce their lifespan on the long term.

Costs of maintenance are around $USD 5-10 per panel per year. For a typical household system, this is not a big amount of money.

Among operation costs are also monitoring and tracking systems – an interesting feature of solar power designs.

Monitoring and tracking systems allow you to measure the savings on electric bills over time, by receiving hourly electricity production of your solar system. They are great tools to monitor the system’s performance and enable you to evaluate if your system works at maximum capacity [4].

Decent solar installers should also provide a warranty on their solar systems for at least 15 years after the installation. The warranty should assure a good performance of solar panels over the lifetime (guarantee power output above 85 percent of nominal value) and cover some of the maintenance costs [5].

Permits

Permits are a tricky subject because they can vary greatly across regions. Like the installation costs, inspection and interconnection costs vary across each Stat, depending on regional power utility and local solar policy laws.

For example, the US average cost for the permits is USD $0.1 per watt. The cost includes permitting, zoning, inspection and interconnection; but in the State of New York, permitting, zoning and inspection costs can reach USD $0.24 per watt, and permit fees and interconnections can reach up to USD $ 0.32 per watt [2].

So, how expensive is solar power really?

Summarizing the final price to install solar panels on a house in the United States, the total cost reaches close to USD $2.96 per watt, according to the National Renewable Energy Laboratory 2019.

It is also important to compare installation prices of solar energy across the world to see the patterns and differences in policies and market opportunities.

As we mentioned before, the final cost of a solar panel installation is highly dependent on soft costs which vary across States and can, therefore, represent big differences among home solar system prices.

In this sense, comparing the United States with other high-income countries depicts considerable differences in prices of residential photovoltaic systems – all due to the soft costs. The United States is actually one of the countries with the highest installation costs among developed countries.

For instance, Germany is one of the countries with the lowest installation costs for residential purposes. Low permit fees, interconnections and taxes push the price to almost USD $0.03 per watt, driving soft costs far below US values [6].

The US currently offers Residential Renewable Energy Tax Credit that accounts for 30 percent of the costs for a solar PV installation. This indeed reduces a great part of the upfront investment Americans need to pay to get a rooftop solar system. However, this tax credit will be valid only for solar systems installed before 2020. Then, the percentage of credit will begin to decrease, while installation costs might increase.

Unless more favorable policy measures are set in place to facilitate administrative procedures for residential PV installations, it will be hard for the US prices to compete with other solar markets like Germany and China.