Why are solar panels so expensive?

What solar panels cost

To start, let’s establish that, on average, purchasing and installing a 5kW solar energy system for a typical home ranges from $15,000 to $25,000 before applicable incentives. Just bear in mind that the cost of a solar energy system can vary significantly depending on several factors, including the system’s size, equipment quality and installation costs.

The good news is that eligible homeowners can use the federal investment tax credit (ITC) to reduce these costs by 30% through 2032, and many states offer additional incentives and tax credits for installing solar. In other words, the federal solar tax credit can drop the average price range to between $10,500 and $17,500.

Solar panel costs have also drastically decreased over the last few decades due to technological advancements and government incentives. A home system that would have cost around $40,000 10 years ago may now be closer to $15,000 or $20,000 before incentives.

» MORE: How much do solar panels cost?

Why going solar costs so much

Going solar costs as much as it does because, frankly, a lot goes into getting your home to run off of a new energy source. From your solar panel providers’ perspective, these costs are grouped into two main categories: hard costs and soft costs. Hard costs cover equipment, like solar panels, inverters and wiring. Soft costs, on the other hand, account for things like labor, permitting, marketing and overhead expenses.

Hard costs of solar

The hard costs — or hardware costs — of solar include the price of the solar panels, inverters, mounting equipment and wiring, as well as supply chain costs. A 2021 study by the National Renewable Energy Laboratory (NREL) found that hard costs account for 44% of the total costs of a home solar system. You can see these costs broken down in more detail below:

• Solar panels: The cost of solar panels depends on the size, capacity, efficiency and overall quality of the equipment and ultimately accounts for around 12% of total solar costs.
• Inverters: Inverter costs range from around $500 to $3,000. This portion of a solar build accounts for about 10% of the total cost.
• Racking and mounting equipment: Proper mounting equipment is essential to a high-quality solar system. Racking can cost anywhere from a few hundred dollars to thousands, depending on the type of system you are installing. This ultimately adds up to 3% of the overall cost, on average.
• Wiring: The cost of wiring typically ranges between $2,000 and $5,000. If you plan to store excess energy produced from the panels, your system should also include a battery bank. The cost of batteries may vary based on their type and capacity but can range up to several thousand dollars for large commercial systems.
• Supply chain costs: Many of the components necessary for solar energy systems come from overseas, so there are often delays in shipping and additional expenses associated with customs. This cost category also includes the expense of doing inventory and shipping/handling the equipment, accounting for around 9% of solar costs.

Soft costs of solar

Soft costs are the extra expenses that go into the price of going solar, making up 56% of the total cost of a solar energy system. These include installation fees, permit costs and business costs added in by your solar panel provider. Here are the main soft costs you’re likely to encounter:

• Labor: Unless you are a qualified electrician, you should hire a professional to install your solar system. Labor generally accounts for about 7% of the total cost of installing solar equipment.
• Permitting, inspection and utility interconnection fees: Solar permitting fees vary by jurisdiction, with some states capping these fees. Utility interconnection fees depend on your local utility provider but ultimately account for around 8% of total solar costs.
• Sales and marketing: Most solar energy companies have marketing and sales costs associated with their products, which can add to the total cost of going solar. On average, this accounts for 18% of home solar costs.
• Overhead expenses: Additional overhead expenses, like administrative and customer service fees, can also increase the cost of solar energy systems. These charges typically account for around 11% of total costs.
• Profit: Like any other business, solar panel companies need to profit from their products. This added cost varies depending on the company and type of system you are buying, but profit often accounts for around 11% of the cost of solar.

In addition to the hard and soft costs of installing solar panels at home, ongoing maintenance requirements can increase the size of your overall investment. Solar systems typically require very little maintenance, but you should still budget for routine cleaning and check-ups. Plan to spend a few hundred dollars on maintenance each year, depending on the number, size and type of panels in your array.

» LEARN: 7 steps to going solar

Are solar panels worth the cost?

Whether solar panels are worth the cost depends on various factors, including your location, energy needs and available incentives. You can read our full article on whether solar panels are worth it for more information, but we’ll give a quick breakdown here.

Basically, if you live in a sunny area with high electricity rates, your solar savings will go further than if you lived somewhere with limited solar potential and cheap utility power.

For example, Brandie, a ConsumerAffairs reviewer from Texas, shared: “We've had our electricity bill down significantly, so even with the price we're paying for the solar panels and the amount of electricity we're using that we were having to pay, it's still much cheaper than what we were paying before we had them.” 

On the other hand, if you live in an area with low electricity rates and less sunshine, solar panels may not be as valuable.

Also, it’s worth remembering that there are other reasons for converting your home to solar power beyond your return on investment.

Tom, a ConsumerAffairs reviewer from California, explained their reasoning like this: “We see electricity prices rising in the future and the grid getting overloaded, as well. Plus, since 1976, Exxon's scientists have known that climate catastrophe is headed our way because of fossil fuels. It only makes sense to do our part.”

How to save money on solar panels

If you’re still put off by the cost of installing a solar energy system, consider implementing some of these tips to save money and get the most out of your investment:

• Shop around for the best deal: Neil Gallagher of Brighterway Solar, a solar panel installer in Florida, advised us that “[t]o save money on panels, it is imperative to shop around and get quotes from multiple REPUTABLE companies. There are those in the industry that significantly mark up their sales commissions. When shopping around, make sure not to get a fresh quote from each person.”
• Install solar panels during off-peak seasons or holidays: Installing solar panels in the winter, when installation demand is lower, can help you get discounts on labor costs.
• Evaluate local incentives and tax credits: Many states offer special government incentives for homeowners who install solar systems, such as rebates or property tax exemptions, that can reduce your costs significantly.
• Choose the most efficient system size: Choosing an appropriately sized system that meets your energy needs helps keep your installation cost down while helping you reach peak efficiency.
• Consider leasing instead of buying: Solar companies often allow customers to lease their equipment instead of buying it outright. This generally means you have no upfront payment, and the company takes care of ongoing maintenance. Note, however, that some deals come with early termination fees if you decide not to continue with the lease after a specific duration.
• Consider a do-it-yourself installation: If you have some DIY skills and the right tools, you can install your solar panel system and save money on labor costs associated with professional installation. However, you should ensure all system components are installed correctly for optimal performance, and certain locations require professional assistance before you can get a permit. What’s more: DIY installation may void your panel manufacturer’s warranty.

Investing in solar panels can be pricey, but the best solar energy companies can help you reduce costs and increase your return on investment.

» MORE: Best cheap solar panels