What Do Solar Panels Cost and Are They Worth It?
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The cost of installing an average-size home solar system was $34,122 in the second half of 2023, according to EnergySage, a solar and home energy product comparison marketplace. The federal solar tax credit can potentially bring that cost down to $23,885, and local incentives can lower the cost further.
You can determine whether solar panels are worth it for your home by considering various factors, such as local incentives and policies, your electric bill, and how you finance the system.
» MORE: Best solar companies of 2024
Solar panel costs by state
Nationwide, solar costs have dropped by more than 40% over the past decade, according to the Solar Energy Industries Association. That change has made solar more accessible for many more homeowners.
Costs do vary among states, however. Here are the typical costs for installing residential solar panels by state according to EnergySage data from the second half of 2023.
State | Typical cost before federal tax credit | Typical cost after federal tax credit | Median cost per watt | Average system size (kW) |
|---|---|---|---|---|
? | $28,426. | $19,898. | $2.30. | 12.4. |
? | $38,982. | $27,287. | $2.76. | 14.1. |
? | $21,786. | $15,250. | $2.70. | 8.1. |
? | $28,933. | $20,253. | $3.10. | 9.3. |
? | $33,422. | $23,395. | $3.15. | 10.6. |
? | $27,450. | $19,215. | $3.00. | 9.2. |
? | $33,077. | $23,154. | $2.70. | 12.3. |
Average | $34,122. | $23,885. | $2.96. | 11.6. |
Source: EnergySage, a solar and home energy product comparison marketplace founded in 2012. Data is from the second half of 2023. | ||||
Are solar panels worth it? What to consider
Net metering
Solar panels produce energy in peaks and valleys, generating a lot on sunny days and little to none at nighttime. Unless you had a solar battery to store excess energy and use as needed, you would need to rely on energy from your utility company during off-hours.
To encourage people to install solar panels, many states have adopted net metering, a billing mechanism that credits you for excess solar electricity generated and exported to the power grid. Essentially, such policies allow you to reap the financial benefits of energy storage without the upfront cost.
Although net metering is available in many areas, not all states or utilities offer it. Some states, like California and Arizona, have been transitioning from net metering to net billing, under which the export rate you get for sending power back to the grid is lower than the electricity retail rate.
If your utility doesn't offer such incentives or pays a low rate for electricity sold back to the grid, solar panels likely won't bring your electricity bill to zero, unless you use a solar battery.
Incentives
The biggest solar incentive for homeowners is the federal solar tax credit, also known as the residential clean energy credit, which provides a credit of up to 30% of the cost of your solar power system.
Depending on your state, you may also have access to further incentives like rebates, sales and property tax exemptions, waived fees, and expedited permits. You can find details on incentives for your state at the Database of State Incentives for Renewables & Efficiency (DSIRE).
Your electric bill and roof
Solar panels can generate enough power to significantly lower your monthly electric bill — and in some cases, even eliminate it. The higher your bill and the more of your electricity use you can offset with your system, the more likely you are to benefit from solar.
“We typically encourage customers to cover 100% of their usage or more,” says Chance Allred, chief experience officer at Sunrun, the largest U.S. residential solar installer, who leads multiple teams including customer and sales operations. “The biggest regret our customers have is that they wish they’d installed a bigger system.” Customers typically use more electricity after they install solar, and usage increases even more if they purchase an electric car or add more electrical appliances, Allred adds.
To help size your system, solar installers will check your roof online, compare that to your electric bills and discuss your future electrification plans. They will also help you evaluate your home’s orientation toward the sun, the amount of sun it gets, and the roof type and condition.
Your electricity prices and rate structures
You’ll save more with solar if electricity prices are high where you live. A solar system can provide a good hedge against rising electricity prices. Average U.S. residential electricity prices rose 6.2% from 2022 to 2023, according to the U.S. Energy Information Administration (EIA).
Chart and data from U.S. Energy Information Administration, Short-Term Energy Outlook Data Browser.
Although some years have seen plateaus or slight dips, prices are expected to continue rising. Any of these changes can affect your solar calculation.
“If a utility’s electricity prices fluctuate, so could the amount of savings,” says Garrett Nilsen, deputy director for the U.S. Department of Energy’s solar energy technologies office.
Your utility’s rate plans and structures will also help determine whether solar is worth it for you, so it’s important to learn about those, Allred says.
Your solar financing options
You’ll save the most with solar if you buy a system with cash because your solar savings won’t be offset by payments for loans or third-party ownership options such as leases and power purchase agreements (PPAs). With a cash or loan purchase, you also get the federal tax credit and local rebates and incentives, instead of splitting them with a solar company.
But you can still save with third-party ownership. A recent study by the Lawrence Berkeley National Laboratory found that in 2021, the median residential solar customer who paid cash for their system saved $1,987 annually, while those with lease or loan payments saved $691 annually.
While savings from loans decrease when interest rates rise, savings from leases or power purchase agreements — arrangements where the installer retains ownership of your home solar system and you pay a monthly fee to use it — may increase in the future. Some new Inflation Reduction Act incentives are available only to installers, who can theoretically pass some of those savings on to you in the form of competitive lease or PPA terms.
If you pay for your system with cash, the long-term savings on electricity can make up for the upfront costs.
“Most systems don’t require much maintenance and are designed to last for 20 years or more with little change to the amount of electricity produced,” Nilsen says.
How long is your payback period?
While you’ll almost certainly lower your electric bill with solar, how long it will take for your solar savings to equal your initial investment varies across the nation and depends on your situation. According to EnergySage, the average payback period for residential solar customers is about 7.5 years, as of June 2024.
If you know how much your solar system will cost and have a good idea of how much you’ll save each year on your electric bill, you can estimate your solar payback period. Divide the post-incentives cost of your system by how much you expect to save each year. For example, say your solar system was $16,000 after the federal tax credit, and you’re saving about $1,500 a year on your electric bill. Your payback period would be about 10.6 years — and possibly shorter if electricity costs rise during that time.
NerdWallet writers Lauren Schwahn and Tommy Tindall contributed reporting to this article.
