Expenses for Solar Panel Setup
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Cost Considerations for Installing Solar Panel
The cost of residential solar panel systems has seen a significant decline, with prices dropping by an impressive 64% from 2010 to 2020 according to the National Renewable Energy Laboratory (NREL).
A solar panel system consists of various components, and you may be familiar with the general costs of these systems before and after applying tax credits.
To provide a clearer picture of solar panel costs and typical installation expenses, let's break down the figures:
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The current industry average cost is between $3 and $4 per watt.
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The average size of a solar panel system is approximately 7 kilowatts (1 kilowatt = 1,000 watts).
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Calculating the cost at $3.5 per watt for a 7,000-watt system results in a total cost of $24,500 per system (before applying the 30% ITC tax credit).
A closer look at the trends reveals that while overall costs have decreased, the bulk of the reduction is due to hard costs such as the solar panels themselves (represented by gray and red bars in the graph). In contrast, soft costs, including permitting, interconnection, and overhead, have remained relatively steady and are less flexible.
Understanding the Direct Costs of Home Solar Systems
Hard costs for a solar panel system include expenses related to hardware, such as the solar panels themselves, inverters, solar mounting racks, and potentially a battery for storage. These costs represent the physical components required to install and operate the system.
In 2010, hard costs accounted for approximately two-thirds of the total cost of a home solar project. However, according to recent data from the National Renewable Energy Laboratory (NREL), this percentage has decreased to around 45% today.
Looking ahead to 2024, solar panels are estimated to make up about 13% of the total project cost, while inverters and balance of system (BOS) equipment contribute approximately 33% to the total cost of an average project.
Soft costs encompass various expenses associated with a solar and battery project beyond the hardware and equipment. These include administrative costs for managing the project, marketing and customer acquisition expenses, system design fees, permits and grid connection fees, and the labor costs involved in installation.
The National Renewable Energy Laboratory (NREL) provides the latest breakdown of these soft costs, offering valuable insights into the financial aspects of solar and battery projects.
The Indirect Costs of Home Solar Installation
Soft costs, which encompass a broad range of expenses including shipping, inspection labor, and customer acquisition, consist of 21 different individual items. Fieldwork labor, such as installing, configuring, and inspecting a solar and battery system, accounts for only 7% of the total system cost, whereas office-related work constitutes 26% of the total project cost, representing the largest portion by a significant margin.
Additional soft costs fall under the "other" category, including expenses such as sales tax, management salaries, distribution costs, and profit margin. According to the NREL, the average gross profit margin for residential solar projects is just above 20%, which may seem high to some customers at first glance. However, when compared to other industries, particularly regulated electric utilities where most people purchase electricity, the solar industry’s profit margin is considerably lower. Regulated utilities boast an average gross profit margin slightly above 36%.
In a capitalist society, profit is a natural aspect of doing business. From a consumer standpoint, owning a solar system can provide a more cost-effective option over time, as it often involves a smaller portion of your budget going towards profit compared to purchasing kilowatt-hours directly from a utility.
Minimizing Home Solar Installation Expenses
A large portion of the officework expenses, roughly $1,000 per kW of installed capacity, is attributed to customer acquisition. This includes all sales and marketing efforts necessary to attract new clients.
This presents the greatest chance to cut the cost of switching to solar energy, and that’s precisely what we’re achieving on solar.com.
On the solar.com marketplace, installers and homeowners can skip the typical marketing and sales process, concentrating instead on creating the perfect home energy system. This approach helps our installation partners offer lower prices while focusing on their strengths, and it enables homeowners like you to confidently evaluate solar quotes with the support of an Energy Advisor rather than facing the pressure of a traditional salesperson.
Exploring the Expenses of Solar Installations
At Solar.com, we empower solar customers by providing comprehensive insights and linking them with reputable solar providers. Collaborate with an Energy Advisor to tailor a personalized system and discover precisely how much you can reduce your essential electricity expenses.