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Solar Panel Installation Cost

One of the great things about solar power is that the fuel cost is essentially zero. Nada. Zip. However, you still have to pay for the panels, and the expertise that's required to install them on your property. Here are the top three facts to know about the cost of solar panel installations.

Cost breakdown

The cost of installation of a residential photovoltaic system is determined by two major cost categories: hardware and "soft costs".

The hardware category includes modules (also called solar panels), inverters, racking systems, and other electrical and structural components (lovingly called "balance-of-system" or BOS hardware). The cost of solar hardware has decreased significantly in the last few years, and today, hardware costs account for about 40% of the total installation cost.

The second major cost component, the so-called "soft costs", includes labor, contractor profits, contractor overhead, permits and customer acquisition costs. All of these items add up to about 60% of the installation cost.

Fact #1: The average solar installation cost in the U.S. is $3.09 / watt (2015 data).

Cost breakdown

Itemized list

Item Cost per watt Legend
Profit $0.32
Overhead $0.38
Customer acquisition $0.36
Permitting fee and labor $0.11
Installation labor $0.33
Sales tax on equipment $0.08
Supply chain cost $0.20
BOS materials $0.20
Racking $0.12
Inverter $0.29
Module $0.70
Total $3.09
Data Source: National Renewable Energy Laboratory, U.S. Photovoltaic Prices and Cost Breakdowns: Q1 2015 Benchmarks

Evolution of residential installation costs (2009-2015)

Since 2009, the cost of residential solar panel systems has decreased by a whopping 56%. Combined with the 30% federal tax credit, this reduction in overall installation costs has been a major catalyst for the growth of the solar industry.

However, after years of steady decline, costs are now stabilizing. Intense competition and economies of scale in the solar hardware market led to plummeting prices for solar panels followed by large reductions in inverter prices and, more recently, in racking system prices.

The next challenge in cost reduction is decreasing the share of "soft costs". However, cost items such as labor, profit and overhead tend to be much more "sticky" than hardware costs. Although further consolidation in the industry may bring further reductions in this category, the rate of decrease is likely to be less dramatic.

Fact #2: After many years of reduction, installation costs are stabilizing.

Period Cost per watt
Q4 2009 $6.96
Q4 2010 $6.1
Q4 2011 $4.31
Q4 2012 $3.77
Q4 2013 $3.31
Q1 2015 $3.09
Data Source: National Renewable Energy Laboratory, U.S. Photovoltaic Prices and Cost Breakdowns: Q1 2015 Benchmarks

Understanding the comparative cost of solar

Although cost per watt is a handy indicator for understanding how much solar panel installations cost, it should be used together with another cost metric: levelized cost.

Levelized cost takes into account the location of the installation as well as the expected lifetime of the solar panels. It is generally expressed in dollars (or cents) per kWh. This is a very useful metric, as it allows us to compare the cost of solar to the status quo - your current utility rate. When the levelized cost is the same or less than the utility rate, we have "grid parity".

We prepared these handy maps for you to compare the levelized cost of solar to your utility in your state or province.

Fact #3: Ultimately what really matters is how much solar power costs compared to your utility.

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United States

Cost of residential solar power is less than the average utility rate in many U.S. states. Learn more.

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Even tough Ontario is the only province with a feed-in-tariff, solar in other provinces is getting more attractive. Learn more.

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Plenty of sun, and high residential electricity prices make solar an ideal choice in all Australian states. Learn more.

Need more information? Check out our free solar guide today!

I highly appreciate your efforts in issuing this guide. It's a very useful and educational tool for those willing to learn and understand the solar energy industry.

Basil T.

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