Why the Cost of Getting Solar Panels Is So Unpredictable

The future of solar certainly seems bright in the US. But a lack of price transparency does seem to be throwing some shade on the industry.

Millions of Americans have installed solar panels at their homes in recent years with increasing frequency -- residential installation projects totaled 210,000 during the final quarter of 2023, an increase of 12% year-over-year, according to data from the Solar Energy Industries Association. Overall, around 4% of all single-family homes in the US are generating electricity from solar panels. 

The reason for solar's growth in the residential sector is obvious: It can save homeowners money on their utility bills. But determining how much you might be able to save is difficult. That, in large part, is why it can be a chore to get straight answers when shopping around for a solar system or installation. The solar industry, in that respect, lacks a lot of transparency. 

But suppose you're interested in exploring whether a solar panel system can save you money. In that case, you really need to keep a basic formula in mind: Do the ultimate savings on your utility bills outweigh the costs of the initial solar installation, or the lease payments you're making to a solar company?

What determines the price of solar?

If a door-to-door solar salesperson has ever come to your door, or even if you've tried searching the internet to get an idea of how much solar panels will cost, you've likely been left frustrated and without answers. That's because determining the price of solar is not an exact science, and there are numerous factors in the mix.

Some of those factors include the cost of the panels themselves, the cost of batteries, inverters and charge controllers, labor and more -- all of which can vary in price from place to place. And another thing that solar-curious homeowners will need to think about is whether you're buying the panels outright or using someone else's.

"There are two paths people take: Third-party-owned, or household-owned panels," said Akshaya Jha, an associate professor of economics and public policy at Carnegie Mellon University and a Scott Institute Energy Fellow. 

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With a third-party-owned system, a company installs solar panels on your roof and you pay the company, usually either in a monthly lease or a per-kilowatt-hour power purchase agreement. "But the customer makes monthly payments to a solar provider -- the model is that they'll install the rooftop solar at your home, and in exchange, they receive payments from the customer," Jha said.

Conversely, household-owned solar setups are purchased outright and owned by the homeowner -- there are no lease payments, although there may be payments on a loan to cover that cost. Either way, there are costs to consider, as a homeowner is either buying the solar setup upfront -- which can average around $24,000 -- or monthly lease payments to make.

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Again, it comes down to calculating whether the utility bill savings reaped from a solar system are more than the costs of the system's purchase or subsequent lease payments. "You certainly want to think about the math," Jha said.

Why don't companies say how much their solar panels cost?

You may have noticed that solar companies are often finicky when it comes to giving a prospective customer a quote on a solar system. That may be off-putting to many customers, as it can feel evasive -- you may feel like you're being taken advantage of, in other words. But Jha said it mostly comes down to the fact that there are so many variables to take into consideration that a solar company may not be able to accurately price an installation until they're doing the work.

For instance, there are state and local tax and price incentives, the specifics of a rooftop or property (shade, pitch, etc.), and local labor costs that can all factor into the ultimate cost of a solar system installation, and those variables make it difficult to get an accurate quote from the onset.

There is one exception, however, and that has to do with the price of a solar panel itself. "With a solar panel, for the most part, there shouldn't be as much [price] variability because the cost associated with the panel themselves is a national market," he said. So the price of a solar panel in one state is likely to be similar to the price in another. With that in mind, it's the other factors that largely make pricing opaque.

Would price transparency help the solar industry?

If customers had a better idea of the costs of a solar installation, it's likely that many more homeowners could express interest. "Transparency would benefit the consumer," he said. When consumers benefit, the market would probably grow as others express interest: If you see your neighbor install solar panels and then they tell you all about the benefits, it might pique your interest in installing your own system.

Accordingly, the lack of transparency in the solar industry does hurt its growth, at least to some degree, Jha said. For the solar industry, the installation itself is where price variability mostly comes into play (again, since panels and their components are mostly similarly priced nationwide). A lack of transparency in installation prices is a sort of market failure. Researchers have found that more transparency and competition in the solar industry does lead to lower prices for consumers.

So when a solar-curious customer doesn't get a straight answer in terms of pricing from a solar installer, it can and does hurt the industry at large. "If somebody's being evasive about the cost, especially in the case that you're owning the panels, that's a complete red flag," Jha said.

How to avoid overpaying for solar

If you're interested in getting a solar system for your home, but concerned that you might overpay or get ripped off by a solar company, Jha has a couple of pieces of advice: Do the math and shop around.

"Know a little bit about your energy bill, what you're currently paying -- put pen to paper, spend the 20 or 30 minutes to do the calculation for yourself," he said. "The calculation is the difference you're paying after installing panels." Or put another way, calculate whether the panels are actually going to save you money when it's all said and done. Again, that may take some time and research, but at the end of the day, the difference in dollars and cents is likely all that matters to many homeowners.

Jha also said you absolutely need to get numerous quotes from different solar companies. "Price compare, price compare, price compare," he said. While the number of companies will vary depending on where you live, just as with any big purchase, consumers would likely benefit from getting as many quotes as possible. 

There's no promise that you won't ultimately "overpay" for a solar system, but from a consumer's standpoint, getting numerous quotes is the most effective way to crack some sunlight into the true costs of solar panels for your specific home and property.