Complete Solar Panel Cost Guide

A solar panel is a packaged, connected series of photovoltaic (solar) cells that generates electricity. Solar cells are typically made of silicon and use the photovoltaic effect to convert the energy of sunlight (photons) directly into direct current (DC) electricity. An inverter is then used to convert the DC power to AC (alternating current) power, which is the kind of power used by the electrical grid and almost all non-battery operated electrical devices (whatever you plug into the outlets in your home). Due to the relatively low efficiency of current cell technologies, each panel can only produce a small amount of power. Most installations require an array of panels.

In This Guide

The size of the array of panels required to produce a given amount of power depends on the panels’ efficiency. To produce 300 watts of power, a 7% efficient 300 watt panel will take up twice the area as a 14% efficient 300 watt panel. The highest efficiency available for commercial units is approximately 21%. Every panel is given a DC power output rating based on the results of standard testing. They typically range in rating from 100 watts to 350 watts. They are also subject to about 0.5% degradation in output per year. Most carry a warranty that guarantees 90% of rated power for at least 10 years and 80% of rated output for a minimum of 25 years.

Photovoltaic modules are usually either thin-film or crystalline cells on wafers of refined silicon and are protected from the elements by sheets of glass and metal frames. Silicon is used because it is a semiconductor. When the sun’s radiation (a photon) hits a silicon atom, it can be absorbed and cause the emission of an electron. When many electrons are emitted inside a semiconductor, an electric current is produced. Silver or copper conductors draw the small currents off the entire array of cells and direct them into one output. Connections can be made in parallel to achieve a certain amount of current or in series to produce a desired output voltage.


Solar panels, which are made up of multiple modules, are either rigid or semi-rigid. Some systems only connect to a series of batteries that are used for backup power, most are connected to a home or business to provide power directly while others are connected to a building as well as the electrical grid. A complete solar energy system is made up of an array of units, an inverter to turn DC voltage into AC, a meter to track the power that is produced, a battery to store the energy and all the necessary wiring.

Types, Benefits and Applications

Crystalline panels are the most common type of PV panel. The technology has been around for about 50 years and was first developed for powering satellites. They are capable of being up to 20% efficient. Most of these technologies are highly reliable (25 year warranties are common) and produce similar results in terms of output efficiency. The primary downsides of using crystalline are that they can be bulky, expensive, prone to damage, are rigid and require a lot of labor to install. That said, they are often the best choice for a residential solar energy system. They come in two varieties: monocrystalline and polycrystalline.

Monocrystalline silicon panels are made up of single-crystal wafer cells cut from continuous, cylindrical crystal ingots. They can be cut completely circular to minimize waste, but they are often trimmed into other, more square-like shapes (see below). Since each is made from a single crystal, the cells have a uniform, deep blue color. They are the most efficient units available today (they produce more power per square foot), but they cost more than other types.

Polycrystalline silicon panels are made of multi-crystal wafer cells cut from square ingots that are created by pouring molten silicon into a mold. This way they can be cut into square wafers to minimize waste. Each is made up of random crystal formations which make it various colors of blue (below). They are slightly less energy efficient, but also cheaper than monocrystalline.

Thin film modules are very inexpensive, but also quite inefficient (require more area per watt produced). Their efficiency is 10% or less and their long-term durability is often questioned. They are less expensive because they require less of the active material to function (below). In fact, they can be made microscopically thin, flexible and light weight and are deposited on a sheet of glass or metal instead of having to grow ingots and slice wafers. Cadmium telluride (CdTe) is the most cost effective thin film technology. Amorphous silicon is a material used to create panels that can be molded to the shape of almost any surface. Most of the research and development of solar cells is currently being focused on thin film technologies.

Building integrated photovoltaic (BIPV) panels look like an integral part of a roof since they are the same size and shape as shingles (below). They have lower efficiency and are more expensive than other panel types. They are most effective on large roofs in very sunny areas.


Market Share of Solar Cell Technologies

Mono- and polycrystalline panels made up 87% of the market share in 2010.

Grid-Tie versus Off-Grid Installations

Grid-tie solar installations are connected to the utility company’s power lines. If the home or business needs more electricity than it can produce it draws energy from the grid and if it is producing excess electricity, it injects it into the electrical grid. Electricity added to the grid is credited to the homeowner or business’ electricity bill. When power is drawn from the grid, this electricity credit is reduced. This process is called “net-metering” and is accomplished with a bi-directional or smart meter.

There are also grid-tied installations that reserve power in a battery backup that is used during power outages. They charge the batteries so that continuous power is available, even if the utility grid is down. When the outage is fixed, net-metering resumes.

size & cost

Note: This data does not take tax, installation, battery backup systems or racking into consideration and are before deducting any rebates or tax credits. They are based on 5 hours of insolated sunshine per day.

Off-grid systems are usually implemented in locations that are too remote to receive service from a utility. These systems can generate AC power that can run regular appliances and electric devices. They store power in batteries that are used to supply power when sunlight is not available. Those that generate DC power are used to power remote telecommunications gear, appliances used in boats and recreational vehicles as well as farm equipment. DC is less expensive than AC because it does not require an inverter. AC systems can power common home appliances.

size & cost

Note: This data does not take tax, installation, battery backup systems or racking into consideration and are before deducting any rebates or tax credits. They are based on 5 hours of insolated sunshine per day.

Average Cost and Factors that Affect it

To determine how much it would cost you to get PV panels installed to cover part or all of your electricity bill, you need to determine the following information:

  • How many kilowatt hours does your home use per month? (see electricity bill)
  • How much roof area do you have to install panels on? (south facing roof is ideal)
  • How many sun hours does your location get per day on average? (averaged over the course of a year)
  • How much can you afford to invest in offsetting your energy bill?
US insolation

Sun Hours Per Day (Insolation) for United States


An average home in the United States requires approximately 20 to 24 kWh of electricity every day. An array able to produce this much power has a size of 4 kW or more (based on 5 sun hours per day) and ranges in price from $15,000 to $20,000 installed (not taking any incentives into consideration).

Based on current pricing (as of July 2012), a 24 panel 786 kWh grid tie system would be approximately $8,630 before any applicable financial incentives. This price does not take the cost of installation or racking into consideration.

Comparing worldwide prices (2009 data), the average cost per watt installed of a 2-5kW residential solar power system was $4.70 in Japan, $7.70 in Germany and from $5-$11 in the United States based on a report by Renewable & Sustainable Energy Reviews.

Prices vary based on building and system configuration, the type and brand of equipment used and what company does the installation. The type and quality of panel as well as the size of the array affects the final price of an installation. Manufacturers price their products based on their efficiency and longevity. Panels that retain their efficiency longer are usually more expensive. Monocrystalline units are the most costly but generate the most watts per area, so you will need fewer panels and not as much space. Building integrated panels are also on the expensive end, but they are a good choice if appearance is important.

You location can also have a big impact on the final price of a solar energy project. Federal and local governments in many countries offer financial incentives to make buying and installing systems more affordable. Prices also depend on local weather conditions. Due to limited sun hours per day, the cost per kilowatt installed is higher than in sunnier countries like Mexico.

Payback Period Breakdown

The decision to install a solar energy system is often driven by environmental concerns and/or economic incentives. Either way, it offers an ROI in line with other home improvement and remodeling projects. To calculate the payback period for the project, first find out the final installed cost per watt, the electricity cost per kWh in the area, and the average number of sunlight hours in the location. Once you know this information, you can use the graph below to figure out approximately what the payback time would be.

The following chart displays how the value of electricity generated (cents per kWh) and the cost per watt paid to install a system (dollars per watt) affect the payback period. The less expensive the system was to put in and higher the electricity rate is in the area, the shorter the payback period is. For example, if the average electricity rate in your area is $0.30 per kWh and the system was $4 per watt to install, then you can expect the payback time to be just under 10 years. Payback time can be affected by financial incentives, the financing rates and weather conditions. Locations such as the UK, Germany and Japan get much less sunlight (as low as 2.5 sun hours per day) which can increase the cost per watt to $8 and the payback period to 25 years.


Financial Incentive Programs

The US federal government, the UK government, and many other governments around the world offer business and residential tax incentives and rebates on the purchase and installation of solar energy systems. The federal tax credit covers a substantial portion of the cost of installation. State and local governments and local utilities also offer rebates and credits to help defray costs. Depending on your location, financial incentives and rebates can cover between 10% and 60% of the total. Details for the 30% federal residential renewable energy tax credit (and many other incentives) can be found here:

Many countries have also enacted feed in tariffs that help guarantee a reasonable rate of return on renewable energy projects, which encourages the development of and investment in renewable energy sources. These programs typically involve owners being paid a much higher rate per watt they add to the grid than the price they pay for buying electricity from the grid. They essentially sell all the power they produce to the utility/government at a high price and buy back what they need at a much lower cost. Some banks allow solar system installations to be rolled into a mortgage or offer special rates and terms to finance installations.

Over the last 20 years, the cost of these systems has decreased by a factor of 7. As the residential and commercial demand for solar panels increases and the efficiency of the technology improves, they will continue to drop and overall return on investment will rise. For more information, visit the US Department of Energy’s SunShot program.