Cost of a Solar Power System

Installing a solar power system can be one of the more expensive home improvement projects. However, realtors have rated installation of a solar photovoltaic (PV) power system or solar hot water system as a guaranteed way to add value to a home, equivalent to projects like building a deck or completing a kitchen remodel. An added advantage that a solar power system has over a kitchen remodel or deck addition is the continuing benefit of lower power bills.

Other benefits that can be realized from a solar power system include financial incentives that are available in many areas. Federal, state and local governments as well as utility companies provide rebates and other forms of incentive. This helps drive down the up-front costs that are part of solar power installation.

6 Steps for Estimating the Costs of a Solar Power System

To help determine if a solar power system makes financial sense for you, the best place to start is by estimating the costs of a solar PV or thermal system. Here are a series of foolproof steps to follow when deciding on installation of a solar system.

Step 1 Determine your power requirements

If you're considering adding solar power to your current home, you'll need to know how much electricity you currently use. Check your utility bill to for kilowatt hour (kWh) usage on a daily, monthly and annual basis. Your bill may also show graphically how your energy consumption varies at different times during the year. This will tell you when your energy needs are greatest.

When building a new home, you'll need to determine your "load." This refers to your electrical requirements for the home, taking into account the type of equipment you want to install and the planned square footage of the new home.

In some areas, rebates can reduce the cost of initial installation by 50% or even as much as 70%.

Calculating the load can be done by creating a table that records the anticipated wattage for each appliance. This would include, for example, the water heater, various lights, the refrigerator and stove. Don't forget entertainment appliances like the television and computer. The power rating can be found on a label on the appliance itself. The information also should be available in the manual for the appliance, or you can check with the manufacturer.

The appliance label may list watts, or it may show only voltage and amperage. To derive the wattage from these figures, multiple the voltage times the amperage. Add the result to your table. In another table column, estimate the number of hours the appliance will be operating each day. Multiply the watts times the number of daily hours to determine the daily watts-hours. Then add a "fudge-factor" by multiplying this number by 1.5, since it's not always possible to be completely accurate when estimating daily usage. By adding up the daily watts-hours for all the appliances, you'll have an estimate for your daily power requirements.

Step 2 Plan for the Future

According to 2005 data, the power rate for the average home in the U.S. ranges from 6 to 15 cents per kilowatt hour, with rates varying depending on geographical location. Since 1999, average rates have increased by about 30%, so it's safe to say that rates will continue to increase. This is especially true since the costs for coal and hydropower have risen, and these materials are often used to generate electricity.

When estimating your home energy requirements, take into account possible future price increases. This table shows the 2005 figures for average electricity rates for several states, and then forecasts the rates in 2025. This 20-year forecast takes into account that fact the most PV systems have a lifespan of at least 20 years.

Step 3 Factor in Sun Exposure

A study was conducted by the Florida Solar Energy Center to determine how a 2-kW PV system would function when installed in an energy-efficient home in a typical U.S. location. The study took into account several factors that can impact a photovoltaic system's performance, including the effect of temperature on the PV cells, the number of peak sun hours in different areas, and the conversion of solar energy from DC to AC (which is performed by the PV system inverter).

The benefits of a PV system can be derived almost anywhere in the U.S. Even in the Northeast and Northwest, a PV system can beneficial when designed and installed correctly. In New Jersey or New York, a 1-kW system can produce about 1,280 kWh of electricity annually. In comparison, a PV system in Seattle may be capable of producing about 1,000 kWh per year.

A professional solar installer in your local area is the best source for information about the optimal size PV system for your requirements.

Step 4 Choose your System Size

A solar PV system between 1 and 5 kilowatts in size is in general capable of meeting the energy requirements for most homes. With a grid-tied system, you can have the advantage of using solar power to offset some of your energy requirements. Using this approach, you can choose a PV system size that fits within your budget and then enhance the system later.

There's a simple rule to help you determine how much space your PV system will need. For each square foot of solar panel, estimate 10 watts of power. This means that in full sunlight, a square foot of solar PV panel can produce about 10 watts. For a 1,000 watt system, you would need room for between 100 and 200 square feet of solar panels. These numbers will vary, depending on the PV module type you use.

Step 5 Do your Homework on Rebates

Many cities and states offset tax credit, rebates and other financial incentives to homeowners who install PV energy system and solar water systems. For complete details on the incentives that may apply to your home, you can check into the U.S. Department of Energy's Database of State Incentives for Renewables & Efficiency, at

The Federal government provides a 30% tax credit for homeowners who purchase a solar energy system. Beginning in 2009, there is no limit on the dollar amount of this credit.

Step 6 Add it All Up

Overall solar PV system cost will vary depending on the size of the system being installed, the current rate for electricity, the amount of kW hours required, and the applicable financial incentives and tax credits. Given all of these factors, the following formulas can be used to calculate the cost and savings of a solar PV system.

To calculate your Initial Investment:

Retail cost for solar PV system (including all parts and labor) + cost of building permits - federal tax credit - state or local tax credit and rebates - utility rebate and other incentives = your Net Investment.

To calculate your annual Energy Savings:

(Annual kWs of electricity generated by solar PV system - annual kWs used) x current rate for residential electricity = your Annual Savings.

A solar power professional can of course provide more accurate figures, customizing the calculations for your home and local area. When deciding on a professional to work with, it's always a good idea to get estimates from several. Look online for a directory of professional installers who can provide you with the solar power system that will satisfy your requirements.

When getting estimates from different solar power professionals, it's important to ask about these details:

  • What is the total cost (including all parts and labor) for a working solar power system?

  • What are the expecting operating and maintenance costs?

  • What type of equipment will be installed (manufacturer and model)?

  • What type of warranty will be provided?

  • What will the cost be for building permits?

  • What are the applicable taxes?

  • Will a federal tax credit be applied?

  • What are the state and local rebates and tax credits?

  • Will utility rebates be available?

  • Will Renewable Energy Certificates or Net Metering credits be available?

  • What are the total expected savings?

Solar Hot Water (also known as Solar Thermal)

A solar thermal system uses energy from the sun to heat water; it can be one of the most economical sources of renewable energy. This type of system is used to power a hot water heater for a home. For a home's swimming pool or hot tub, another type of solar thermal system can be used.

If you currently have an electric hot water heater with energy rates of $0.05 per kWh or more, it's worth looking into a solar thermal system. Also check into the availability of rebates and tax credits when deciding on this type of system. Changing to solar thermal may also be worthwhile if you currently have a gas-powered hot water heater with energy costs greater than $8.00 per million BTUs.

You can use the same formulas for estimating the cost and savings of a solar thermal system as were provided for the solar PV system. Again, consulting a solar power professional who specialized in solar thermal is the best way to get started.

Solar Thermal for Swimming Pools and Hot Tubs

There are fewer tax credits and government rebates for solar thermal for swimming pools and hot tubs, but from an economical point of view it's still a good investment. During pool season, the energy used to heat a swimming pool can be equal to the amount of electricity that many homes use over an entire year. When you combine a solar thermal pool system that generates heat with a solar thermal pool cover that retains heat, you can not only save money but you can also extend your pool season.

Most solar thermal system installers agree that a solar collector used for a thermal system should be approximately half the size in square footage of the pool surface area. You can count on solar thermal panels for your pool to come with a 10-year warranty and to last from 10 to 20 years.

How long should it take to break even on the cost of a solar thermal system for a swimming pool or hot tub? That depends on part on your geographical location. In most parts of the Southwest, including California, you can count on breaking even in as little as five years. In more northern locations, even as far north as Canada, it will take longer to realize a return on your investment.