Are Solar Panels Expensive And Are They Worth The Investment?

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Homeowners are today looking urgently for ways to cut down on household expenses. Inflation is having an impact on everything that has an impact on the price of running a household, from the price of gas that is used to get th kids tos school and parents to work to the cost of a basket of gods at the local supermarket - and the costs of energy that lights, heats and cools our homes. For many one of the focus areas has been on that energy cost - how can a household cut down on something that is absolutely essential to our modern life, without impacting the quality of that life?

The answer for some has been solar energy - but for others, the perceived cost of solar panels has put them off. But what are the facts? Are solar panels really that expensive?

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Has the Price of Solar Equipment Dropped

The fact of the matter is that the cost of solar technology has plummeted over the last two decades. The decrease in the cost of solar equipment has been staggering, the cost of the hardware has dropped 89% since 2010, in large part due to innovations in solar panels, inverters, and lithium batteries. The U.S. government played its part by investing huge amounts of money in increasing the efficiency of photovoltaic systems. Economies of scale also played their part. People became more and more intrested in renewable energy and began to install solar systems in record numbers - so manufacturers ramped up production. Basic economics - the greater the numbers of product sold, the lower the manufacturing cost - and savings are passed on to consumers.

The Bottom Line

It’s important to note that the cost of the hardware for solar panel installation makes up only 40% of the total cost. The cost of installation, inflation and maintenance remain high. The supply chain issues that are impacting global economies (including the U.S.) are also playing their part in preventing solar panels from becoming even cheaper. There is also the cost of raw materials (polysilicon in particular - but there are also shortages of silver, copper, and solar glass). The shortage has seen the cost of solar panels actually rise over the past 12 months. This may just be a temporary situation - but it does serve to illustrate that the market for solar panels can be volatile. There is also the ongoing conflict in the Ukraine that is touching on the supply of raw materials. As European countries try to pivot away from fossil fuels (supplied by Russia) the demand for solar is increasing rapidly - and that means that prices are going up. It’s simple economics.

So homeowners playing the waiting game in the hope that costs are going to decrease substantially n the short to medium term may be disappointed. In fact, there is another reason that the cost of solar installations may go up in the near future. Many tax incentives for the installation of solar are set to expire.

Add to this the fact that the U.S. Commerce Department is investigating Cambodia, Malaysia, Thailand, and Vietnam for flaunting anti-dumping rules when it comes to solar panels. There has been talk of tariffs of up to 250%. The intention is to boost U.S. production of solar equipment - but the truth of the matter is that the U.S. is not even in the ballpark when it comes to meeting domestic demand for solar.

Given these factors, it may just make sense for the homeowner to take the plunge into the deep end of the solar pool now, rather than later. It all depends on the needs of their household - and what they expect solar to deliver.

That said, in the interest of fairness it should be stated that Bloomberg New Energy Finance (BNEF) sees the cost of photovoltaic systems drop by another 34% by 2030. But the question remains - does it make sense to wait?

So Do Home Solar Panels Make Sense Right Now

As mentioned previously it depends on what the homeowner requires. There are many factors to take into consideration.

It’s also important to note that the cost of a fully installed solar system can vary from state to state in the U.S. For instance, in Arizona, the cost of a 6.5 kW system is approximately $23,400, while in Rhode Island the median cost is $26,910. The differences can be substantial. For reference, the average cost across all states is $24,440.

Here’s another factor to take into account. The costs of solar installation (including hardware such as solar panels and soft costs such as labor, application for permits, and arranging for interconnection applications with the utility company) may have stalled, but homeowners are now getting equipment that is a quantum leap better than that which was supplied in the early days of solar panel installation.

What Other Factors Need To Be Taken Into Account

One of the factors that may give many homeowners pause is the fact that a solar installation can require a large upfront investment. That investment obviously becomes more and more substantial for larger homes. Calculating whether an investment in solar paneling makes sense can be a complex exercise, but, as far as the return on investment is concerned it’s actually pretty simple. The homeowner needs to calculate whether the solar installation will pay for itself over five years. Of course, it’s possible to deviate from this rule of thumb. What needs to be taken into acount as well is the cost of the nergy. And that has tended to come down sharply when compared to the household cost of sourcing energy from the grid. Remember (in many cases), it is also possible to sell back excess energy to the utility company, which can offset costs and must be taken into account. So, logic would dictate that if the household has the capital to spend on the upfront cost of the solar system then the decision is simple - it makes sense. However, if the homeowner is forced to seek finance or bite too deeply into savings then some further thought might be required.

But as the famous saying goes, the devil is in the details. Even given the median cost of a solar system as mentioned above and the variation in that cost that is state-dependent the actual cost of installing a solar system can vary wildly. There are many factors to take into account.

Some Further Considerations

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The cost of installing a solar system can depend on the type of equipment that is used and the size of the home (as mentioned previously). The largest cost is the solar array itself. But here are others. The inverter and metering equipment add to that cost. Installation and cabling also make their contribution to the upfront costs of installing a solar solution. For some households, batteries that hold reserve power can also add to the costs. In this day and age when utilities are under increased pressure and blackouts become more and more frequent, batteries may become a neccesity. In areas where natural disasters (and these are becoming both more frequent and of greater severity) a battery backup simply makes sense.

There are also ongoing costs for maintenance and replacement. Solar panels need to be frequently cleaned - a job for professionals - and inverters and batteries need to be replaced every couple of years.

The calculations required to balance delivery vs cost can prove complex, even for professional solar engineers. But some considerations include just how much sunlight is available the ‘solar irradiation levels’. The home’s orientation also needs to be taken into account. For a solar system to operate at peak efficiency the roof should be south facing and should not be obstructed by tall trees. If ideal conditions are not met that might mean that the solar array would have to be placed elsewhere on the property - and that can add substantially to the costs involved.

The next calculation is just how much the household will save by installing a solar system. The cost of sourcing energy from a utility can vary from region to region. Many utilities will charge a flat rate for the electricity that is consumed. But there are increasing numbers of utilties that are introducing variable rates, largely dependent on the time of day. Under this model the household will be charged higher rates during the afternoon hours and lower rates at night. This can make an investment in solar more attractive. Still other utilities are charging by average consumption. Rates will increase during peak consumption times, irrespective of the day or night. For owners of larger homes solar can mean sigificant savings if this model is taken into account.

The Bottom Line

It does not seem as if the costs of solar panels and complete systems is going to decrease substantially in the immediate future. However, given the fact that the cost of energy from utilities also going up a solar system may make sense. Careful calculation is required on the part of the homeowner. By taking the factors outlined above into consideration it will become apparent whether or not solar is a viable alternative to the energy supplied by a centralized provider.

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