There are dozens of valid reasons why installing residential solar panels is a great idea. Perhaps the most common reason is that it will save you money on your electricity bill. In fact, over the lifespan of your solar panels, they will pay for themselves— and then some!
Now, maybe you’re already positive you’re going to install solar panels, but you don’t know which brand gives you more watts for your dollar. If this is the situation you find yourself in, there are two metrics that can help inform your decision:
- Dollars per watts ($/W)
- Levelized cost of electricity (LCOE)
There is some math involved, but we promise it’s fairly simple. We’ll start with figuring out the cost per watt.
Solar Panel Cost Per Watt
The first step is to convert kilowatts into watts. Let’s say you’re looking at a 5kW system, that converts to 5000 watts.
Second, take the estimate your solar panel contractor provided you and divide it by the watts. It’s important to use the price before tax incentives. For this example, we’ll say the 5kW system costs $15,000 before tax incentives and rebates.
- $15,000/5000W= $3/W
In our example, our cost per watt is $3.00, which is within the U.S.’s average— between $3 and $4 dollars per watt. Remember, this is pre-tax incentive or any rebates, so the after-taxes number will more than likely be significantly lower.
Of course the cost per watt depends on the size of the solar panel system you’re installing. Will your home need a 5, 10, or 15 kW system? The larger the system required, the more money it will cost upfront. Don’t let that discourage you from considering solar power! Even though it will cost more money to install a larger solar panel system initially, your savings will be considerably more over time than if you were to install a smaller system.
Determining the cost per watt is helpful for comparing installation costs as well as the solar panels themselves. Doing the calculations above can help you determine if a different sized system would be a better choice, because now you know how to find out what each system costs per watt of energy it produces. If you’re considering leasing the solar panels instead of owning them outright, you may find that solar leasing companies mark-up the cost per watts slightly— so you could end up paying between $5 and $6.
Levelized Cost of Electricity for Solar Panels
The levelized cost of electricity (LCOE) is the average amount you will pay for each unit of electricity produced by your solar panels over the course of your system’s lifetime. The LCOE is also useful to help you determine whether leasing your solar panels or owning them is right for you. Instead of dollars, the LCOE is calculated in cents per KwH. Calculated by dividing the total cost of your solar panel system by the estimated amount of power your solar energy system will produce over a given amount of time. Since solar panels are lasting at least for 20 years, we’ll use that number. Calculating the rough estimate of your LCOE is considerably more complicated than finding your solar panel cost per watt. For one thing, there are more factors to be considered:
- The size of your system
- The total cost of your solar panel system after tax incentives and rebates
- An estimated number of hours your solar panels will receive sunlight
- The average efficiency of your system— a fair estimate is 80%. Yours may be higher or lower depending on your solar panel pitch, the direction your solar panels are facing, or if any trees or buildings are shading your solar panels, for example.
This does not take into account the degradation that all solar panels experience over their lifetimes, for simplicity’s sake. Our example LCOE calculation for a home in San Antonio, TX with a 5kW system will look like this:
- Size of your system x the estimated kilowatts of sunlight your home receives x 365 days a year x number of years your solar panels are expected to last x average efficiency of your system= Solar Energy Produced over 20 years.
Using our example of solar panels in San Antonio, TX, the calculation will look like this:
- Solar Energy Produced over 20 Years: 5 Kw x 5.3kWh of sunlight x 365 days a year x 20 years x 80% efficiency = 155,000kWh
The second step is to divide the cost of the system— taking tax incentives into account— by the solar energy produced over 20 years:
- $15,000/155,000kWh= 9¢/kWh.
You can see that you will pay approximately 9 cents per kWh over 20 years. You can now use this equation to compare two similar solar panel systems before they are installed. Keep in mind that this number is an estimate, so if your solar panels produce more energy than anticipated, your cost per kWh will be lower. The opposite is true, too— if your solar panels do not produce as much energy as you thought they would, you will pay more per kWh.
If you’re interested to see how much money solar panels could save you on your energy bill, using a tool such as Modernize’s Solar Panel Cost Calculator gives you a strong estimate of solar benefits in your area.