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How to Decipher the Cost of Solar Panels

Jessica PirroAugust 21, 20191980

When determining if you are getting a good deal on solar panels there’s a lot of things that you should pay attention to when you deciding which solar-powered system is right for you. But two of the most useful metrics for evaluating the cost as well as the value of solar power offer are a price per watt, measured in dollars per watt of energy ($/W) and ‘Levelized cost of energy’ (LCOE).

You can use cost per watt ($/W) to the prices of solar-powered system installation costs as well as the cost of solar panels, and LCOW is good for comparing the average per-unit cost of the solar electricity that the solar-powered system is producing.

How Much is a Solar-Powered System Going to Cost per Watt?

Solar-powered systems sizes are usually going to be described in kilowatts (kW, where 1kW = 1,000 watts). If you’re planning on buying your solar-powered system, you’re going to want to know how much the solar-powered systems are going to cost per watt.

The $/W cost of the solar-powered systems isn’t important to if you’re going to go solar under a solar lease or a power purchase agreement (PPA) program. Under these programs, a third party is going to own your solar-powered system and sell you only solar electricity it produces.

How Can You Calculate $/W for a Solar-Powered System?

To calculate $/W, you are going to take the total out-of-pocket cost of solar panels that you’re going consider and then divide it by the number of watts of capacity in the solar-powered system. A 5kW solar-powered system has 5,000 watts. If the cost of solar panels is $15,0-00, then the cost of solar panels per watt is (15,000W / 5000W = $3/W).

If you are comparing the figures, you are going to want to make sure that you understand the cost of solar panels if they are going to understand if the price includes the Investment Tax Credit (ITC) solar incentive. The ITC will effectively reduce your solar-powered system’s cost by 30%. The $/W cost of solar panels is going to described above is $15,000 before the ITC. After the ITC has taken into account, it is going to be about, $15,000 x 60% = $9,000, which is around $1.80/W. Additional state tax credits and other rebates may further reduce the cost of solar panels.

Why is $/W a Useful Metric?

Once you have a $/W figure for a solar-powered system, you are easily able to compare the basic value to the other solar-powered systems, regardless of the difference in size. If you are considering a 7kW solar-powered system that is going to cost $20,300 and a 6kw solar-powered system that costs $17,400. How are you supposed to know which one will offer more value?

Because the solar-powered systems are sized differently, at first glance you may not think that you can compare them by their price tags alone. But in fact, both of the solar-powered systems cost $2.90/W, which means that either solar-powered system offers the same value in terms of its maximum solar power output.

The Levelized Cost of Energy

The Levelized cost of energy (LCOE) is the average amount that you are going to pay for each unit of solar electricity that your solar-powered system is going to produce over its lifetime. LCOE is usually going to be displayed as a ‘cents per kilowatt-hour’ figure (¢ kWh). You may recognize ¢ kWh from your electric bill, it’s the amount that you are charged for each unit of electricity to your home.

LCOE is a useful number to look at if you’re considering buying your solar-powered system or planning on going solar with a solar lease or a power purchase agreement.

How to Calculate Solar Energy LCOE

LCOE is calculated by dividing the total out-of-pocket cost of solar panels by the estimated total amount of solar energy that your solar-powered system is producing over a given period of time. It is typical to look at 20 years while calculating LCOE, although a solar-powered system will continue to produce solar power for over 30 years.

LCOE is quite a bit more complicated to calculate than $/W because there’s going to be more factors that are involved and because it is an estimate of future production.

To Roughly Calculate LCOE, You Should Know:

- The total cost of solar panels, after solar energy tax benefits and rebates, are taken into account.

- The amount of sunlight the solar panels are likely to receive daily. An average is usually sufficient for this: 5kWh of pure solar energy per square meter of area per day, on average throughout the entire year.

- The overall efficiency of your solar energy system. It’s common practice to assume that a solar-powered system will have an overall efficiency rate of 80%, but it could be greater or lesser depending on things like the tilt angle and orientation of your solar panels, the efficiency of your solar power inverter, and whether or not there is partial shading on your solar panels. 3

If You Want to Calculate the LCOE of a Solar-Powered System it Will Also Be Useful to Know:

- The annual rate of degradation for your solar panels. All solar panels are gradually growing less and less efficient over time.

- Any SREC benefits you might be eligible for. SRECs payments are usually going to be considered a ‘bonus’ on top of the electricity bill savings that are associated when you go solar. But, not all states have SREC markets, so you should check and see if there’s one where you live.  

If you live in Los Angeles and you are looking to get a 5kW solar-powered system with a net cost of solar panels being $9,000, you can estimate its LCOE accordingly:

- Solar energy produced over 20 years: 5kW x 5.62kWh of sun daily x 365 days x 20 years x 80% efficiency = 164,000kWh

- The cost of the solar-powered system divided by solar energy produced: $14,500 / 164,000 kWh = 9¢/kWh.

Why is LCOE Useful for Photovoltaic Solar Panels?

LCOE is Useful Due to:

- It is going to allow you to compare the cost of solar panels that are produced by two different solar energy systems side-by-side, thus allowing you to see which one is likely to save you more money on your power bills. The LCOE of one solar-powered system may be 5.5¢/kWh, while another may have an LCOE of 8¢/kWh.

- You can use it to compare the average cost of solar energy that is produced by your solar energy system vs the amount you are going to pay for your electricity.

The LCOE is an Estimate

The LCOE is a useful metric for comparing the cost of solar electricity from your solar-powered system over its lifetime, but be aware that the actual figures are going to vary. If you are interested in getting an estimate on solar panels you can go to HaHaSmart and use the price checker tool.

Solar system price checker

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