U.S. Department of Energy

Cost of Solar

The actual cost of solar energy systems varies based on factors such as the location, size, technology, and type of installation. Trying to estimate the cost of putting rooftop photovoltaic (PV) panels on a home is like trying to guess how much it will cost to fill the gas tank of someone's car. Questions such as how big the car is, where and when the driver will fill up, and what kind of gas he or she uses will all impact the final amount.

Installed System Cost

The installed cost of a solar energy system refers the investment needed to fully install a working unit. This is commonly discussed in terms of dollars per watt (W). Installed system costs include:

  • PV panels or concentrating solar power systems
  • Power electronics
  • Balance of system (BOS)¬†hardware, such as structural components and racking
  • BOS non-hardware or soft costs, which include permitting, installation, and inspection.

The SunShot Initiative aims to reduce the total installed cost of residential, commercial, and utility-scale solar energy systems to $1.50/W, $1.25/W, and $1/W, respectively.

Chart titled 'SunShot: Reducing the Cost of Solar.'

Comparison of 2010 baseline and SunShot target costs for residential, commercial, and utility solar installations. Chart by Al Hicks/NREL

Levelized Cost of Energy

Often, the solar industry uses the levelized cost of energy (LCOE) to estimate how much the electricity generated by a PV system costs over its lifetime. This is typically reported in units of cents per kilowatt-hour (kWh). According to the SunShot Vision Study, LCOE includes the following factors:

  • Installed system cost
  • Operation and maintenance costs
  • Local solar resource and climate
  • PV panel orientation
  • Financing terms
  • System lifetime
  • Tax rates and policy.

LCOE estimates often differ based on the values assigned to each of these variables. For example, local, state, federal, and utility incentives can be applied to reduce system costs. For state-specific policies, visit the U.S. Department of Energy (DOE) Database of State Incentives for Renewables and Efficiency.

Chart titled 'LCOE for PV Systems in Phoenix and New York City in 2010, with and without the Federal Investment Tax Credit'

This chart shows LCOE values in Phoenix (left bars) and New York City (right bars), both with and without the investment tax credit, for residential, commercial, and utility-scale solar installations. Note: For residential systems, mortgage financing is shown on the main bars, and cash purchase is represented by the high error bars. Source: SunShot Vision Study

DOE estimates that a $1/W installed PV solar energy system would be capable of providing electricity at a cost of approximately $0.05–$0.06/kWh over its lifetime. At this rate, solar energy would be competitive with the wholesale rate of electricity without additional subsidies nearly everywhere in the United States.