Posted: Marcus Varner | May 30, 2016

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Cost of Solar: Why is It So Expensive?

cost of solar

If you've had a solar estimate done on your home, you've probably found yourself blown away by the cost of solar.

Historically speaking, on one hand, It used to be that getting a home solar system was really expensive-so expensive that typical middle-class people couldn't afford it. With more private investors and governments pitching in, however, the cost of solar has gone down significantly, far enough to put it within reach of the average homeowner.

On the other hand, that doesn't mean solar is now cheap.

Anyone who has gotten an estimate to see how much it would cost to install a solar system on their roof knows that it comes with some serious sticker shock. Despite all the advances that have been made, solar is expensive-enough to anyone seriously question if it will really be worth their investment.

How expensive exactly? After paying for the install (and, if you got financing, the interest on your loan) you can expect to start breaking even on your investment about 12 years after installation, by most expert estimates.

But what exactly is making the cost of owning a solar system so high for homeowners? These five items are the biggest culprits:

1. Solar equipment is still expensive

According to recent research, hardware is the single most expensive item in the typical solar panel installation, especially the solar panels themselves. In fact, it makes up about 25% of the cost on an average solar system. So if you paid $30,000 to have a solar system on your roof, about $7,500 of that would go to the equipment.

cost of solar

Why does this equipment cost so much? The solar industry is still trying to develop more efficient solar panels (i.e., panels that produce more electricity per the amount of sunlight that hits them). With the average solar panel being only 15% efficient at best-a number that makes solar not attractive enough to many would-be customers-solar companies are investing a lot trying to improve that number.

In addition, the technology and processes used to build solar panels are still not as efficient as they need to be and they're still expensive.

Even with Chinese subsidies making solar panels significantly cheaper than they used to be, the costs to make solar panels are still significant. There is also evidence that the current low cost of solar panels might not last, but that costs will actually rebound in the near future.

2. Solar companies are marketing like crazy

Think about how you got interested in possibly getting a solar system installed at your home? Was it a display ad on website you were visiting? Was it sales person canvassing your neighborhood? Was it an online article or a booth at an event?

Chances are, no matter how you heard about it, you will be paying for that sales and marketing push in your installation bill.

Wrapped up in that grand total that you will pay for your solar system is the bill for the salespeople who knocked on your door, their commission, the brochures, the website, and everything else spent to win you over. Sales and marketing costs make up approximately 20% of the cost of the typical solar system.

cost of solar

Remember our hypothetical $30,000 solar system? $6,000 of that pays for sales and marketing.

For this reason, those solar companies that seem to be the most prominent because of their omnipresent advertising might actually be hurting their customers. The harder solar companies push their products through their advertisements, their public relations, or their armies of salespeople, the more customers pay.

3. Solar companies have to cover their operating costs and make a profit

You probably get that solar companies are businesses, and they need to make enough to keep the lights and keep people employed. They also need to make sure they turn a profit and fatten pocketbooks of their investors. And these operating costs manifest themselves in big ways.

cost of solar

According to research, 20% of total solar system costs ($6,000 of that hypothetical $30,000) are categorized as "costs and margins."

Another 20% is categorized simply as "overhead."

Taken together, that's 40% of your total bill that goes to keeping the company running, turning a profit, and making investors happy.

4. You have to pay the installation crew

Yeah, remember those guys who will be stomping around on your roof for a few days, drilling holes, running new wiring, etc.? They and their equipment cost money, too-about 10% of the total cost of your install, or $3,000 of that $30,000 install.

cost of solar

5. It depends on your government subsidies

Some countries have made significant investments in making solar power affordable and economically feasible for their citizens. For instance,in Germany, solar panel systems are much more widespread because the German government pays solar homeowners by the kilowatt-hour (i.e., the electricity generated) and not by kilowatt (i.e., the number of panels installed). This simple difference in German policy makes solar twice as expensive for Americans as it is for Germans.

Yes, the U.S. government offers a one-time solar tax refund for purchasing a solar system. But it still does not alleviate as much of the risk. For this reason, American simply do not recoup their investment in solar as quickly as their counterparts in Europe or Asia will.

Is the Cost of Solar Worth It For You?

As with all high-priced purchases, would-be solar customers need to balance their attention on not only the cost of their system, but the value they will get from it. Will their solar system produce enough energy to allow them to save on their monthly utility bills? Will that system continue to produce so much energy as their system ages? Will their solar company be committed to keeping that system running at high efficiency? The answers to these questions-not necessarily the price tag-will ultimately determine if solar is a good investment for you.

To see how Solar Companies compared, based on real customer reviews, visit our Solar Company Reviews page today.

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Written by Marcus Varner

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