Breaking Down the Price of Solar Power Systems

Michael Tobias
June 29, 2022
6 Minutes Read
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KEY TAKEAWAYS

-Photovoltaic panels are just one of many components in a solar power system. This is why PV modules alone have a much lower price than a complete system.

-When you get an offer from a solar installer, the price also includes the inverter, structural balance-of-system, and mechanical balance-of-system. There are also soft costs like direct labor, overhead and taxes.

-The latest technical report from the National Renewable Energy Laboratory (NREL) estimated an average price of $2.65/W for residential systems, $1.64/W for rooftop commercial systems, and $0.83/W for utility-scale systems without solar tracking.

-As the solar array size increases, PV modules represent a higher percentage of costs: less than 13% in residential systems, around 22% in commercial systems, and 41% in utility-scale installations.

If you compare solar panel prices online, you will notice that their costs per watt are much lower than those quoted by installers. This can lead to the wrong idea that solar companies are making very high profits, but the truth is different. A solar energy system has multiple components, and photovoltaic modules are only one of them.

The National Renewable Energy Laboratory (NREL) publishes the annual US Solar Photovoltaic System and Energy Storage Cost Benchmark, and the latest edition became available in November 2021. The NREL provides a detailed breakdown of solar PV system costs by market segment: residential, commercial, and utility.


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When comparing solar power projects, economies of scale are evident. As the size of solar projects increases, their cost per watt decreases significantly. This is reflected in the average prices from most recent NREL technical report:

Solar PV System Size

Typical Cost

7.15 kW Residential

$2.65 / watt

200 kW Rooftop Commercial

$1.56 / watt

500 kW Ground-Mounted Commercial

$1.64 / watt

100 MW Fixed Tilt Utility

$0.83 / watt

100 MW One-Axis Tracking Utility

$0.89 / watt

Note how the cost per watt is nearly 70% lower in utility-scale PV systems, compared with small residential systems. However, solar panels are financially viable at all project scales. Residential and commercial solar systems are analyzed based on electricity savings at retail prices, while utility-scale projects are analyzed based on electricity generation at wholesale prices. In other words, smaller systems have a higher cost per watt, but their economic benefit per kWh generated is also higher.

Solar PV System Prices: What Do They Include?

solar design

Photovoltaic panels are the most visible part of a solar energy system, but there are many other components at work. These include solar inverters, racking systems, wiring, circuit breakers, and monitoring systems. Depending on how your solar energy system is designed, it may include optional components like batteries and power optimizers.

The quoted price of a solar power system also includes soft costs that are not evident when looking at a completed installation: permitting, inspections, grid interconnection, taxes, transportation, land acquisition, design work, skilled labor, customer acquisition, overhead, profit margins, etc. To get a general and clear idea of how much do solar panels cost including the costs above which differ in each US state, it's advisable to get in touch with a professional solar installation company.

 

Solar panels only represent a fraction of system costs, and this has been analyzed by the NREL. The November 2021 technical report considers a PV module cost of $0.34 per watt, which is equivalent to:

  • 12.8% of costs in a typical residential installation
  • 21.8% in a rooftop commercial system
  • 41.0% in a utility-scale system without solar tracking

As the size of a solar array increases, photovoltaic modules represent a higher percentage of total costs, while the percentage of soft costs decreases. This is also why large projects are more sensitive to solar module prices, and more dependent on low-cost imports from overseas.

Individual Cost of Solar PV System Components

The NREL report also breaks down solar PV system costs by item and by market segment. The following table summarizes their findings from the November 2021 report:

Solar Components and Soft Costs

Residential Market Price Contribution

Commercial Market Price Contribution

Utility-Scale Market Price Contribution

PV module

$0.34/W

$0.34/W

$0.34/W

Inverter

$0.15/W single-phase string type

$0.28/W string + power optimizers

$0.31/W microinverter

$0.08/W three-phase string type

$0.16/W string + power optimizers

$0.31/W microinverter

$0.05/W

Structural BOS (racking)

$0.09/W

$0.11/W - $0.18/W

$0.09/W - $0.12/W

Electrical BOS

$0.19/W - $0.30/W

$0.13/W - $0.45/W

$0.07/W - $0.14/W

Sales Tax

5.1% national average

5.1% national average

5.1% national average

PII*

$0.21/W small installer

$0.23/W national integrator

$0.03/W - $0.12/W

$0.02/W - $0.06/W

Sales and marketing

$0.42/W small installer

$0.58/W national integrator

N/A

N/A

Overhead

$0.27/W small installer

$0.28/W national integrator

$0.27/W - $0.47/W developer overhead

13% of equipment EPC overhead

2-12% developer overhead

8.67-13% material and equipment, 23-69% labor EPC overhead

Typical profit

17%

7%

5%-8%

*NOTE: PII stands for permitting, inspection and interconnection.

As you can see in the table above, the price of a solar power system is the sum of many individual costs. The table considers the costs that tend to fall within a certain price range, but others are more variable - supply chain costs and skilled labor are two examples.

Tags renewable energy Solar Power solar energy solar panels solar PV system design

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