Solar power energy systems are not inexpensive. That said it’s important to compare them within context of other types of home improvement projects. 

Solar power systems often get an additional financial boost as well: many jurisdictions and utilities across the USA offer attractive financial incentives to drive down the upfront capital costs associated with a solar power system. Here are some foolproof ways to estimate the cost of a solar photovoltaic or solar thermal system and to figure out if a solar energy system makes sense for you.


Step 1: Estimate your home’s electricity needs

If you are constructing a new home, then you’ll need to estimate your demand based on the type of equipment you plan to install and your home’s square footage. The pros call this “your load”.

To figure out your anticipated load, create a table to record the watt use for each appliance. Each appliance – be it a water heater, electric light, computer, or refrigerator – should have a nameplate that lists its power rating in watts.


Step 2: Anticipate the future

Even back in 2005, average residential electricity rates across the USA ranged from about 6 to nearly 16 cents per kilowatt hour depending on where you lived. Average retail and commercial electricity rates have increased roughly 30% since 1999 and the upward trend will likely continue especially as costs for the coal and hydropower used to generate that electricity rise as well.


Step 3: How much sun do you get?

The Florida Solar Energy Center has conducted a study to examine how a 2-kW photovoltaic system would perform if installed on a highly energy efficient home across the continental USA.



Step 4: Size your system

In general, solar photovoltaic systems sized between 1 to 5 kilowatts are usually sufficient to meet the electricity needs of most homes. One advantage of grid-tied systems is that you can use solar PV to supplement or offset some of your electricity needs; therefore you can size your system to match your budget and always add to the system later if needed.


Step 5: Know your rebates

Many states and local jurisdictions offer rebates, tax credits and other types of incentives to homeowners for installing residential photovoltaic and solar domestic water systems. At the Federal Level, you can take advantage of a 30% tax credit for the purchase of a residential solar system.


Step 6: Run the numbers

Although the cost for a solar PV system will depend on the size of the system you intend to install, your electricity rate, the amount of kilowatt hours you expect to generate, and the state/local rebates/tax credits that may be available, the formulas for calculating the returns are pretty much the same.

Many solar power providers will provide you with a comprehensive estimate. Helpful information to know includes:

  • Total cost to make the system operational (labor cost for design and installation and equipment costs)
  • Equipment (Make and Model)
  • Warranty info
  • Permit costs, if needed
  • Tax, where applicable
  • Federal tax credits
  • State or local jurisdiction tax credits or rebates
  • Utility rebates
  • Expected Renewable Energy Certificates or Net metering credits
  • Expected operation and maintenance costs
  • Projected savings
  • Solar Thermal (also called Solar Hot Water)