How Much Do Solar Panels Cost -- and How Much Money Do They Save?

Much like electric cars, solar panels once seemed "alternative," even fanciful -- but are now soaring into the mainstream with ear-popping speed. There have been a lot of recent changes in the technology, bringing the price way down. And with the promise of lower energy bills, it's no wonder that many homeowners are curious about adding solar panels to their homes.

But how much do solar panels cost -- and just how much do they save you in the long run?

Here's what you need to know before making the investment.

Solar panel costs explained

What you'll pay for solar panels varies by your state and the size of the solar panel system. Simply put, the more energy you want to generate, the more solar equipment you'll need to get. But on average, solar panels will cost you $3.70 per watt. This means the average-size 5-kilowatt solar system would run about $18,500.

Yep, that may seem expensive. But that price tag could end up being much less when you factor in the many government incentives encouraging homeowners to invest in them (keep reading!).

How to lower the cost of solar panels

One major way to reduce solar panel installation costs is a 30% federal investment tax credit, which was recently extended to 2019. States also offer their own breaks; add them together, and the savings can be significant.

For instance, say you're a homeowner in Austin, TX, who wants to install a large 7-kilowatt system. Multiply that by the national average of $3.70 per watt, and you get a total installation cost of $25,900. But then, factor in the Texas state rebate.

"If you are eligible for the rebate, they would essentially chip in $800 per kilowatt -- or $5,600 -- for your installation," says Reed Crossley, solar marketing specialist with Austin-based Revolve Solar. This would bring your total down to $20,300. The 30% federal tax credit chips away an additional $6,090, so your total adjusted cost is $14,210 -- more than $10,000 less than the original price.

To figure out which incentives you can get in your area and the federal government, check out the Database of State Incentives for Renewables & Efficiency from North Carolina State University.

How much solar panels will save you

Now the fun part: How much money do solar panels save you in electric bills? A 6,000-watt solar system should produce 13,000 kilowatt-hours per year, which would save you the equivalent of $150 to $200 per month in electricity in most areas, says Todd Verk, vice president of sales for the Southern California division of Green Solar Technologies.

In general it takes seven to 15 years for a solar system to pay for itself. The Union of Concerned Scientists notes that given the incentives and rebates offered combined with drops in market price due to increasing competition, the upfront cost of solar panels may soon dip to less than $10,000. And when that's the case, they'll pay for themselves in four to six years -- and they should last 20 to 30 years.

Should you get solar panels? How to decide

Whether or not to get solar panels depends not only on the cost, but whether your property gets enough sun to reap the benefits. While solar panel systems can benefit from both direct and scattered sunlight, they work best in the southwestern U.S. because of the vast amount of sun in that region. Check out the best and worst states for solar energy, according to the Solar Panel Industries Association.

You'll also want to consider the physical location of your house. A roof facing north to south with little to no obstruction to sunlight from trees and other structures will provide good exposure to panels. If the roof doesn't get enough sun, a garage or ground-mounted system is another option, says Nick Liberati, spokesman for EnergySage.

If you'd still rather pass on shelling out to own your system, you could lease solar panels. That's where a third party fully covers the cost of installing and maintaining your solar panels; you merely lease the panels, and the company [then] charges you a locked-in electricity rate that's lower than what you currently pay.

However, if you opt to make the investment in your own panels, chances are good they'll boost your property value. According to a 2015 report from the U.S. Department of Energy, homes with solar panels usually sell for $15,000 more than counterpart homes with no panels.

Bottom line? Solar panels could be a worthwhile investment worth exploring.

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