The Cost of Solar Panels

How much do solar panels cost?  The golden question.

The answer is – it’s quite variable.  Numerous factors must be considered such as your roof area, azimuth, pitch, budget and solar power capacity.  We will discuss all of these and outline general costs of solar panels.

You might be wondering how the azimuth/pitch affects the cost of solar panels, isn’t it just one lump sum cost?

It is one lump sum cost to buy a solar energy system, but how much energy the system produces over 25+ years will affect your overall economics which is arguably much more important.  Lets break it into two separate categories:

The first category is the cost to buy solar panels (i.e. the initial investment required) for systems of various capacity (size).

The second category is more in-depth and will outline the long-term economics of solar energy systems in Alberta, BC, Saskatchewan and the rest of Canada. This is extremely important for calculating your ROI, and payback period.  In this category we will work through a real example.

1) The Cost for Solar Panels

There is no way of assessing the exact cost of solar panels for every individual’s home without giving a free site appraisal. Site appraisals are completed to assess anything that can’t be viewed online such as if an electrical panel or the roof needs upgrading.

Typically, it is simple to provide accurate estimates remotely using satellite imagery but such methods are not perfect.

Before getting into how much different solar power systems cost, let’s realize what goes into a solar installation in Alberta,BC, Saskatchewan or most other places in Canada.

Solar Power System Cost Breakdown

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The chart above shows a rough breakdown for solar installations in Canada. Material makes up approximately 70% to 80% of the total job costs, with the biggest culprit being the solar panels themselves.

Installation labour is the next major cost category besides material.  Solar installation personnel MUST be certified electricians to install solar modules in Alberta.  

The ratio’s will vary reasonably.  If you live in Fort Simpson, NWT, you will have a higher travel expense than a solar installation in Edmonton, AB.

Similarly, if you want a large ground mounted array, there will be more costs for solar materials and labour associated with the groundwork and racking system.

Every job will be a little different, but this should give you a good sense of where your money is going.  

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Cost for Solar Panels ($/W)

Solar is often assessed in dollars per Watt ($/W) which gives a representation of the value of your investment aka your“bang-for-buck.”  This value is similar to $/sq ft. in the flooring or painting industries.  

Low $/W = Favourable.   High $/W = Unfavourable.  

Like most things you purchase, the economies of scale play a major role in the cost of solar panels.  This is due to 1) Fixed baseline costs such as permitting and engineering and 2) Installation time.  

Baseline costs are fixed, meaning the more solar energy you can stack on top of them, the lower your $/W will be and the better value you will get for your investment in solar panels.  

Installation time plays a major role too. There will always be a set amount of fixed installation time for setting up,unloading materials, and cleaning up.  The time it takes to install 28 solar panels is roughly identical to the time it takes to install 26 modules which means for the same amount of fixed/labour cost you get more power and a lower $/W.

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These are the reasons why the $/W significantly drops as the size of your array increases.  The graph above gives a general representation of solar costs vs system capacity.

Note the logarithmic scale on the X axis used to make the steep drop in lower capacity systems readable.

You get better bang for buck with larger systems (lower $/W) but the total cost of solar panels ($) will increase.

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Residential Cost of Solar Panels

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The chart above outlines most (not all) of the total home solar power costs in Canada.  

Solar power systems on homes are generally in the 4kW to 10kW range depending on how much energy one uses and one’s budget. Standard solar panels range from 300W to 400W depending on what module/inverter configuration works best.

An average grid-connected solar power system will be around 10 to 24 solar panels or approximately 4 to 9.6kW which is typical across Alberta, BC, Saskatchewan and most of Canada.

This means that your average cost of solar panels on homes is approximately $12,000 to $25,000,fully installed.  

Granted, there are many other factors that play into this.  If you live far away from major centres, there may be more travel costs, or similarly, if you need some electrical work to safely install the solar power system then there might be additional costs as well.

Kuby Energy is a licensed electrical contractor and will always ensure the proper devices are installed according to or beyond the Canadian Electrical Code standards.  

For solar energy systems in NWT for example, the average installation will likely be slightly higher due to the logistics of shipping and travel.  With that said, the higher electricity rates in NWT actually make the economics more favourable than solar power in Alberta.

On the flip side, if you design your home for solar, you can expect a much better $/W and cost as it is easy to optimize the array during the pre-construction phase.

Is the same trend true for solar panels for businesses?

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Commercial Cost of Solar Panels

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Commercial solar systems follow the same general trends and guidelines as shown above in the residential solar cost breakdown. The key difference is that commercial solar arrays are generally quite a bit bigger, ranging from 15kW to 250kW+.

As you can imagine, the price continues to drop as the scale increases.  Large systems may drop to < $1.50/W fully installed.

Commercial solar power systems in the 50kW to 200kW range will cost approximately $100,000 to $350,000

AND, there are tax incentives for commercial solar energy systems!

All of these factors make businesses an ideal candidate to install solar panels.

Now that you have a good idea of how much solar panels cost, lets take a look at the second category.

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2) Economics of Solar Energy

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The above graph shows the dollar value installed cost of solar panels for various capacity systems. Note the logarithmic scale on both the X- and Y-axis. This is the combination of the Residential and Commercial cost of solar power system graphs shown previously.

If you’re going to invest in solar power, you want to know what your financial outcomes are going to be such as how much money you will earn from the solar panels and what the payback of the investment will be.

These terms can be a little deceiving since what is truly desired is whether it will save you money relative to continually renting electricity from the grid. We recommend not focusing solely on the payback period of solar panels, but analyzing the economics over 30 years since that is the period of the investment.

Levelized Cost of Electricity (LCOE)

A method used to calculate the economics of solar power in Alberta is called the Levelized Cost of Electricity or LCOE.  

The LCOE is a good metric assess long term economics since this approach considers the total lifetime of the solar power system.  

Mathematically, it is represented by the following equation (the real calculation is more complicated and won’t be explained in this post):  

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Calculating the LCOE for a solar power system is not overly complicated.  There are a few factors involved:

1.      Installation Cost – One-time lump sum provided by the solar contracting company

2.      O&M Cost – Ongoing cost per year either provided by the solar installation contractor or estimated to be around $0-$200/yr for home solar systems.  This will cover any replacements which may be needed in the rare event that an issue does arise or any insurance premiums which may be assessed required.

3.      Lifetime energy output – Annual energy output will be provided by your solar contractor.  Remember that the system will degrade by~0.5%/yr.

The graph below shows the LCOE of solar panels vs grid connected electricity for a typical residential system. The error bars are due to the wide ranging economic and energy possibilities for solar as well as the unknown price escalation of electricity over time.  

In select cases it is possible to have grid electricity be more favourable over 30 years than solar electricity, but inmost instances solar will provide a lower (better) LCOE.

The more electricity price escalates overtime, the larger the gap between solar and grid LCOE will be.  In other words, the more expensive electricity is from the grid, the more favourable the investment in solar panels becomes.

Buying solar panels is essentially buying 30 years’ worth of energy up front, hedging against the increasing prices of grid energy and the associated fees.

Net Metering Electricity Billing in Alberta

It is important to realize which charges on your bill may be affected by solar energy. In Alberta, your bill has 4 main components – the energy charge ($/kWh),the transmission charge ($/kWh), the distribution charge (fixed rate and$/kWh), and other fixed charges (admin fee, local access fee, rate rider, CEO retirement fee etc.)

The energy charge may be fully scaled to$0.00/mo if your solar panels supply 100% of your energy. This can be achieved in the summer months although you will likely have some charges for energy used at night or when the sun isn’t shining.

The distribution charge has two parts to it, a fixed charge and a variable charge. The fixed charge is usually assessed per day or per kW of demand that you require – solar energy cannot reduce this portion.  The variable charge is based off how many kWh you required – solar energy will directly lower this portion.  

The transmission charge is based off how many kWh you require much like the energy charge and the variable portion of the distribution charge. Energy from solar panels will directly reduce the transmission charge as well.

A clear breakdown of these fees is shown below from ATCO Electric.  The numbers are accurate as of January 1, 2020. Different retailers will have different breakdowns based on their service area.

Various energy retailers (such as EPCOR, Get Energy or one of the many others) may have different service breakdowns, but the concept will be similar to the above.

Net Metering Energy Billing in BC & Saskatchewan

Every province is a little different as electricity is a provincially controlled utility.  

For example, Saskatchewan offers a single tiered billing based on kWh usage, internally factoring in distribution and transmission fees.

Saskatchewan’s rate plan is similar to Alberta in that solar energy used offsets a higher rate (Energy + D&T in Alberta) by giving a credit at a reduced rate for energy sold back to the grid versus purchased from the grid.

BC has a similar system based on kWh usage,but provides two tiers based on how many kWhs are used throughout the billing cycle.  If a home uses more than a threshold value of energy (approximately 1,350kWh per 2-month cycle), it will be charged roughly 50% more for those kWhs.

BC Hydro recently put in place a new schedule to pay out accrued annual credits (for credits existing after 12 months) at approximately $0.03 to $0.04/kWh

This BC structure highly incentivizes one to reduce their energy consumption and provides that much more reason to install solar panels.  

Future of Electricity

To accurately compare grid electricity to solar energy, we must assess how much these rates will increase over a 30-year span.  

The Alberta Electric Systems Operator (AESO), whom manages and operates the provincial power grid, is expecting all charges to steadily increase over the next 20+ years (big surprise, right?).  The image below is taken from their 2014 Transmission Rate Projection.  

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After dissecting the numbers, the AESO was predicting an increase in prices as follows:

Energy Charge – Increase of 5.2%/yr from 2016 to 2035 ($40.99/MWh to $107/MWh)

Transmission Charge – Increase of 2.2%/yr from 2016 to 2035 ($31.91/MWh to $48.42/MWh)

The distribution charge has not been specifically identified by AESO, but a 1% to 3%/yr increase is a reasonable assumption considering previous escalations.

Predicting the future is a losing game but with this information as a backbone, we can make some estimations of the cost of grid electricity over a 30-year span.

To illustrate the comparison let’s look at an example of a solar power system in Alberta.

Home Solar Power Economics Example

The following example illustrates solar energy economics on a home in Alberta based on the ATCO pricing cited earlier.  The situation will differ slightly if you were to examine solar panels in Edmonton or Calgary.  

The assumptions:

1.      8.0kW system (roughly average size solar system)

2.      30 Year analysis period

3.      Total installed cost = $2.00/W +gst (no rebates included)

4.      O&M Cost = $100/yr  

5.      Client consumption = 9,000kWh/yr

6.      Generation = 8,600kWh in year 1(1.07MWh/kW; 20% Exported)

7.      Degradation = 0.5%/yr

8.      Grid Energy = $0.070/kWh + 4.0%/yr(conservative escalation relative to AESO estimation).  This escalation results in a grid energy price of $0.12/kWh in 15 years.

9.      T&D = $0.038/kWh + 2.0%/yr (conservative escalation relative to AESO estimation). This T&D escalation results in service charges of $0.051/kWh in 15 years.

10.  Discount Rate = 1.5%

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You may notice that non-energy related fees are not included here.  This is intentional.

If the fees aren’t affected by solar energy, then they hold no bearing on your ROI or payback period.  Fixed and unrelated fees are irrelevant to the financial outcomes, but many people fall into the trap of thinking they are.

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The results:

The LCOE will look very close to the LCOE graph above with solar being more favourable than renting electricity. This means is the system will pay for itself – the cost of solar is less than the cost of equivalent grid electricity over a given period of time.

LCOE is only one piece of the pie.  

Solar panels will produce energy which reduce your monthly electricity bill. These savings will continue for 25+ years.

If you don’t install solar panels, then you will have to pay for that same amount of energy.  

If you plot those two, that is, the offset against electricity (savings) vs the cost of purchasing that same amount of electricity, a very telling graph is illustrated.

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Don’t be thrown off by the ‘long’ payback period, it does not tell the full story.  The final comparison to take into account for the value of a solar power system is the overall value of using solar compared to the overall value of using grid-tied electricity. By ‘value’ I simply mean the overall costs and revenue from solar panels vs the overall costs and revenue from using the grid (there is no revenue from grid electricity).

The system will pay for itself in approximately 19 years however you will reach the same point in cashflow in <10 years if you install solar.

Value of Solar Panels vs Grid Electricity

People often get caught up with the payback period of solar panels but they never seem to ask themselves:

“What is the payback period or ROI of using grid electricity?”  

Isn’t getting your money back eventually better than giving it away indefinitely?  

Another way of thinking about this investment is to compare it to a vehicle or a house.  Would you rent a house for 30 years?  Would you rent a car for 30 years?  

Yes, it is a major up-front investment but it makes much more sense to purchase your home/vehicle to save money over the long-term and earn equity in the asset.

With this in mind it is important to compare the relative payback period of solar panels. This is done by observing how much money would be spend on continually renting grid electricity vs owning your solar energy.  

It is pretty staggering to see how much money is wasted on continually renting electricity for 30 years.  This graph shows that you can save $12,000 over a 30-year span compared to a $33,000 deficit over the same period.

Most people get hung up on the ‘long’ payback period but don’t often consider that by not using solar power, you are still giving away thousands of dollars every year with no returns or equity in a tangible asset.

The relative payback period provides a more accurate representation of how much money you are actually saving/earning from an investment in solar panels.  

Conclusion

There is more to solar than payback period.  We hope you consider the whole financial scenario when deciding whether or not to buy solar panels.  Yes, it is a major upfront cost but much like buying a home, the cost of solar panels will pay back over time.  

As the efficiency increases and the cost of solar systems decreases, the relative payback period of solar power systems will continually become even more favourable for consumers.  

Naturally, every scenario will differ slightly so these returns may not be the ones that you will see, but the general outcome will be the same and in almost every case:

Investing in solar panels is financially sound long-term decision.