Why is solar so expensive in the U.S.?

The cost of solar has plummeted in the U.S. over the last five years. With solar prices dropping to an average of $2.77 per watt for residential solar shoppers, the industry has hit a very important and impressive milestone. However, solar costs in the U.S. remain higher than in other countries, most notably Australia. But just how much less expensive is solar in Australia, and is it possible for the U.S. to slash solar costs even further?

On EnergySage, we've seen the cost of solar drop from $3.86 per watt to $2.77 per watt–as of 2022–since the end of 2014 alone. That means in about six years, a small to medium-sized 6-kilowatt (kW) system has dropped in price by about $6,540 (not accounting for the investment tax credit). The cost decrease is even more pronounced from earlier in the 2000s when solar prices were up over $7 per watt for residential systems.

What's more, this pricing information is for the gross installed cost of solar. Federal, state, and utility incentives mean that the net installed cost of solar is much lower, even before accounting for the savings from reducing or eliminating your electric bill.

For instance, a 6 kW system with a $3 per watt gross cost would only cost $13,320 after applying for the federal investment tax credit, for an effective net cost of only $2.22 per watt. (Most companies calculate the gross cost of solar per watt instead of the net cost of solar per watt to provide a policy-neutral look at how the cost of solar has changed over time. In recent years, Tesla has created significant media attention and consumer buzz by announcing $2 per watt pricing. That's a net cost and includes the federal investment tax credit.)

When people point to lower costs for solar in other countries, they often refer to Australia. According to the now-defunct Energy Supply Association of Australia, in 2016, the median solar price for a 5 kW system in Australia hovered at $1.33 per watt. At the time, Australia already boasted a higher adoption rate of rooftop solar than any other country, with over 15 percent of households having solar panel systems.

Since 2016, prices have continued to drop, and solar installations have continued to increase. Residential systems in Australia are now priced around AUD $1 per watt (or about USD $0.70 per watt), meaning installing the same size system in Australia costs one-third of the price of the same system in the U.S. on a gross cost per watt basis.

Two of the most significant ways Australia's solar industry has reduced solar pricing is by easing the permitting and inspection processes for new solar homeowners. These aspects of a solar installation require time and money. These "soft costs" of solar–or non-component costs–can add up to $1 per watt to every building or $6,000 for an average 6 kW system.

Australia has reduced these soft costs by simplifying the permitting requirements for solar installations and hiring dedicated solar inspectors. The U.S. has solar permitting requirements that vary by state and even local jurisdiction but can involve a non-trivial amount of paperwork to be filled out by installers. Australia finds ways to ease these requirements and restrictions by offering nearly-immediate virtual permitting portals. The City of Las Vegas has followed Australia's lead on this to cut permitting times from up to 90 days down to just minutes.

Additionally, whereas all solar installation inspections are performed by building inspectors in the U.S., in parts of Australia, the government has hired dedicated solar energy system inspectors whose role is to inspect all systems in a geographical area once a quarter or yearly. Read this article to learn more about how permitting and inspections work in the U.S.

Recently, problems with installed solar systems in Australia have begun to surface. According to various articles, consumers who anticipated 20 years of production and savings from their solar panel systems have seen their equipment malfunction, break, or reduce production sharply after only five years. The original solar energy systems installed in the U.S. are still operating smoothly after 20 years, so why is the same not true in Australia?

To a large degree, the lack of regulatory oversight has allowed for the cheap installation of sub-standard solar panel systems, from the solar equipment and components used in the installation to the actual installation of the solar panels. Interestingly, the same policy and market forces that have helped deliver inexpensive solar to Australian residents are also responsible for the issues observed with Australian solar installations. Though these policies have reduced the time to installation, they've also reduced the opportunity to catch installation errors or equipment issues.

While there are new techniques that the American solar industry can explore, such as finding ways to reduce the time required during the permitting process (check out this article on SolarApp+!) or by hiring dedicated solar installation inspectors, there's a balance to be struck to ensure that U.S. solar panel installations maintain a high quality and continue to produce electricity for decades to come.

Across the U.S., solar panel systems pay for themselves in about eight years. But the savings don't stop there: since solar panel systems produce electricity for 25 or even 30 years, you will continue to accrue savings for many years after the panels have paid for themselves. To see how much solar could save you, check out the free-to-use EnergySage Solar Calculator. If you're ready to take the next step, register to receive custom quotes on the EnergySage Marketplace from pre-screened local solar companies.