How Solar Panels Actually Work
Solar panels turn sunlight into electricity. The panels on your roof are made of silicon cells. When sunlight hits these cells, it knocks electrons loose. This creates an electrical current.
The current travels down a wire to a box called an inverter. The inverter changes the power into the type of electricity your home uses. From there, the power flows into your main breaker box to run your lights, appliances, and air conditioning.
If your panels make more power than your house needs at that moment, the extra electricity goes back into the local grid. Your utility company often gives you a credit on your bill for this extra power. This process is called net metering.
The Main Parts of a Solar System
A home solar setup has four main pieces of equipment.
- Solar Panels: These sit on your roof and generate direct current electricity.
- Racking: This is the metal frame that holds the panels securely to your roof.
- Inverter: This box converts the direct current from the panels into alternating current for your house.
- Electrical Panel: Your existing breaker box distributes the solar power to your outlets. You can learn more about how your home handles power in our Electrical guide.
What Solar Panels Cost
Prices vary widely based on your region, the size of the job, and the age of your home. A typical home system costs $15,000 to $30,000 before any tax credits. You can usually claim a federal tax credit that covers 30 percent of the installation cost. Learn how home upgrades impact your taxes in our Property Taxes & Home Finances guide.
Here are some rough estimates for different system sizes.
| System Size | Average Cost Before Tax Credit | Cost After 30 Percent Credit |
|---|---|---|
| 5 kW (Small house) | $13,500 to $17,000 | $9,450 to $11,900 |
| 8 kW (Average house) | $21,600 to $27,200 | $15,120 to $19,040 |
| 12 kW (Large house) | $32,400 to $40,800 | $22,680 to $28,560 |
The chart below shows average total costs for common system sizes before any tax incentives are applied.
Does Your Roof Make Sense for Solar?
Not every house is a good fit for solar panels. You need a roof that gets plenty of direct sunlight. Large trees, tall buildings, or steep hills can block the sun and ruin your energy production.
The direction your roof faces also matters. In the United States, a south facing roof gets the most sunlight. East and west facing roofs work too, but they produce slightly less power. North facing roofs generally do not get enough sun to make panels worth the money.
Buying vs Leasing Solar Panels
You have two main ways to pay for a solar system. You can buy it or you can lease it.
Buying the system with cash or a solar loan is almost always the better financial choice. You get the federal tax credit, the panels add value to your home, and you eventually own the equipment free and clear.
Leasing a system means a company installs the panels for free, but they own the equipment. You buy the power the panels produce at a set rate. Leasing can cause big headaches later. Buyers often do not want to take over your lease if you decide to move. Check out our Selling Your Home guide for more tips on making your house attractive to buyers.
The Payback Period: Will You Save Money?
The payback period is the time it takes for your energy savings to equal the cost of the system. For most homes, this takes 6 to 10 years. After that period, the electricity your panels produce is essentially free.
To figure out your payback period, divide the total cost of your system by your yearly electricity savings. If you pay $20,000 for a system and save $2,500 a year on your power bill, your payback period is 8 years.
Finding a Good Installer
A good installer makes all the difference. Look for companies that have been in business for at least five years. Ask for references from local homeowners. Make sure the company handles all the permits and paperwork with your utility company.
Always get at least three quotes before you sign a contract. Compare the equipment they offer, the warranties, and the total cost per watt. For advice on vetting pros, read our Hiring Contractors & What Things Cost guide.