Will Rooftop Solar Be Cheaper in 2023?

In November 2022, the National Renewable Energy Laboratory (NREL) published its analysis of the cost of solar and energy storage (battery) system installations for the first quarter of 2022. The data shows higher solar prices compared to expectations. In fact, analysts noted that “extreme market conditions in 2021 and the early months of 2022 may have added some 13-15% in costs to solar prices beyond what long-term trends would have predicted.”

For residential rooftop PV, using an average system size of 7.9 kW, the minimum sustainable price (MSP) calculated by NREL was $2.55 per Watt (DC).

The more useful metric, though, for homeowners looking to install solar is the NREL’s modeled market price (MMP), which is an estimate of national average sales prices under market conditions. For the first quarter of 2021, the MMP across the US was $2.95 per Watt (DC).

What makes up the cost of home solar?

The cost of home solar is made up mostly of soft costs. These include costs for:

• Permitting
• Sales tax
• Interconnection and inspection fees
• Transmission lines
• Profits
• Other overheads.

If you live somewhere where there’s no sales tax (Alaska, Delaware, Montana, New Hampshire, and Oregon), or where home solar is exempt from sales tax (such as Colorado and New Jersey), your upfront costs will be far lower. Similarly, some cities and states have regulations that limit the cost of permits for home solar and put a cap on how much a utility can charge for interconnection (Colorado and California, for example).

The NREL collects data using a bottom-up cost modeling approach. This is much more accurate than online estimates from companies trying to sell homeowners solar. The NREL’s data comes from third-party research organizations, PV installers and integrators, advocacy groups, intergovernmental organizations, government agencies, and other stakeholders.

How much home solar cost in 2021 and 2022 (and how much it might cost in 2023)

The modeled market price (MMP) given by the NREL for Q1, 2022, was 2-12% higher than for Q1, 2021. Put another way, if your neighbor installed solar in January 2021 for $30,000 and you installed the exact same system using the same installer in January 2022, chances are you paid $600-$3,600 more.

We don’t have data yet for the rest of 2022, but if market conditions continued to be extreme, it would be reasonable to assume similar increases in cost. That means home solar in January 2023 might cost another 2-12% more than in 2022. Using the same example as above, in real terms, home solar costs might follow the trend below:

• Home solar installed January 2021 – $30,000
• Same system installed January 2022 – $33,600
• Same system installed January 2023 – $37,632.

However, we have started to see inflation fall, and more people are being trained to install solar, with huge investments from the federal government. In addition, many serious supply-chain issues have already been resolved, including a ban on imports of solar modules.

The UK-based market observer IHS Markit offers various forecast scenarios for 2022 and beyond, all of which predict a decrease in the cost of home solar. Even their most conservative model suggests a 4-20% decline in costs from 2022 to 2038, with more optimistic models calling for the cost of solar to decrease by more than 50% between 2022 and 2038.

Part of the cost reduction comes from an expected influx of polysilicon solar modules with higher efficiencies. Supply chain issues and power restrictions in China are predicted to ease in 2023, and passivated contact cells (TOPCon) or Heterojunction (HJT) technology will reduce the cost per Watt in 2023 and beyond.

IHS Markit also predicts a significant drop in the cost of battery storage during early 2023. This would bring the cost of solar storage well below levels seen in 2022 where supply chain issues saw prices skyrocket.

In real terms, that might mean the $30,000 system installed in 2021 could actually cost something akin to $32,256-$26,880 in 2023 and beyond.

Final thoughts on the cost of home solar in 2023

All in all, home solar remains a good investment for most homeowners, especially in areas with higher electricity prices (such as California, Hawaii, Connecticut, Massachusetts, Rhode Island, and Alaska). Many states, cities, and utilities still offer generous rebates, tax credits, and other solar incentives, including net metering. Some states, cities, and utilities are adding further incentives for battery storage connected to the grid.

In addition, 2022 saw the federal government reinstate and increase the federal solar investment tax credit (ITC), meaning many homeowners can claim 30% of the cost of home solar on their personal income tax when filing for 2024. This can significantly reduce the solar payback period, meaning free electricity for years to come.

For a home solar energy system installed in 2023, we’re predicting a U.S. national average cost of $2.65 per Watt (DC). For a 5 kW system, this works out to an average cost of $13,275. Knock off 30% for the tax credit and homeowners could pay less than $10,000 to go solar in 2023.