What is the Cost of Using Solar Energy: The Real Cost of Solar Power System For Home and OFF-Grid Revealed

English: solar PV - Second largest Array in UK
English: solar PV – Second largest Array in UK (Photo credit: Wikipedia)

A techno-economic assessment will prove the economic feasibility and sense of buying a solar electric system.

First, let’s consider grid-tied systems.

If you are planning to buy, build yourself or have built a grid-tied system, such an evaluation should, by all means, take into account the expected future price of grid electricity over the period of the guaranteed solar system lifecycle, along with any potential income from other existing investment options.

The evaluation of a grid-tied system will provide you with enough data to compare the overall net income of your investment in solar PV system with other existing alternative options to invest your money taking into account:

  • price of solar hardware
  • installation costs
  • annual operational expenses
  • generated ‘free’ solar energy offsetting these expenses.

By assessing how much money you can save from solar electricity you can take an informed decision whether it is worth investing in solar electricity or your money would be better invested in other financial instruments, i.e. bank accounts or other possible investment options you can find at your disposal.

First of all, by performing a techno-economic assessment, you are going to find out:

  • What is the cost of using solar energy
  • How to calculate total solar power you need to use and install
  • How to determine how much area you need to install your PV modules and which type of PV modules to choose taking into account:
    • Your solar installation area
    • Various types of modules available on the market
    • Your budget

Once you have chosen your type of PV module, you will find out how to calculate how many PV modules you need to install and the overall cost of your solar system.

Then you are going to find out:

  • How to calculate your solar energy production costs
  • How much you can save by a PV system over its guaranteed life cycle
  • The payback period of your system.

The peak photovoltaic power needed to be installed on your roof can be calculated by the formula:

Installed solar power, Wp = Daily energy target /( PSHx SLF)


Installed solar power refers to the solar power measured in Watts peak. This is the power that a solar panel produces under STC/ standard test conditions/. Usually, real conditions differ from standard test conditions and the actual produced solar power is lower than one generated under STC.

Daily energy target, Wh is the daily electrical energy usage in Wh

PSH is the peak sun hours available at your location. PSH should not be mistaken with available sun hours at your location. Actually, PSH is the solar insolation at your place measured with respect to maximum peak solar radiation of 1KW/m2. PSH is easily defined by means of solar maps. For the USA use the following link to define the PSH at your location:


SLF stands for system loss factor which takes into account the energy losses of your system. For example, if total losses of your solar power systems amount to 25% the SLF factor would be 75%. Put in other words,  SLF reveals how efficient is your solar system in propagating the energy from its input, i.e solar panels to your appliances.

This formula, however, can be expressed otherwise:

 Daily energy target, Wh = Installed solar power, Wp x PSH x SLF

Let’s assume you have an area on your roof, enough to install 30 solar modules, of rating 150 Wp each. The installed ‘peak’ solar power of the PV array is:

Installed solar power = 30 modules x 150 Wp each =

= 4,500 Wp or 4.5 kWp

If you assume system losses factor for your grid-tied system 0.75, and the average annual value of PSH for your location is 4, then the 30-module solar array will generate:

Installed solar power x PSH x SLF = 4.5 kWp x 4 x 0.75 = 13.5 kWh of energy daily

Your possible next step can be to estimate how much money you would get for this amount of energy.

If you get paid for the electricity you export to the grid  $0.08 per kWh, then each day you will get on average:

13.5 kWh x $0.08 per kWh = $1.08,

which means that per year you will get:

365 days x $1.08 per day = $394.2

If you multiply the daily energy offset target by the electricity residential rate, you will get the money you could save by implementing a grid-tied solar system.

If your daily energy target is 7.7 kWh and the residential electricity price is $0.07 per kWh, then you are going to save

7.7 kWh x $0.07 per kWh = $0.54 per day


$0.54 x 365 days = $197.1 per year

By comparing these two values you can estimate which option is the preferred one for you:

  • Either export the whole solar energy generated to the grid, and get paid while still using grid electricity and cashing on the difference, or
  • Export just the surplus of solar energy generated during some hours of the day to the grid to offset the money you pay the grid when solar energy is not available, i.e. at night.

It should be noted that annual electricity production might vary from year to year due to natural variations in weather and climate.

If your utility offers net metering, you will probably get paid the full retail price for the excess electricity produced by the PV system

Now, let’s deal with stand-alone systems.

You will find out how the maintenance cost of a stand-alone system is calculated by the example below.

Let’s have as an example the following stand-alone system:

  • 840 Wp installed solar power,
  • 1,012 kWh annual energy output or 2,770 Wh daily energy output,
  • It is able to charge a 24V-battery bank with a capacity of 470 Ah.

The system will require an inverter with rated continuous power of at least 840 W.

If your stand-alone system contains an inverter, it should be replaced after 12-15 years of operation. So, if a stand-alone system has a lifespan of 25 years, the cost for inverter replacement should be included in the maintenance cost.

If we assume inverter cost of $1 per watt, based on the needed inverter with 840 W rated continuous power, the inverter replacing the old one will cost:

840 W x $1/W = $840.

Such a price distributed over 25 years of operation will result in average inverter maintenance costs per year as follows:

$840 / 25 years = $33.6 or about $34.

More important however are battery maintenance costs.

A lead-acid battery is to be replaced after every 5 years of operation.

At the moment a typical battery price is $1 per Ah.

So, the task is to calculate the costs for batteries during the stand-alone system’s lifecycle.

if the battery cost of $1 per Ah is assumed, for the next 25 year of the system lifecycle the costs for a battery bank of 470 Ah would be:

470 Ah x ((25 years-5 years) /5) x $1/Ah = $1880.

Herein we assume that the first 5 years of operation are included in the installation cost, so they are disregarded when calculating the maintenance cost of the solar power system

Such a cost distributed over 25 years of operation will result in the following average battery maintenance costs per year:

$1880 / 25 years = $75.2.

Furthermore, we could assume an MPPT charge controller with an estimated price of $700.

MPPT charge controllers come with a typical warranty of 5 years. We could assume that you would need at least one additional charge controller for replacement.

Hence, the additional MPPT charge controller average annual maintenance costs would be:

$700 / 25 years = $28

The total average annual maintenance cost of an off-grid system comprising a battery, an inverter and an MPPT charge controller would be:

Total average annual maintenance costs =

= Average annual inverter maintenance costs + Average annual charge controller maintenance cost + Average annual battery maintenance costs = $34 + $75.2 + $28 = $137.2

 The next question is how to calculate energy production costs.

For a grid-tied solar power system without power backup, to calculate how much money you can save by selling electricity to the grid you need to assess your costs for producing solar electrical energy.

For a stand-alone solar power system, however, the most important is to buy a system that matches best your daily energy consumption target. Then on the basis of the cost of the energy generated, and on the basis of a large amount of money saved from paying for utility interconnection, you can calculate the money you save from being off the grid.

The energy production costs averaged over the lifespan of the off-grid solar system are calculated as follows:

Solar electricity production costs =

[Solar system initial cost + (System lifespan x Operating costs per year)]/(Annual solar electricity production x System lifespan)

PV system initial cost, a.k.a. CapEx, is the cost for implementing the whole system, including site survey, system design, construction works, obtaining permits, equipment delivery and installation, and system commissioning

  • System lifespan is assumed 25 years
  • Operating costs, a.k.a. OpEx per year, are system maintenance costs. The most essential part of the operating costs is related to battery and inverter replacement. During a 25-year lifecycle, the inverter should be replaced at least once, the charger controller might be replaced at least once, while the battery should be replaced every 5 years.

Costs for implementing an off-grid system are always higher than costs for implementing a grid-tied system without power backup due to the higher complexity of the former.

If system implementation cost is estimated $7 per watt-peak and the installed solar power is 840 Wp, the initial cost of the solar system is:

$7/Wp x 840Wp = $5,880.

Furthermore if:

  • System lifespan is 25 years,
  • The yearly generated energy is 1,012 kWh under existing environmental conditions, and
  • OpEx is $137.2 as described in the section about calculating showing the average annual maintenance costs,

the energy production costs over total lifespan of the solar system are calculated as follows:

Solar electricity production costs =

= [Solar system initial cost + (System lifespan x Operating costs per year)] / (Annual solar electricity production x System lifespan) =

= [$5,880+ (25 years x $137.2)] /(1,012 kWh x 25 years) = $0.37kWh,

which results in annual costs incurred by solar-generated electricity as follows:

Annual solar electricity production x Energy production costs =

= 1,012 kWh x $0.37/kWh = $374

Now, it’s time to asses how much you could save from being off the grid.

Let’s say you have to pay $8,000 to get connected to your local utility grid. Let’s also assume the current grid electricity price of $0.125, along with a 5% rate of increase thereof.

So at the and of the first year, the electricity price will be $0.125 and during the 25th  year the grid electricity price will be $0.42.

So after calculating in Excel, we get $6,038.

So, the total cost for getting connected to the utility grid and use the grid electricity to cover your daily energy needs would be:

$8,000 + $6,038 = $14,038.

The just calculated value is actually the total savings from being off the grid during the system’s lifecycle.

Your annual spend on-grid electricity would be

$14,325 /25 years of operation = $561.52.

The just calculated value is actually the annual savings from being off the grid or in other words your potential annual expenses on-grid electricity.

As a follow-up of the above example, your annual cost incurred by solar-generated electricity would be:

Solar electricity production costs x Annual solar electricity production = $0.37/kWh x 1,012KWh = $374.

So, within a 25 year period you would save annually:

Annual spend on-grid electricity – Annual costs incurred by solar-generated electricity = $561 – $374= $187.

Here comes the ultimate question: what is the payback period of an off-grid system?

Considering the above examples, if solar system implementation costs are $5,880, and your potential annual expenses on-grid electricity are $561, the payback period of the solar system, compared to the situation if you were connected to the grid, would be:

System payback period, years =

[Solar system initial cost + (System lifespan x Operating costs per year)] / Annual spend on-grid electricity = ($5,880 + (25 years x $137)) / $561 = 16.58 years.

If your odds to be connected to the grid however are from zero to none, and hence calculating payback period in regard to the grid does not suit you, you might want to explore the payback period of your off-grid system with included maintenance expenses. In such a case the payback period of your system would be:

System payback period, years =

[Solar system initial cost + (System lifespan x Operating costs per year)] x Annual cost incurred by solar-generated electricity = ($5,880 + (25 years x $137)) / $395 = 25 years.

If the herein provided method for estimating the feasibility of your investment in solar energy looks kind of cumbersome, you can use our handy, simple, and fast online calculator included in the Gold Package for advanced evaluation of off-grid systems. Click Here to Discover More about Solar Gold Package.

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Lacho Pop, MSE, holds a Master's Degree in Electronics and Automatics. He has more than 15 years of experience in the design and implementation of various sophisticated electronic, solar power, and telecommunication systems.  He authored and co-authored several practical solar books in the field of solar power and solar photovoltaics. All the books were well-received by the public. You can discover more about his bestselling solar books on Amazon on his profile page here: Lacho Pop, MSE Profile