The price of solar has plummeted nationwide over the past decade, and costs in California are no exception. The typical cost of a home solar power system in California was $21,786 in the second half of 2023, based on the average system size of 8.1kW and median cost per watt according to data from EnergySage, a solar and home energy product comparison marketplace. The federal solar tax credit could potentially reduce that cost by as much as 30%, bringing it down to $15,250. Among the 42 states EnergySage surveyed, California had the lowest typical installation costs.
Solar costs for each household will vary depending on your energy use and your location. Solar in San Francisco will probably cost more per watt than in Fresno — but in Fresno, you’ll likely need more watts to cover your summer air conditioning use, so your total cost to install a solar power system might be higher.
Policies also affect the cost of solar and whether it makes sense for your home. California’s solar policies have recently been subject to some shake-ups that are changing the home solar equation, but the long-term savings can still be significant. The savings remain higher than in much of the nation, in part because of California’s higher-than-average electricity costs.
Typical cost of home solar system before federal solar tax credit
Typical cost of home solar system after federal solar tax credit
Source: EnergySage, a solar and home energy product comparison marketplace founded in 2012. Data is from the second half of 2023.
Costs and trends in California
According to EnergySage, the average solar power system size in California in the second half of 2023 was 8.1kW, more than enough to cover the state’s average monthly household energy consumption of 451 kilowatt-hours (kWh)[0]. Among the 42 states EnergySage surveyed, California had the smallest average system size. Kentucky, by contrast, had the largest average system size in the second half of 2023 at 14.5kW.
The cost of solar installations in California has been trending down, which is especially welcome as the state faces some solar policy headwinds.
California ranked No. 2 among states that installed the most solar capacity in 2023, behind Texas, according to data from the Solar Energy Industries Association[0]. Its abundant sunshine, high electricity and historically favorable solar policies have long made it a popular place for installing solar, though recent policy changes have slowed growth.
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Tax incentives, rebates and policy in California
The biggest incentive California homeowners have access to is the federal solar tax credit, also known as the Residential Clean Energy Credit, which provides a credit of up to 30% of the cost of your solar power system.
In the past, the California Solar Initiative (CSI), which started in 2006, provided cash incentives to Californians for installing solar. This program closed in 2016, after meeting its ambitious goal of installing 2,000 megawatts of rooftop solar in California.
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In California, adding a solar power system to your home won’t increase your property taxes, even if it increases your home’s value[0].
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California’s Solar Rights Act protects homeowners from certain restrictions imposed by homeowners associations on installing solar[0].
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The state has programs for low-income households, which will be expanding with the recently announced $7 billion Solar for All investment from the Biden administration[0].
But recent changes have made going solar in California less cost-effective than it used to be. These changes affect net metering (NEM), a billing mechanism that gives you credit on your electric bill for any unused electricity your system sends back to the power grid.
In recent years, the net metering credit in California has been decreased for new solar customers. This means that when you produce more electricity than you use, utility companies will buy it back at a much lower price than they used to.
California is now on its third version of net metering, known as NEM 3.0, or more officially as the Net Billing Tariff (NBT), which was implemented in April 2023. Far less favorable for solar than previous versions, the NBT represents the biggest cut to NEM credits so far in the U.S., having slashed the credit by about 75%. That translates into a longer expected payback time for an average California residential solar installation of nine years or more, compared to four to seven years before the NBT, according to one analysis[0]. However, rapidly rising electricity costs coupled with falling solar costs could help shorten the payback time again.
Following changes in net metering policy, growth in California’s residential solar sector has slowed. In the first quarter of 2023, the California Solar and Storage Association reported 400 megawatts of solar residential interconnections (when solar panels are connected to utility grids) in the state before the NBT took effect; in the first quarter of 2024, it reported just 144 megawatts.
Other policy changes are afoot in California that could affect the cost-effectiveness of solar. In May 2024, state regulators decided to allow utility companies to charge a flat rate to all electric bills of up to $24.15 a month, even for those whose bill would otherwise be $0 because of solar.[0]. Solar advocates say this added fee will be a disincentive for residential solar in the state, and in 2024 another bill, Assembly Bill 1999, was introduced to cap this fee[0]. California solar policy remains volatile, so it’s a good idea to check where it stands before deciding whether to go solar.
Energy storage in California
Energy storage can help offset the lower NBT credit, leading to a much faster payback. Home solar batteries are still expensive, at an average cost of $7,706 in California after the federal tax credit, according to EnergySage[0]. The good news is that incentives can lower this cost, and Californians have more reasons than ever to install batteries along with their solar power systems:
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Batteries improve the economics of home solar under the NBT, because instead of sending excess energy back to the grid at a lower credit, you can store the energy to use later.
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With more heat waves and wildfires in the state causing blackouts, batteries provide reliable energy backup. Solar alone won’t keep your home powered during an outage, because systems are designed to shut off if there’s an outage to ensure the safety of utility workers.
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If you’re in an area with time-of-use (TOU) electricity rates, a battery can help you avoid using energy from the grid at times when it’s more expensive.
To ease the cost burden, California provides an incentive for installing batteries, the Self-Generation Incentive Program (SGIP). SGIP provides battery rebates of about $1,500 to $2,000, which your installer will usually apply for on your behalf.
Since the Net Billing Tariff took effect a year ago, more Californians have been installing energy storage with their solar. Systems installed with storage attachments In the California residential solar market increased to 60% under NBT from 10% under the previous net metering policies, according to 2024 analysis from the Lawrence Berkeley National Lab. [0]
Barry Cinnamon, CEO of California solar company Cinnamon Energy Systems, says his business has seen a dramatic increase in battery sales.
“Under the NBT, the reimbursement rate from utilities when excess solar is being sent back to the grid is about 3 cents per kilowatt-hour, compared to about 40 cents per kilowatt-hour under NEM,” Cinnamon says. “So the only way for homeowners to maximize the daytime benefits of their solar during the day — when they are usually not home — is to store that energy in their own batteries and use that energy in the evening when rates jump to about 65 cents per kilowatt-hour.”
Like solar costs, battery costs are expected to keep falling, and technologies are constantly improving. Some utilities in California are offering demand response programs, which help avoid strain on the power grid by incentivizing customers to shift their energy use to times when demand is lower. In the future, you may be able to make money with a home battery through programs like these.
Read more about solar panel costs, incentives and policies in these states:
Can I get financing for a solar panel system?
In addition to tax incentives and rebates, there are options available. Many solar installers offer financing, but you may also be able to finance your solar investment through a home equity loan or home equity line of credit (HELOC). These options may have lower interest rates than financing with an installer, future opportunities for refinancing and possible tax benefits.
Home equity loans and HELOCs are ways to borrow against the value of your home, converting equity into cash. With a home equity loan, you receive a lump-sum payment and then pay it back at a fixed interest rate over an agreed period of time, typically from five to 30 years. HELOCs are more akin to a credit card, something you use as needed. You’ll usually have 10 years to draw from the line of credit, during which time you only have to pay interest, and after that you pay both the principal and interest. HELOC interest rates typically are variable, meaning your monthly payment could rise or fall over time. And with each of these options, you’re using your home as collateral.
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Another option is a solar loan. Many banks, credit unions and online lenders offer these to fund solar panels and installation, with amounts typically from $1,000 to $100,000, and annual percentage rates ranging from 6% to 36%. They function like a personal loan: you receive a lump sum and repay it in equal monthly installments over a set period, typically two to seven years. And unlike with home equity financing, there is no collateral required for a solar loan. This means your home or solar panels aren’t at risk if you miss payments, but you may have to pay late fees.
So, yes, you likely can get financing. If you go this route, compare interest rates, terms and fees with any financing package that a solar provider may offer you to ensure you get the best deal.
Frequently asked questions
How can I determine what solar will cost for my California home?
To get an idea of actual costs for solar, you can contact local solar installers and get free quotes. They’ll start by looking at your electric bill and an online view of your house to get you an initial quote, before making a site visit to check things like the condition of your roof.
What’s the difference between NEM and the NBT?
Under net metering, or NEM, the solar-generated electricity you send back to the grid is compensated at a retail rate. Under the net billing tariff, or NBT (also known in California as NEM 3.0), the electricity you send back to the grid is compensated according to a complicated formula that takes into account the value of that electricity to the grid at the time when it goes back to the grid. Your system will send the most electricity to the grid during the middle of the day, when the power grid in California already has a lot of energy coming into it because of the large amount of solar in the state. That means it will be considered lower-value and credited at a much lower rate than it would have been under NEM.
Can I install solar now and add a battery later?
Yes. If energy storage isn’t right for you at the moment, you can still go solar now and add a battery later when costs come down.
