Solar panels are not inexpensive. That said it's important to compare them within context of other types of home improvement projects. Home buyers and realtors view a solar system or solar hot water heater as a significant value-added improvement – similar to adding a deck or remodeling your kitchen. On top of that, unlike a deck or kitchen remodel, you also gain one-up on your power bills.

Solar panels often get an additional financial boost as well: many jurisdictions and utilities across the USA offer attractive financial incentives to drive down the upfront capital costs associated with a solar panel.

Here are some foolproof ways to estimate the cost of a solar photovoltaic system and to figure out if a solar panel makes sense for you.

To get started with, it's good to have a sense of how much electricity you use. You'll have a better point for comparison if you find out how many kilowatt hours (kWh) you use per day, per month, per year. Your utility bill should include that information.

Of course, the utility bill will also display your costs and many utilities include a graph that displays how your monthly energy use/cost varies throughout the entire year. That helps you estimate where your highest energy use is and at what time of year.

Size your solar power system:

In general, home solar power systems sized between 1 to 5 kilowatts are usually sufficient to meet the electricity needs of most homes. One advantage of grid-tied systems is that you can use solar PV to supplement or offset some of your electricity needs; therefore you can size your system to match your budget and always add to the system later if needed.

Also as a side note, here's a rule of thumb to keep in mind to help you estimate the physical space your solar system might need: one square foot yields 10 watts. So in bright sunlight, a square foot of a conventional photovoltaic panel will produce 10 watts of power. A 1000 watt system, for instance, may need 100 - 200 square feet of area, depending on the type of solar module used.

Although the cost for a solar power system will depend on the size of the system you intend to install, your electricity rate, the amount of kilowatt hours you expect to generate, and the state/local rebates/tax credits that may be available, the formulas for calculating the returns are pretty much the same.