From heating a swimming pool to warming the entire house, solar panels have become an increasingly popular alternative energy source.

Once prohibitively expensive, the cost to purchase and install solar panels has come down dramatically and prices are expected to continue to decline by as much as 10% this year, said Mike Bernier, a senior manager with Ernst & Young's national tax practice.

For example, a five-kilowatt residential solar system that can heat an average-sized house is projected to cost between $25,000 and $30,000 this year, compared to $35,000 and $42,000 last year.

The payoff can be big (over time): tax credits can help pay for as much as 30% of the cost, while annual energy bill savings can total in the thousands.

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