Calculate Your Solar Panel Payback Period (How Long To Recoup the Costs?)

Calculate Your Solar Panel Payback Period (How Long To Recoup the Costs?)

Here’s what we’ll cover in this guide:

  • What is the payback period of solar panels?
  • Can you recoup all the costs of solar panels?
  • How to calculate your solar payback period?
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Note: In July 2024, SunPower notified dealers it would be halting all new shipments and project installations. The company also noted it would “no longer be supporting new Leases and PPA sales nor new project installations of these financing options.”

What is a Good Payback Period for Solar Panels? + How to Calculate

Solar panel installations are often seen as an investment, so it’s no surprise you are probably wondering when would you see your return of investment (ROI) on going solar. For most homeowners in the U.S., it takes roughly 11 years to break even on a solar panel investment. For example, if your solar installation cost is $16,000 and the system helps you conserve $2,000 annually on energy bills, then your payback period will be around eight years (16,000/2,000 = 8).

To put it a little differently, the solar payback period represents the time it will take for your utility savings to eclipse your initial investment cost. It is at this point that you might say the solar panel system has “paid for itself.”

Keep in mind that there are a number of basic determinants that go into calculating solar payback periods, including installation costs, interest rates if you’re taking out a solar loan, applicable tax credits and solar rebates, and energy bill savings. The latter is always going to be relative to the costs of electricity in your region, so areas that have higher utility costs tend to have slightly shorter payback periods.

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Blue Raven Solar

Best Solar Financing

Regional Service

EcoWatch rating

Average cost

Pros

  • Industry-leading in-house financing
  • Competitive pricing
  • Excellent reputation

Cons

  • Doesn't offer solar batteries (coming 2022)

Average Solar Panel Payback Period in the U.S.

Though the average solar panel payback period is somewhere in the eight- to 12-year range, this can vary quite a bit from home to home. For some, it may be as little as five years. For others, it may be as long as 15 years. Local electricity costs and state-specific financial incentives, such as tax credits, solar rebates or net metering programs, are determinative factors.

What’s Considered a Good Payback Period for Solar Panels?

One way to determine whether you’re getting a good return on your solar energy investment is to look at the entire lifespan of your system. Most residential solar systems last between 25 and 30 years. If your payback period is 11 years, you’ll be “making money” on the system for 14 to 29 years.

Most solar industry experts say that if your solar panel payback period is less than half the life of your system, it’s a decent investment. Another thing to keep in mind is internal rate of return, or IRR. Basically, think about what would happen if instead of investing in solar power, you placed your money into a more traditional financial investment.

How well would that investment have to perform in order for it to be more financially advantageous than a solar system? Depending on your investment strategies, solar panel installations may or may not offer a higher ROI than purchasing stocks, real estate or other investments. It’s important to weigh IRR carefully to ensure the most prudent decision.

The best way to get an accurate assessment of your solar payback period is to connect with a solar provider near you and request an estimate. Get started below to connect with one of our preferred partners.

How to Calculate Your Solar Payback Period

While it is impossible to calculate your exact solar panel payback period, getting a quote from an installer will allow you to make a fairly accurate, well-informed estimate. Here’s how to do it:

  1. Calculate or get a quote for your overall total system cost. Talk with a solar installer near you to determine the gross upfront cost of your system. Note that this will be dependent on the size of the system as well as the type of equipment you need and add-ons like solar battery storage.
  2. Factor in the federal tax credit and any applicable local rebates or credits. These financial incentives can dramatically reduce your solar expenses. In particular, the federal tax credit enables you to deduct 30% of the total installation cost on your tax return. This is above and beyond any state- or city-specific incentives. Don’t forget about solar renewable energy certificates (SRECs) from net metering programs.
  3. If financing solar panels, factor in any fees or additional associated costs. If you’re taking out a solar loan to pay for your system, you’ll need to account for any other expenses associated with the loan.
  4. Calculate your average annual electricity consumption and costs to determine the amount you’ll save on energy by switching to solar. Solar installers will do their best to create a system that matches your electrical consumption, but there are a lot of variables to think about, including seasonal shifts. Even so, knowing about how much you spend on electricity each year can give you a decent sense of your potential savings.
  5. Take into account the rate of increase. In calculating the cost of electricity, remember that local rates may increase over time. You can always call your utility company and ask about any expected increases, or look at bills from past years to determine previous rate increases.
  6. Divide the cost of the system (including financial incentives) by the annual amount you’ll save on electricity bills. This will tell you roughly how many years it will take for you to recoup your initial investment. Beyond that, every month that you run your solar system can be counted as financial gain.

The best way to get an accurate assessment of your solar payback period is to connect with a solar provider near you and request an estimate. Get started below to connect with one of our preferred partners.

 

The cost information presented in this article is derived from a comprehensive analysis, incorporating data from multiple industry sources. The average cost per watt per state was calculated based on figures from Consumer Affairs, Energy Sage, and Berkeley Lab’s Electricity Markets & Policy Department. Additionally, monthly energy consumption and the average monthly cost of electricity were sourced from the U.S. Energy Information Administration, ensuring a well-rounded and accurate representation of the information presented.

Frequently Asked Questions: Solar Panel Payback

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Article author
Writer and editor with more than a decade’s experience in journalism. Josh worked for Christianity Today for seven years, and has contributed to special assignments for Apple Music and iTunes. Josh lives in Knoxville, Tennessee with his wife, Kati, and two sons, Henry and Dylan.While he mainly focuses on musical journalism he is excited to save the earth on article at a time through sustainability best practices articles as well.
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Expert reviewer
Melissa is an avid writer, scuba diver, backpacker and all-around outdoor enthusiast. She graduated from the University of Florida with degrees in journalism and sustainability studies. Before joining EcoWatch, Melissa worked as the managing editor of Scuba Diving magazine and the communications manager of The Ocean Agency, a nonprofit that’s featured in the Emmy award-winning documentary Chasing Coral.

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