solar panels payback

How Long Does it Take For Solar Panels to Payback?

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A solar power system's "solar panel payback period" is the length of time it will take for you to recoup the initial investment via monthly savings on your electricity bill.

It is determined by deducting the solar incentives and/or rebates from the total cost of installation and adding the savings on monthly power bills until the system is paid off.

solar panels payback

Key takeaways

  • Costs associated with solar panels are offset over time by savings on power bills and, in certain situations, by incentive payments.
  • In the United States, the typical payback period for solar panels is 5–15 years.
  • The rate at which your solar panels pay for themselves is influenced by a number of factors, including the initial cost, the cost of power from your utility company, and any subsidies you may be eligible for.
  • A solar panel system may cost $16,000, but with rebates and discounts, it would only cost $11,200. If your solar panels produce enough energy to offset your annual power bill by $1,500 and electricity costs remain stable, your payback time will be about 7.5 years.
  • Return on investment for residential solar panels in the United States, on average, in the year 2022
  • Depending on where in the United States you reside, you may anticipate your solar panels to pay for themselves in 9–12 years.

Payback times for solar energy systems may be as little as five years in certain places, such as Hawaii and Massachusetts, but can take as long as sixteen years or more in others, such as Louisiana and North Dakota.

The longer payback periods in certain states are not solely due to their lower average annual sunshine hours. The primary factors are the financial savings from using solar energy and the availability of financial incentives for homes to make the switch. The age and type of the roof, the quality of the equipment, and the method of payment (cash vs. Solar loan) are other important considerations.

Use our cutting-edge solar panel calculator to calculate the total price of installing solar panels on your home's roof, as well as any applicable rebates and how quickly you can expect to see a return on your investment. Using solar output statistics from the National Renewable Energy Laboratory, the app will provide you with utility costs from the U.S. Energy Information Administration and real-time cost information from installers around the nation.

What is considered a good solar payback period?

Most contemporary brands of photovoltaic solar panels are guaranteed to survive for at least 25 years in the field. Any payback period shorter than around half that, or 12.5 years, is deemed "good" when compared to that lifespan.

Internal Rate of Return, or IRR for short, is a more crucial term than payback time. The internal rate of return (IRR) provides a numerical response to the question, "Given the projected future benefits of this investment, what rate of return on another investment would be required to be on par with this one?"

The internal rate of return (IRR) is used in the solar business to evaluate the profitability of solar installations in relation to other common investment strategies.

For instance, the average annual internal rate of return (IRR) for long-term investments in a diversified stock index fund is 8%. In a state like Virginia, where a residential solar system has a payback period of around 12 years, the internal rate of return (IRR) is roughly 8%.

Fortunately, several regions, particularly those in the northeast and California, with high power prices, offer a better IRR and payback time than Virginia.Massachusetts, New Jersey, California, and New York residents, for instance, may anticipate internal rates of return (irrs) of 16–20 percent, which is twice or more than the average return on a long-term index fund.

What factors need to be considered to calculate an accurate solar payback period?

Your solar system's payback time is affected by five main factors:

  1. How many solar panels you need depends on your average annual household power use.
  2. Complete price of the system
  3. Incentives, rebates, and the federal tax credit for solar energy
  4. Create energy using just the sun's rays.
  5. The price of energy and its pace of rise

Using an example solar payback estimate and the information provided below, we can see how long it would take for a home in California to break even after installing solar panels and being connected to Pacific Gas & Electric.

Step 1: Average electricity usage for your home

Knowing how much of a solar panel system you need is the first step in calculating your solar payback. Taking your typical annual electricity use into account can help you create a solar power system that will more than cover your needs.

solar panels payback

Example 1:

Assume our hypothetical house uses 10,000 kwh of electricity per year.pvwatts estimates that in Bakersfield, California, one kilowatt (kw) of solar panels will produce around 1,700 kwh annually. The system size is around 6 kw when 10,000 is divided by 1,700.

Step 2: Total system cost before incentives

The next thing to do is to calculate how much money your system will cost. This is the total cost of installing solar panels before any rebates or tax credits are applied. It is the base amount from which we will deduct our savings to arrive at an estimate of how long it will take to recoup our initial investment.

Example 2:

The average price of a 6-kilowatt (kw) residential solar system in the United States in January 2022 was roughly $2.85 per watt, or $17,100 before rebates and tax credits. In our hypothetical case, the homeowner would need to either come up with that sum out of pocket or take out a solar loan for about the same amount.

Step 3: solar incentives, rebates, and the federal tax credit

A major perk of switching to solar energy is the sizable tax deduction you'll get at the end of the first year. A tax credit of up to 30 percent of the amount you actually spent on the installation is available.

Solar rebates and performance-based incentives are only two of the many types of solar financial incentives offered by several jurisdictions.

To determine how much solar panels will really cost you, take the system's total price and deduct any rebates or tax credits that may be applicable.

Example 3:

Our Bakersfield contact is in an ideal location for solar panels. In fact, the state of California is so prosperous that many of the incentives that were formerly necessary to kickstart the business are no longer accessible.

Most solar discounts in California, for example, were phased out before 2014, although they contributed to lower solar panel prices for everyone by kickstarting the sector. But don't worry! There is no change to the 30% solar tax credit.

If the 6-kw system were to cost the owner $17,700 up front, they would be eligible for a tax credit of $5,310. This brings the total price of the system down to a mere $12,390. With that figure, we can begin deducting the money we save on our monthly energy bill.

Step 4: Energy production from your solar system

This next step is straightforward but critical.

To calculate your system's capacity, multiply the annual energy output of 1 kw of solar panels by the amount of kilowatt-hours that your array can generate while exposed to full sunlight. Multiply it by your utility's per-kwh rate to get your total cost.

Example 4:

As we said before, each kilowatt of solar panels in Bakersfield may provide over 1,700 kilowatt-hours (kwh) of power per year. In turn, if you increase it by the 6 kw of our system size, you get an estimate of 10,200 kwh per year that our buddy may anticipate generating from their panels.

Step 5: Cost of electricity and rate of increase in that cost

In this respect, we have now arrived at the point of no return. The annual cost of your system may be calculated by multiplying the amount of kwh it will generate by the rate per kwh charged by your utility company in a state that allows net metering. Using that figure, you may calculate how much money you will save each year thanks to solar energy.

To calculate the number of years it will take for your solar savings to match the net cost of the system, just divide the net cost from Step 3 by your average yearly savings.

However, things aren't always that simple. Why? It's because certain jurisdictions don't allow net metering, and power prices tend to rise over time.

Example 5:

For our Bakersfield pal, this is the part when they find out how long it will take to break even on their solar energy system.

Your average rate is determined by time-of-use billing, which is complicated by California's net metering regulation. If you're interested in learning more, click on the aforementioned sources; nevertheless, for the sake of simplicity, we'll assume a cost per kwh equal to the national average.

For every kilowatt-hour (kwh) of solar power produced, our friends get 24 cents. This means that they will spend around $2,450 less over the course of a year because of the savings generated by these 10,200 kwh.

To calculate the solar payback period, we divide $12,390 by $2,450 and get 5.1 years, assuming power prices don't rise in the meantime.

The solar panels would be paid off by the summer of 2028 and continue to provide power until at least 2048 if they were completely connected by January 2023. Wow, that's what we call a bargain!

Electricity rates increase over time

The most unpredictable aspect of solar payback is the pace of growth in power prices. Even though annual rate increases in the United States have averaged roughly 3% over the previous 25 years, they have varied substantially depending on region.

In some states, like California, the rates have increased by as much as 10% a year, while in others, like Minnesota, they have increased by closer to 1-2% annually. Rate increase requests made in the past by your local utility provider are the strongest indicator of future changes. In this case, do your homework before making a purchase.

Some states don’t offer net metering

Excess solar energy is often credited to your account at the "avoided cost rate" in states without net metering. It's the utility's wholesale energy price, which is often just a few cents per kilowatt-hour. Because you will be utilizing some of the solar energy your panels produce to power the appliances and gadgets in your house, you will still save money compared to the retail rate.

Don't worry if you find this explanation puzzling. This is all quite perplexing. Fortunately, the solar calculators we provide are equipped to deal with the nuances between net metering and other forms of remuneration. To get started calculating your use, system size, payback time, and more, just input your ZIP code and most recent power bill.

Why does solarreviews claim to have the only truly accurate solar panel payback calculator?

In contrast to other sites, which make general assumptions about these factors, we utilize data that is unique to your area and house to calculate the payback time for installing solar panels.

Here's how our calculator helps in particular:

  • It relies on data from your area's weather station to calculate solar output.
  • Takes into account the slope of your roof and the direction of sunlight entering your home to improve solar energy output predictions.
  • Uses your utility's specific pricing structure for electricity rather than a flat rate in order to provide more precise cost reduction estimates.
  • Verifies current solar offers from local suppliers in order to provide an accurate cost for use in your payback analysis.


Having read this article, you should be able to figure out how long it will take for your investment in solar panels to pay for itself. If you haven't already received solar panel quotes, you can get a head start by using our solar panel calculator to see what local solar installers are offering.

solar panels payback

Keep in mind that the preceding procedure only yields a rough estimate of payback and that it does not take into consideration inflation in power prices, solar panel deterioration, or anything else.


If installed, can solar panels truly save money in the long run?

It may take many years for a solar panel system to recoup its initial investment if it is built and installed correctly. Once you've surpassed the cost of installing and maintaining your solar panels, any further months of use are pure profit.

What is the payback period for solar panels?

The typical payback time for solar panels in the United States is eight years; however, this varies widely from house to house. In reality, the payback time for solar panels might range from five to fifteen years.

Is there a major drawback to using solar energy?

The fact that solar panels can only produce power while the sun is out is one of the technology's main drawbacks. That implies the supply might be disrupted throughout the night or on cloudy days.

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