Solar Panel ROI & Payback Calculator
How to Calculate Solar Panel ROI
Investing in solar energy is not just an environmental decision; it is a financial one. To understand the return on investment (ROI), you must look at the upfront costs versus the cumulative savings on your utility bills over the lifespan of the system, which is typically 25 to 30 years.
The Solar Payback Formula
The solar payback period is the time it takes for your annual electricity savings to cover the initial cost of the solar power system. The formula used in this calculator is:
- Annual Production (kWh) = System Size (kW) × Daily Sun Hours × 365 days × 0.78 (Efficiency Factor)
- Annual Savings = Annual Production × Your Electricity Rate
- Payback Period = Net System Cost / Annual Savings
Example Calculation
Imagine a homeowner in California installs a 6kW system at a net cost of $14,000. If the area receives 5.5 sun hours per day and the utility company charges $0.22 per kWh:
- Annual Production: 6 × 5.5 × 365 × 0.78 = ~9,395 kWh per year.
- Annual Savings: 9,395 × $0.22 = $2,066.90.
- Payback Period: $14,000 / $2,066.90 = 6.77 Years.
After year 7, the electricity produced is essentially free, leading to significant profit over the 25-year warranty period of the panels.
Factors Influencing Your Return
- Solar Incentives: Federal tax credits (ITC) can reduce the system cost by 30%. Always use the post-incentive price in the "Total Cost" field.
- Net Metering: If your utility company offers 1-to-1 net metering, you get full credit for the excess energy you send back to the grid.
- Panel Degradation: Most panels lose about 0.5% efficiency per year. This calculator uses a conservative 0.78 efficiency factor to account for inverter losses and average degradation over time.
- Electricity Price Hikes: Historically, utility rates increase by 2-3% annually. This makes solar ROI even better over time as your "avoided cost" increases.