Topics covered in this post:
- Average Solar Panel Payback Period
- How To Calculate Your Solar Panel Payback Period
- 3 Steps to Calculate Your Solar Panel System Payback Period
- 3 Key Tips For Solar Panel Shopping
- Why Go Solar?
- Affordable Solar Panel Installation Company
Solar panels for home systems are valuable investments that deliver excellent rates of return. A home solar energy system provides energy cost savings while paying for the panels, then free energy after the panels are paid off. Solar panels even increase your property values, according to the U.S. Department of Energy (DOE). To understand your solar panel cost/benefit ratio and when you can expect to see a net return on investment (ROI) for your solar panel system, you need to know the length of your “payback period.”
Average Solar Panel Payback Period
Your solar panel “payback period” is a key factor in determining which solar panel options fit your needs and budget best. The payback period is the length of time it will take to make back your investment in purchasing a solar energy system. Solar panel costs have dropped a lot year after year over the past decade, while electricity costs have continued to rise, hence the payback period to begin realizing ROI becomes shorter.
Compare the estimated payback period as part of your research while installing a solar energy system. Use this key information to help clarify the investment merits of the various systems you compare and how long it will take for each to make your solar energy investment begin earning money for you.
So, your solar payback period is the amount of time it will take to break even on the cost of your investment in your solar energy system. The usual payback period for residential solar in the United States is a little over 8 years. (An NREL report estimates payback in only 4 to 5 years.)
How To Calculate Your Solar Panel Payback Period
Multiple factors must be considered to achieve an accurate calculation of your solar energy system payback period. For a precise accounting, you’ll need to determine the total combined financial benefits and total combined costs of owning your solar equipment:
- Purchase Cost of Solar Equipment: The gross cost of buying and installing your solar energy system is based on the size of the system you choose and all the components of the system.
- Average Electricity Use Per Month: Your monthly electricity consumption determines the size of the solar energy system you need for your home and how much electricity you can stop buying from your utility company each month. This means that higher electricity bills shorten your payback period because you can reduce (or possibly eliminate) that bill as soon as your solar panels start producing power for you.
- Projected Electricity Production from Solar: Your solar energy system installer will identify the best system to accommodate your home electricity consumption. However, your roof size and changes in weather conditions throughout the year can affect the amount of solar power you can generate.
- Solar Financial Incentives: Potential up-front cost savings include the federal Investment Tax Credit (ITC), state and local tax credits and/or rebates, and even incentives from your utility company. Combined, these benefits can reduce the cost of going solar by thousands of dollars. The ITC alone is currently *26% of the cost of your solar energy system. Plus, Solar Renewable Energy Certificates (SRECs) and utility company programs that grant credits per kilowatt-hour for solar energy generated by solar panels can total significant financial benefits.
*The ITC percentage will be incrementally reduced over the next three years to a permanent low of a 10% federal tax credit in 2024.
3 Steps to Calculate Your Solar Panel System Payback Period
- Calculate Combined Costs: Subtract the total combined value of all the tax credits, rebates, and other incentives you receive from the gross cost of buying and installing your solar energy system.
- Calculate Combined Benefits: Add your yearly total of financial benefits from your solar investment. Include electricity costs savings, plus any new incentives or other financial benefits received due to your solar energy investment.
- Calculate Net ROI: First, divide your combined upfront costs of acquiring your solar panel system investment by the combined upfront and monthly financial benefits of having your system working for you. Next, divide the net outcome by the total number of years it will take for you to pay off the system or to realize a total of energy savings and incentives that have exceeded the total cost of owning the system — even including any payments remaining to pay off the system. This is the payback point. Each month beyond that point, your savings of electricity costs are all full financial benefits.
3 Key Tips For Solar Panel Shopping
Getting Multiple Solar Quotes Can Save You a Lot of Money
Comparing is the best approach to avoid paying higher solar panel costs than necessary to installers with inflated prices. Do your research thoroughly to identify the best providers in your area. The U.S. Department of Energy’s National Renewable Energy Laboratory (NREL) advises consumers to compare options for solar panels for home installation for possible savings.
Include All Your Solar Equipment in Your Cost Comparison
Large solar panel companies may sometimes charge more but offer fewer solar equipment options. Gather as many bids as possible for your solar panel cost comparison. Some types of solar panels have higher efficiency ratings, while others cost less. Evaluate pricing and efficiency ratings on the various equipment and financing offers you receive. Then, determine which combination of competitive quality and cost achieves the right balance for your needs and budget.
The Largest Solar Installers Don’t Always Offer the Best Value
Throughout the industry, you can find solar panel installation contractors that offer more competitive prices and deliver higher value. It definitely pays to get multiple free estimates from well-established installers in your local area.
In fact, getting multiple quotes can save you thousands of dollars on your solar panel installation. Large solar panel companies with higher overhead may charge more than a smaller solar energy systems provider. Remember to check references for any solar installer you’re considering working with.
Why Go Solar?
- Save money on monthly electricity bills.
- Own your solar energy system with payments normally less than utility bills.
- Earn a monthly return on your solar investment.
- Get large tax credits, rebates, and other incentives that are still available.
- Achieve energy independence and protection from utility rate hikes.
- Increase your property value.
- Live free from power outages due to public grid issues.
- Help save the environment by reducing fossil fuel burning.
Frequently Asked Questions About Solar Payback Periods
The amount you save on your electricity bill each month minus your solar panel payment is the net amount of your monthly savings from solar. Of course, your savings amount depends on:
- The net purchase and install cost for your solar panel system
- The amount of incentives to be deducted from your costs
- The amount of electricity you use
- The efficiency of your solar panel system
- Your location and various other factors
The typical solar payback period for residential solar in the U.S. is now just over about eight years. One NREL report has now estimated the payback period as only about 4 to 5 years.
The specific amount of savings you can realize from investing in producing your own electricity with solar panels depends on:
- The net purchase and installation price you pay for your solar energy equipment, after accounting for incentives
- Property resale value increase
- Savings on electricity bills (while you pay off the panels and after they’re paid for in full)
- Plus other potential financial benefits of switching to solar.
Contact Solarise Solar in Colorado for a Free Energy Analysis
Solarise Solar has helped many homeowners and businesses throughout Colorado get the region’s very best value for their investment in residential and commercial solar energy systems. Our solar energy experts will custom design the most efficient solar panel system to fit your energy needs and budget. We provide a 30-year warranty, to ensure your peace of mind throughout the expected life of your solar energy system.
We offer solar panel installation with zero down payment and low-interest financing, to make going solar very affordable. Our highly experienced installation specialists are committed to providing our customers with our industry’s highest standard of workmanship. Our System Monitoring makes it easy for you to monitor your system with the Solarise mobile and desktop apps, so you can track how much energy your system is producing for you in real-time!
Call Solarise Solar for more information or to schedule your free Energy Cost Analysis and estimate, with absolutely no obligation, or use our online contact form anytime.