Solar Panel Payback Period: How Long Does It Take to Break Even?
June 03 2021
Your solar panel payback period is the amount of time it takes you to pay off your solar panels. In other words, how long does it take to break even on solar panels?
Once your panels are paid off, you’ll be able to reap the full benefits of switching to solar. After the solar panel payback period, your electricity bills will be either fully eliminated or greatly reduced. For the rest of your system’s lifetime, you’ll save money by minimizing electricity costs.
These savings are part of what is known as your solar panel return on investment. Your ROI will give you a clear look at the financial success of your investment.
Curious to find answers to “How long does it take to pay off solar panels” or “how long does it take to break even on solar panels”? You’re in the right place.
Greenlife Solar is here to help you make the most of your investment. Learn exactly what to expect before switching to solar. We’ll help you calculate your solar panel payback period and solar ROI. Let’s get started!
Calculating Solar Panel Payback
The top question on every homeowner’s mind is, “How long does it take to break even on solar panels?” While most people understand that solar will save them money over time, few know exactly how much or how long it’ll take to accumulate.
That’s because these numbers vary. Factors like location, panel type, and climate all play a role. These factors aside, the average solar panel payback period is between 7 and 12 years.
So, exactly how long does it take to pay off solar panels? Here’s how to calculate an estimate:
- Calculate total system cost. (The national average cost of a 6 kW system in 2021 is $2.85 per watt, or $17,100 before tax incentives.)
- Subtract available federal and state tax incentives. This is your net cost. (After incentives, the average system cost is between $12,000 and $15,000.)
- Calculate the amount of electricity your panels will produce in one year. (If one kW of panels produces 1,700 kWh of electricity in your state, a 6 kW system will produce 10,200 kWh per year.)
- If you plan to use net metering, multiply estimated panel production per year (kWh) by your local utility’s electricity rates (cost per kWh). Divide net cost (step 2) by this number to find how many years it’ll take for solar savings to equal the net cost of the system. (This will answer “how long does it take to pay off solar panels” in years.)
Keep in mind that these calculations do not account for electricity rate fluctuation over time.
In short, your payback period looks something like this:
Solar payback period = initial net investment / yearly benefit
For example, if you pay $14,000 for your installation and save $2,000 per year on electricity, your payback period is 7 years.
Solar Panel ROI
Solar panel return on investment, or solar ROI, is another way to measure your financial success. Keep in mind that solar ROI is not the same as the solar panel payback period. While that metric answers, “How long does it take to pay off solar panels?”, solar panel ROI addresses the efficiency of your investment.
The higher the ROI, the better the investment. A good solar panel return on investment means the gains from the investment are significantly higher than the cost of the investment itself. In this case, it means your savings are higher than the net cost of your solar installation.
The average solar ROI in America is 10%. Some can be as high as 30%, which is huge. The solar panel return on investment varies depending on your location and system.
Solar panel ROI is a ratio, so it is always presented as a percentage. Here’s how to calculate it:
[(Gain from Investment - Cost of Investment) / (Cost of Investment)] x 100 = Solar ROI
You can also plug your numbers straight into this solar ROI calculator and have the calculation done for you.
Regardless of how you look at it, solar is a great investment. Based on national averages, the cost to buy electricity from a utility for 25 years is about $35,500. If your solar installation costs $15,000 after tax incentives, you’re looking at savings of $35,500 - $15,000 = $20,500.
Shortening Your Payback Period
Shortening your payback period will help you optimize your solar panel return on investment. The faster you pay off your panels, the less interest you’ll pay over time. The better your ROI, the more savings you will accrue.
The type of solar loan you choose will affect your solar panel ROI. Solar financing helps homeowners pay off their panels and installation costs over time instead of paying the entire cost upfront. After all, most systems cost between $12,000 and $15,000 after solar tax credits.
Many factors affect your solar panel payback period. Location is the most important. While climate plays a role, the cost of electricity and available tax incentives are even bigger.
Installation costs also affect solar panel ROI. Some installation companies charge more than others. It’s important to make the most of your investment by choosing an installer that can offer you quality service for a great price.
Keep in mind that your panels will likely last between 25 and 30 years. That’s a long time. Make sure the job is done right from the start with Greenlife Solar.
Greenlife Solar is a free comparison tool designed to help you review your options before you choose. Maximize your solar panel ROI by shopping around before committing to a company.
