Installing solar panels reduces or eliminates electricity bills, but you won’t enjoy the savings until you pay off your system. A common question when deciding whether to go solar is how long until the system pays for itself.According to Energy Sage, the average payback period or break-even point is 8.7 years, but your specific time line depends on several factors. Read on to learn about the factors impacting your solar panel payback period and how you can calculate it.
What Is a Solar Panel Payback Period?
Your solar panel payback period is the time it takes to save as much on your electric bill as you paid for your solar panel system. At the end of your payback period is your break-even point. That’s when your system is paid off, and you can start enjoying the return on your investment (ROI) through reduced or eliminated energy bills.
Factors That Impact Your Solar Payback Period
Your payback period may be shorter or longer than the average of 8.7 years. The following factors will affect your payback period.
The total amount you paid for your home solar panel system is one of the main factors in calculating your payback period length. The average solar system cost in the U.S. is $20,650, but depending on your location, system size, and type, you may have paid closer to $10,000 or as much as $30,000. Naturally, the more you paid, the longer it will take to pay off the system and see your ROI.
Use your final solar investment total when calculating your payback period. That means you should account for any financial incentives, such as renewable energy tax credits or rebates that shaved money off your purchase. You may have initially paid $18,000 for your system, but if you used the federal solar investment tax credit, you likely recouped 30% of your total cost. That would take off around $5,400 and bring your investment down to $12,600, which you should use in your calculation.
Local Energy Costs and Your Energy Usage
The higher your local electricity rate and the more energy you use monthly, the more you save annually. This shortens your payback period since you’ll save the amount you paid for your system in utility bills more quickly.
What’s a Good Solar Payback Period?
First, consider your panels’ life span. Your manufacturer warranty states how long your chosen panels should last, but the Department of Energy (DOE) estimates most panels last 30 to 35 years. So, if your panels last 25 years, and your payback period is 10 years, you’ll have at least 15 years of savings.
The solar industry’s rule of thumb when advising homeowners on their solar candidacy is that the payback period should be less than half of the system’s life span. The more years you save on electricity once your system is paid off, the better.
How to Calculate Your Solar Payback Period
You can calculate your solar panel payback period by following three steps:
1. Determine Your Solar Expense
You first need to figure out exactly how much you paid for your solar power system when everything is said and done. Remember, you’re looking for the final price after all taxes and fees and after deducting any solar incentives that allowed you to recoup money.
Suppose you paid $21,000 for your system, including taxes and any other fees from your solar provider or municipality. If you recouped $6,000 due to tax credits and solar rebates, it brings your total investment down to $15,000. This is the cost figure to use moving forward.
2. Figure Out Your Annual Energy Savings
Determine how much you normally spend on electricity annually. Add up your monthly payments for one year. Say your monthly electric bill averages $140. That’s $1,680 you’re paying for electricity per year. That’s how much a solar energy system presumably saves you from paying your utility company annually. This figure is your annual bill savings.
To know your solar payback period length, divide your total expense by your annual savings.
Example: 15,000 divided by 1,680 = 8.9
Using our figures in steps one and two, your payback period would be 8.9 years. If your solar panels last 25 years, that’s roughly 15 years of electricity savings after breaking even. This is a substantial ROI.
Purchasing a solar panel system isn’t right for everyone. If it will take longer to pay off your system than the amount of time it takes to enjoy reduced electricity bills, it doesn’t make financial sense to go solar.
Any reputable solar company you meet with should estimate your system’s cost based on your energy needs and what you can save according to your local utility rate. A trustworthy provider will advise you on whether there’s enough financial gain to make you a good candidate.
Get a feel for what solar companies charge for systems in your area by using our tool below.
Solar Payback Period FAQ
How quickly does solar pay for itself?
The average solar payback time is 8.7 years. The total cost of your system plus the cost of electricity in your area can cause this figure to fluctuate.
Do you really save money with solar panels?
Yes, solar panels can save you thousands of dollars in electricity over their life span.
How long do solar panels last?
The DOE estimates that high-quality solar panels can last 30 to 35 years.
Can I run my house on solar power only?
It’s possible to run your house on solar power only. For large, multistory homes or ones that use many appliances and overhead lights, you’ll need more solar panels to accommodate your electricity needs, which can be expensive and may not warrant going solar.