One of the most important considerations when going solar is the payback period for your solar panels. People understandably want to know when and how they will make money back on their investment in home solar power. This article will help you understand all the factors that go into calculating your solar panel payback period, and teach you how to calculate your own return on investment.

What Is A Solar Panel Payback Period?

Your photovoltaic panel payback period refers to the amount of time it considers you to conserve as much on your electrical bill as you paid for your solar panel system. Think of it like a calculator that can help you figure out how much time it will certainly require to break even on your first solar power investment.

Keep in mind: If you fund the solar power system with your solar firm, your “repayment duration”, or photovoltaic panel break even point, might be different from the amount of time it requires to settle your system, since you could make a decision to utilize that financial savings for other points besides paying down your solar financing.

You can calculate your photovoltaic panel repayment period by beginning with the complete cost of setting up the photovoltaic panels, minus any incentives or rebates you get. Just divide the staying price by your monthly electrical bill financial savings, till you reach the quantity you originally invested.

For example:

$17,000 (Cost to have a solar panel system installed)
– $5,000 (Rebates you receive)
= $12,000 Investment (Your total cost after incentives)

$1,200 Savings Per Year (Total savings per year if your solar panels reduce your energy bill by $100 each month)

$12,000 Investment / $1,200 Savings Per Year = 10 Year Solar Payback Period

Of course, this calculation assumes that your electricity rates don’t go up. If they do, your savings are also going to increase, and your payback period will be shorter.

What is a Good Solar Payback Period?

The most usual estimate of the ordinary payback duration for photovoltaic panels is six to 10 years. This is a pretty large range because there are numerous factors that will certainly affect the number of years it can take to repay your panels and also the monthly cost savings you can expect.

As an example, a larger solar installation is most likely to have a higher upfront cost, yet greater monthly savings. And if the power rate from your utility goes up dramatically, that can have a big impact on your long-lasting financial savings.

Modern photovoltaic (PV) solar panels must last at the very least twenty-five years, with at least 80% effectiveness at the end of that duration. Some brand-new designs of photovoltaic panels can last even longer than that. If your payback duration is 10 years, you are still looking at around fifteen years of added cost savings on your electrical costs.

Calculating Your Solar Power Payback Period

While several factors can change your ultimate payback period, this formula will give you a good idea of what to expect:

Combined Costs divided by Annual Benefits

Integrated prices are the overall expense of your PV system, minus any type of solar tax obligation credit ratings. You do not need to include any credit scores or solar motivations in the complete system expense since that’s money you do not have to repay.

Yearly advantages incorporate the cost savings on your electricity expenses with various other variables like web metering as well as Solar Renewable Energy Certificates (SRECs). Net metering and SRECs are considered incentives/credits, so they are benefits and also don’t need to be included in the mixed prices.

Check out this example to see the calculations in action:

  • Combined Costs: $20,000 System – $6,000 Solar Tax Credits = $14,000
    • Solar tax credits are taken out to get a more accurate starting number.
  • Annual Benefits: $120 Monthly Electricity Bill Savings X 12 Months = $1,440
    • If you are saving $120 in electrical payments each month because of your solar panels, you multiply that by the twelve months of the year to get a yearly savings of $1,440.
  • Formula: $14,000/$1,440 = 9.7 years
    • Finally, you take your adjusted combined costs (having taken out any solar tax credits and incentives) and divide them by your annual benefits, aka yearly savings. This gives you the number of years it will take for the amount you paid for your solar panels to equal the savings you’ll see by paying less for electricity.

This example doesn’t even include net metering or selling SRECs, which can give you even more total energy bill savings. Some calculations don’t include them in estimates because the incentives can vary from month to month, but they can still help you pay off your solar panels faster if you put the value of those incentives towards your payments, and reach your solar panel payoff point faster.

Factors That Impact Your Solar Power Payback Period

To calculate your solar power payback period, there are several factors you need to consider:

  • Total cost of your system (How much did it cost to have your solar panels installed?)
  • Solar tax credits and rebates (Did you get rebates or credits for installing solar panels in your home?)
  • Additional incentives (Do you get any other incentives you receive for putting in a clean energy source in your home?)
  • Electricity usage (How much electricity are you using each month on a normal basis?)
  • Energy production (How efficient are your solar panels?)
  • Cost of electricity (How much does the electricity from your utility cost?)

Total Cost of Your Solar Power System

Calculating the total price of your system is easy: It’s just how much your photovoltaic panel installment expenses with no support from government, state, or city governments.

Let’s consider some data as well as examples to reveal precisely how your total amount expense can be computed:

Determine How Much Electricity You Use Per Year: The most convenient method to determine how much electrical power you use is to just gather a year’s worth of energy costs and accumulate monthly. If you don’t have those expenses useful, it’s likewise possible to use an example month and also essence from that the normal power use of that house throughout the year, taking seasonality right into account.
For this example, allow’s say that the house utilizes 1,200 kilowatt-hours (kWh) monthly typically, for an overall of 14,400 kWh per year.
Calculate the Size of Your System: If one kilowatt (kW) of solar in your location can create around 1,600 kilowatt-hours (kWh) of electricity annually, and also you utilize 14,400 kilowatt-hours of electrical power annually, you would divide 14,400 by 1,600 to get a predicted system dimension of approximately 9 kW. For more information, check out How Many Solar Panels Do I Need On My Roof?
Depending on how much power you use, you may need a bigger or smaller sized solar power system to counter your power usage. It’s vital to determine precisely what you require, so you do not wind up with a system that can’t support your residence, or one that generates substantially greater than you eat.
Calculate Your Overall Cost: On standard, an 8 kW home solar power system costs around $2.99 per watt, or approximately $23,920 prior to any kind of incentives are used. Nevertheless, it’s relatively easy to obtain incentives that can decrease your price by several thousand dollars, such as the Residential Clean Energy Credit.Incentives and Tax Credits

If you do get a discount on your solar panel installation, such as a rebate for switching to renewable energy, that would count as an incentive. Any money you receive to help pay for your solar panels is money you don’t have to actually pay back to anyone, which can help make your solar power payback period even shorter.

You also need to consider any savings you are getting from net metering, which is when you get credit from your utility for feeding extra electricity back into the grid. Basically, if your solar panels create more electricity than you need to power your house, you can feed that excess energy back to your electric utility, and they’ll give you credit that can offset the cost of energy that you use in the future.

SRECs create a market for clean energy and allow you to make more money from your solar electricity generation. You can sell one SREC for every megawatt-hour (MWh) or 1,000 kilowatt-hours (kWh) of solar electricity your home generates. Some states must produce a certain amount of electricity from renewable resources, so they pay homeowners with residential solar panels for the electricity they create. You are getting paid to help the planet!

Your Home’s Energy Consumption

The amount of electricity your home uses has a huge impact on how much you pay each month for electricity, which also means it will impact your potential savings.

The first step in calculating your home’s energy cost is to determine how much electricity you use, and then figure out how much you will save based on the rate you pay your utility company.

For example, if you pay 12 cents per kWh, and you use around 1,200 kWh each month, you would spend around $144 per month on electricity. So you can expect to save around that much each month by going solar, which you can use to pay off your solar panels. Once they’re fully paid off, your savings will be even higher because every dollar saved goes right into your pocket.

However, you also need to consider that the cost of your electricity will likely go up over time. This means you could ultimately save even more money in the long run, and decrease the amount of time it takes to pay off your solar panels.

The Electricity Production of Your Solar Panels

Another aspect you need to consider is the efficiency of your solar panels. Most solar payback period calculations assume that your solar panels offset 100% of your energy usage. However, that isn’t always going to be true, as some systems aren’t designed to offset 100% of your energy, and some will actually produce more than you need, so you can get net metering credits.

In addition, your solar panels will slowly become less efficient over time, which means you won’t save quite as much money towards the end of their life, because you may still need some electricity from your electrical provider. However, contemporary solar panels retain around 80% generation efficiency for their average 25-year life, which will be more than enough to help you reach your PV payback period and beyond.

Solar Panel Payback Period Overview

It’s important to understand how and when you can see a return on your investment in solar panels. Installing a solar power system can save you money in the long run, but it can take some time for you to see the full extent of those savings. This time period is often called the solar payback period. 

Your payback period for solar panels refers to the amount of time it will take for the savings from your solar panels to equal the amount you pay for them. You can estimate your solar payback by understanding the relationship between your electricity usage, total system cost, solar tax credits and rebates, energy production, additional incentives, and the cost of electricity. Unfortunately, because of these interrelated factors, there is no cookie-cutter answer for the average solar panel payback period.

At Palmetto, we’re here to help you analyze your home to determine your energy consumption needs and your solar production expectations. With that, we can help you calculate your expected solar panel payback period.