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How long until Tesla solar pays for itself?

How long does it take for solar panels to pay for themselves?

How long does it take for solar panels to pay for themselves?

How long will it take for solar panels to pay for themselves on your specific home? Well. that’s a much trickier question, but it’s one our site is uniquely set up to answer.

You can calculate the payback period for your home now by using our solar panel payback calculator or you can learn the basics first (below) if you are unfamiliar with how solar panel payback calculations work.

See the solar payback period for your specific home

Key takeaways

  • Solar panels pay for themselves over time by saving you money on electricity bills, and in some cases, earning you money through ongoing incentive payments.
  • Solar panel payback time averages between 5 and 15 years in the United States, depending on where you live.
  • How quickly your solar panels pay back their cost depends on how much you paid, the price of electricity from your utility, and available upfront and ongoing incentives.

On this page

How is the payback period defined for solar panels?

«Solar panel payback period» is the amount of time it’ll take you to completely pay off your solar power system through savings on your electric bill.

It is calculated by taking the total cost to install the system, then subtracting solar incentives and/or rebates, and monthly electric bill savings until the total cost has been paid off.

For example, if you spend $16,000 on a solar panel system, then get a tax break of $4,800, the cost after incentives is $11,200. Then if the solar energy your panels make reduces your electric bill by $1,500 per year, your payback period would be about 7.5 years, assuming electricity rates don’t increase.

Average solar panel payback period for homes in the US in 2023

Most homeowners in the United States can expect their solar panels to pay for themselves in between 9 and 12 years, depending on the state they live in.

Some states, like Hawaii and Massachusetts, offer solar payback periods as short as five years, while payback time in states like Louisiana and North Dakota can stretch to 16 years or more.

The reason some states’ payback periods are worse than others isn’t just because they’re less sunny. It mostly has to do with the cost of electricity replaced by solar energy and the incentives available to help homeowners go solar. Other factors include roof composition and age, quality of equipment used, and whether you pay with cash or choose a solar loan.

To get an accurate estimate of solar panel cost, incentives, and payback for your home, use our state-of-the-art solar panel estimator. It shows you how panels will look on your actual roof, and by using solar production data from the National Renewable Energy Laboratory, will give you utility prices from the U.S. Energy Information Administration, as well as live cost information from installers all across the country.

What is considered a good solar payback period?

Photovoltaic solar panels are designed to last at least 25 years, and many modern brands will last much longer than that. When considering that lifetime, any payback period less than about half that time, or 12.5 years, can be considered “decent.”

More important than payback time is a concept called “Internal Rate of Return,” or IRR for short. IRR is expressed as a percentage of return on investment, and answers the question, “Considering the estimated future benefits of this investment, what percentage return would you need to get from another investment to be equal to this one?”

In the solar industry, we use IRR to compare the return on an investment in solar with the returns of other popular ways to invest.

For example, long-term investment in a broad stock index fund has historically resulted in an IRR of about 8% per year. A home solar system in a state like Virginia, where the payback time of an investment in solar is around 12 years, has an IRR of about 8%.

The good news is, there are many states with better IRR and payback time than Virginia, especially in the northeast and California, where electricity costs are very high. For example, people in Massachusetts, New Jersey, California, and New York can expect IRRs of between 16 and 20 percent—double or more of the average return of a long-term index fund.

What factors need to be considered to calculate an accurate solar payback period?

There are 5 primary factors influencing your solar payback period:

  1. Average electricity usage for your home, which determines how many solar panels you need
  2. Total system cost
  3. Solar incentives, rebates, and the federal tax credit
  4. Energy production from your solar system
  5. Cost of electricity and rate of increase in that cost

Below, we covered each of these factors to show an example solar payback estimate for a house in California served by Pacific Gas & Electric.

Step 1. Average electricity usage for your home

The first step toward determining solar payback is figuring out how big your solar panel system should be. To do that, you need to look at your average electricity usage, then design a solar system that makes enough energy to offset that usage over the course of the year.

Example 1:

Let’s say our example home uses about 10,000 kilowatt-hours (kWh) of electricity per year. According to PVWatts, one kilowatt (kW) of solar panels in Bakersfield, CA can generate around 1,700 kWh per year. Divide 10,000 by 1,700, and you get a system size of about 6 kW.

Step 2. Total system cost before incentives

The next step is determining how much your system will cost. This number represents the final price of a solar installation before considering incentives. It is the number we’ll use to begin subtracting savings from to determine the payback period.

Example 2:

As of January 2023, the national average cost of a 6 kW home solar system is about $2.95 per watt, or $17,700, before incentives. The homeowner in our example will either need to pay cash or take out a solar loan for around that amount.

Step 3. Solar incentives, rebates, and the federal tax credit

The great thing about installing solar panels is that it earns you a big tax break at the end of the first year. You can claim the federal solar tax credit equal to 30% of the total installation costs.

Many states offer additional solar incentives like rebates and performance-based incentives, as well.

Subtracting the dollar amount of available incentives from the total system cost gives you your net cost of solar panels.

Example 3:

Our friend in Bakersfield is in a great place for solar. In fact, California is so great that many early incentives that were needed to jumpstart the industry are no longer available.

For example, most rebates for home solar in California ended before 2014, but helped bring solar costs down for everyone by getting the industry going. But have no fear! The 30% solar tax credit still applies.

The 6-kW system in question would earn its owner a tax credit of $5,310 based on our estimated upfront cost of $17,700. That means the net cost of the system is just $12,390. That’s the number we’ll use to start subtracting energy bill savings from.

Step 4. Energy production from your solar system

This step is pretty simple but very important.

Once you know your system size, multiply the number of kW your solar panels can produce under full sun by the number of kWh that 1 kW can produce over the course of a year. In the next step, multiply that number by the amount you pay for every kWh from your utility.

Example 4:

We mentioned above that each kW of solar panels in Bakersfield can produce about 1,700 kWh of electricity per year, on average. So take that number and multiply it by the 6 kW of our system size, and our friend can expect their panels to make about 10,200 kWh per year.

Step 5. Cost of electricity and rate of increase in that cost

Here’s where the rubber meets the road. In a state with net metering, you can take the number of kWh your system will produce in a year and multiply it by your per-kWh rate from the utility. That number will equal your annual solar savings.

To get a simple solar payback time frame, just divide the net cost from Step 3 by your average annual savings to get the number of years it will take for your solar savings to equal the net cost of the system.

Unfortunately, however, it’s not always that easy. Why? Because electricity rates increase over time, and some states do not offer net metering.

Example 5:

Here’s where our friend in Bakersfield finally learns their solar payback period!

California’s net metering law is a bit complicated (and changes to NEM are happening soon), and your average rate depends on time-of-use billing. Click on those links to learn more, but for our purposes, we’ll use an average cost per-kWh here.

The solar energy our friend’s panels make earns them an average of 24 cents per kWh. Therefore, that 10,200 kWh will save them an estimated $2,450 in one year.

Dividing $12,390 by $2,450 gives a solar payback period of about 5.1 years, even if electric rates don’t go up between now and then.

If their solar panels were fully connected by January 2023, they’d be paid off before the holidays of 2028 and will keep making electricity until at least 2048. That’s what we’d call a great deal!

Electricity rates increase over time

The rate of increase in electricity rates is the most difficult thing to predict when it comes to solar payback. Over the past 25 years, rates in the United States have increased by an average of about 3% per year, but that rate varies widely based on location.

States like California have seen their rates increase by as much as 10% per year, while others like Minnesota have been increasing at closer to 1-2%. The best predictor of future changes in the history of your own utility company’s rate increase requests. This is one area where it pays to do your research before buying.

Some states don’t offer net metering

In a state without net metering, excess solar energy is usually credited to your bill at what’s called the “avoided cost rate.” That’s basically the utility’s wholesale energy price; usually just a couple of pennies per kWh. Some of the solar electricity your panels make will still save you the retail rate because you’ll be using it to power your home’s appliances and devices.

If this sounds confusing, don’t worry. It is confusing! Luckily, our solar calculators are built to handle the difference between net metering and alternative compensation. Begin by entering your ZIP code and electricity bill, and we can determine your usage, system size, payback time, and more.

Get accurate solar savings estimate based on your utility’s exact rates and your specific roof

Why does SolarReviews claim to have the only truly accurate solar panel payback calculator?

Our site can claim to have the only truly accurate solar panel payback calculator because we use customized local and home-specific information, whereas other sites simply use generic assumptions for some or all of these things.

Specifically, our calculator:

  • Uses the exact solar production from your local weather station
  • Adjusts solar production estimates to the direction and tilt angle of your roof
  • Applies the exact electric rate structure charged by your utility to calculate accurate savings, instead of just a generic rate for power
  • Checks current local solar offers from solar providers near you to calculate a realistic cost to use in your payback calculation

Final word on solar panel payback period

Now that you’ve read through the steps outlined in this article, you can calculate the estimated solar payback period if you’ve received a quote for home solar panels. If you haven’t yet received solar panel quotes, you can start the process by using our solar panel calculator and learning about offers from solar providers in your area.

Remember, the method above just results in a simple payback estimate, without accounting for increases in electricity costs over time, solar panel degradation, or any other factors.

In addition to electric bill savings, there are other benefits of solar panels which aren’t as easy to put a value on. The most important of these is an increase in home value, estimated to be about 4% of the pre-solar value of your home.

On top of that, there are environmental benefits of renewable energy and, if you add batteries to your solar installation, the peace of mind that comes with being more resilient if the power goes out.

Adding solar panels to your home truly does add value in many ways.

What is the payback period of solar panels?

Solar payback period

The financial benefits of going solar are clear: solar panel systems function as investments with strong rates of return, and homeowners generating solar electricity can avoid paying increased utility rates by eliminating their electricity bills. Multiple studies show that installing a home solar system can even increase your property’s value! If you’re reviewing multiple quotes, there are plenty of metrics that can help you make a decision about which solar option is best for you, but most solar shoppers rely on one metric in particular: the solar panel payback period or break-even point.

Key takeaways: solar payback periods

  • Your “solar payback period” is the time it takes to make back your initial solar investment.
  • For most solar shoppers on EnergySage, you’ll break even in about 8 to 9 years.
  • You can calculate your solar payback period by dividing the combined costs for your system by your annual benefits.
  • Start comparing solar quotes on the EnergySage Marketplace for maximum savings.

What you’ll learn in this article

  • The average payback period of solar panels
  • Factors impacting your payback period
  • How to calculate solar payback periods
  • A step-by-step guide for calculating your solar payback period
  • Frequently asked questions about solar payback periods

What’s the average payback period for solar panels?

The solar panel payback period is a calculation that estimates how long it will take for you to “break even” on your solar energy investment. Increased utility electricity rates and lower equipment costs are making it easier and less expensive for homeowners to own, rather than lease, their solar panel systems. Comparing the payback period of various quotes from solar installers is an easy way to comprehend the financial merits of each option, and identify the point in time at which your solar investment will start to earn you money. To find the payback period in years for your solar photovoltaic, or PV system, simply divide the cost of installing your system by the annual amount you will save.

The average solar payback period on EnergySage is under 9 years. If your cost of installing solar is $20,000 and your system is going to save you $2,300 a year on foregone energy bills, your solar panel payback or “break-even point” will be 8.7 years ($20,000/$2,300 = 8.7).

Factors impacting your payback period

Both the combined costs and annual benefits of going solar will impact your solar payback period. These include:

Gross cost of solar panel system

The gross cost of installing solar on your home is dependent on the size of the system you select and the equipment that makes up that system.

Value of up-front financial incentives

Tax incentives and rebates can dramatically reduce the total cost of going solar. The federal investment tax credit (ITC) allows you to deduct 30 percent of the cost of your system from your taxes, and additional state and local solar incentives may also be available in your area.

Average monthly electricity use and cost

Your monthly energy usage is an indicator of both the size of system you need and the amount of electricity that you can offset each month with solar. Similarly, the energy costs in your area directly impact your return on investment (ROI) from your solar power system. The higher your electricity bills are, the shorter your estimated payback period will be, as you can reduce or eliminate your utility bill as soon as your panels are operational.

Estimated electricity generation

While solar installers will try to provide you with a system that matches your electricity consumption, practical constraints like the size of your roof and seasonal weather variation may impact the amount of electricity that you can produce on-site.

Additional financial incentives

In some areas of the country, you may be able to earn additional incentives in the form of solar renewable energy certificates (SRECs) or net metering programs that give you a per kilowatt-hour credit for the electricity that your solar panels generate and send to the grid. Depending on the size of your solar energy system, these can represent a significant monetary benefit.

How to calculate the solar panel payback period

To calculate your solar payback period, you’ll need to take the following steps:

  1. Determine combined costs: subtract the value of up-front incentives and rebates from the gross cost of your solar panel system.
  2. Determine annual benefits: add up your annual financial benefits, including avoided electricity costs and any additional incentives.
  3. Divide your combined costs by your annual financial benefits: the result will be the number of years it will take for you to achieve payback. Every month of bill savings after that point in time should be counted as a financial gain!

Calculating your solar payback period: a step-by-step guide

Let’s walk through an example to help you calculate your solar payback period:

Combined costs

First, we’ll determine your combined costs. you’ll need to know the gross cost of your solar panel system. Let’s assume your gross system cost is $31,285 (the average cost of a 10 kW system on EnergySage). Now, we need to understand the upfront incentives available to you, including the solar tax credit and local rebates or incentives. Given that the federal tax credit is currently set at 30 percent, with a $31,285 solar system, you’ll be eligible for $9,385. Now, let’s also assume you can take advantage of an additional $1,200 in local rebates – this brings your upfront incentives to $10,585 and your combined installation costs to just $20,700.

Gross cost ($31,285) – upfront incentives ($10,585) = combined costs ($20,700)

Annual benefits

To calculate your annual benefits, you’ll need to know how much you’re saving each year on electricity costs. Let’s assume your monthly electricity bill is about $145 – annually, that amounts to about $1,740 in energy savings assuming your system’s energy production covers 100% of your electricity needs. You’ll also need to know how much you’ll receive from other incentives each year, like SRECs. In our example, we’ll assume you’re earning $600 annually from selling SRECs – this means you’ll receive $2,340 in annual benefits.

Avoided annual electricity costs ($1,740) + annual incentives ($600) = annual benefits ($2,340)

Final calculation

Now, to calculate your solar payback period, you just need to divide your combined costs by your annual benefits!

Combined costs ($20,700) / annual benefits ($2,340) = solar payback period (8.8 years)

In our example, your payback time would be 8.8 years – just about the average we see on EnergySage!

Frequently asked questions about solar payback periods

Does solar really pay off?

Yes, solar really does pay off! The average EnergySage shopper sees a solar payback period of 8.7 years – so given that the lifespan of most solar systems is about 25-30 years, you can definitely expect your solar system to be worth the investment.

Will I still have an electricity bill with solar panels?

While you may not owe anything on your electricity bill, you’ll still receive an electricity bill from your utility company as long as you’re still connected to the grid.

How much does solar save you each month?

According to the U.S. Energy Information Administration (EIA), the average electricity consumption of a U.S. household is 886 kWh per month. Data from the EIA show that the average cost of electricity as of December 2022 is about 15 cents in the U.S. Thus, assuming that your system covers 100% of your electricity needs, you’ll save $133 each month on avoided electricity costs, on average.

Compare solar quotes on EnergySage

If you’re looking to go solar and power your home with clean energy, start your journey on the EnergySage Marketplace! For any homeowner in the early stages of shopping for solar, try our Solar Calculator to receive upfront cost and long-term savings estimates based on your location and roof type. For those looking to get quotes from local contractors today, check out our quote comparison platform.

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What are the most efficient solar panels? Top brands in 2023

Solar Panel Payback Period (Guide)

yellow pencil on calendar with pay off solar power system written on the ninth day of the month

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 solar panel payback period refers to the amount of time it takes for you to save as much on your electric bill as you paid for your solar panel system. Think of it like a calculator that can help you determine how long it will take to break even on your initial solar power investment.

Note: If you finance the solar power system with your solar company, your “payback period”, or solar panel break even point, may be different from the amount of time it takes to pay off your system, since you might decide to use that savings for other things besides paying down your solar loan.

You can calculate your solar panel payback period by starting with the total cost of installing the solar panels, minus any incentives or rebates you receive. Then just divide the remaining cost by your monthly electric bill savings, until you reach the amount you originally spent.

$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 common estimate of the average payback period for solar panels is six to ten years. This is a pretty wide range because there are many factors that will influence the number of years it can take to pay off your panels and the monthly savings you can expect.

For example, a larger solar installation is going to have a higher upfront cost, but higher monthly savings. And if the electricity rate from your utility goes up significantly, that can have a large impact on your long-term savings as well.

Modern photovoltaic (PV) solar panels should last at least twenty-five years, with at least 80% efficiency at the end of that period. Some new models of solar panels can last even longer than that. So, if your payback period is ten years, you are still looking at around fifteen years of additional 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

Combined costs are the total cost of your PV system, minus any solar tax credits. You don’t need to include any credits or solar incentives in the total system cost because that’s money you don’t have to pay back.

Annual benefits combine the savings on your electricity bills with other factors like net metering and Solar Renewable Energy Certificates (SRECs). Net metering and SRECs are considered incentives/credits, so they are benefits and don’t need to be included in the combined costs.

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.
    • 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.
    • 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 cost of your system is simple: It’s how much your solar panel installation costs without any assistance from federal, state, or local governments.

    Let’s look at some data and examples to show exactly how your total cost can be calculated:

    • Calculate How Much Electricity You Use Per Year: The easiest way to determine how much electricity you use is to just gather up a year’s worth of utility bills and add up each month. If you don’t have those bills handy, it’s also possible to use a sample month and extract from that the typical power usage of that home over the course of the year, taking seasonality into account.
      • For this example, let’s say that the home uses 1,200 kilowatt-hours (kWh) per month on average, for a total of 14,400 kWh per year.
      • Depending on how much electricity you use, you may need a larger or smaller solar power system to offset your energy usage. It’s important to figure out exactly what you need, so you don’t end up with a system that can’t support your house, or one that produces significantly more than you consume.

      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. To get started with that process, enter your address in our Solar Savings Estimate Tool, and find out how much you can save today!

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