Does Solar Really Pay Off? A Quick Guide to Solar Payback

March 14, 2022

Two of your neighbors went with solar power last year, so that makes six houses on the block that aren’t paying the electric company anymore. And with electric rates going up and up, that’s starting to look really good!
Add what you just read about solar, adding nearly $15,000 to the average home price, and it’s time to run some numbers yourself. The big question is, what’s the payback period for solar panels? All said and done, what’s your solar ROI going to be?
How do you calculate payback period for solar panels? Read on, and let’s run through the numbers.

Payback Period for Solar Panels

The typical payback period for solar panels in the US stands around eight to twelve years. With solar systems having a life of 25 – 30 years, that’s looking good. But you want to know your exact numbers, right? Here’s how to find out in six steps.

1. Price Your Solar System

No surprise, but you’ll want an exact installed price for your system. The best way to get that is by talking to an experienced and trusted installer like

2. Factor in Tax Credits

Next, add up any local, state, or federal tax incentives. For example, the federal incentive for 2022 lets you deduct 26% of your system’s cost from your federal return.

3. Paying Cash or Taking a Loan?

To figure out your solar panel payback period – unless you’re paying cash – you’ll need to add the costs (interest and fees) of your loan to your total system cost.

4. What’s Your Annual Electric Usage and Cost?

Knowing how much electricity you use on a monthly and annual basis helps your installer accurately size your system. In addition, knowing how much it costs per year tells you what your savings will be.

5. How Much Will Electric Rates Increase?

You know your electric bills aren’t going down! However, getting a grip on how much they might go up in the future helps be more precise in figuring your solar ROI. You can get a pretty good sense by looking over your bills from the past few years.

6. Simple Math

Now that you know the total cost of your solar system after tax incentives – and don’t forget to include any loan costs – divide the total cost of your system by your annual electric payment. The number you get is how many years it will take to pay for the system.Here’s an example. If the total cost of your system is $15,500 and your electric bill is $1,700 per year, your solar system will pay for itself in 9.1 years. And that means at least 15 or 16 years of free electricity!

Solar Is Sounding Good

Now you know the six simple steps to calculate your payback period for solar panels. First, get a quote for your own solar system from your installer, and then you can do some simple math. After you run the numbers, the chances are that there’ll be one more solar house on the block!
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