Transitioning to solar power involves a significant upfront cost, and for many homeowners, the question of how quickly you’ll see a return on this investment is paramount. This average timeframe to regain your initial investment is known as the solar panel payback period, which usually falls between six to 10 years, influenced by various elements. Nonetheless, the length of this period can vary widely, spanning from as little as five years to as long as 15 years, based on the state.
In this tutorial, we’ll assist you in determining your solar panel payback period to help you make an informed decision on whether or not solar panels are a sound investment for your property.
What Is a Solar Payback Period?
The payback period for solar panels refers to the duration required for you to recuperate your investment and begin reaping financial benefits once the cost of the solar system is fully covered.
In essence, you monitor your monthly electricity savings and once these cumulative savings match the upfront cost of the solar panels, you have completed your payback period. Beyond this milestone, the additional savings on your utility bills amount to extra advantages.
What Is Considered a Good Solar Payback Period?
While the average time it takes for solar panels to pay for themselves is between six to 10 years, this estimate varies widely due to various factors influencing the payback timeline. For instance, opting for a bigger solar energy system will involve a larger initial investment but could result in greater monthly savings.
Furthermore, a noticeable rise in the cost of power from your local provider can significantly boost your savings over the long run and shorten the payback period.
Today’s photovoltaic (PV) solar panels are built to last, with the capability to maintain over 80% efficiency for at least 25 years. Some panels have been known to operate up to 35 years, as reported by the Department of Energy. Therefore, even if the investment takes 10 years to recoup the costs, you can anticipate ongoing savings on your electric bills for the next 15 years, making it a worthwhile investment.
Solar companies can provide an estimate of how long it will take to recoup your investment. It’s important to obtain multiple estimates to identify the most cost-effective option. Choosing panels that offer similar quality but are priced competitively can have a significant impact on your savings.
How to Calculate Your Solar Payback Period
To calculate the solar panel payback, follow these five steps.
1. Tally the Total System Expenses
Begin by adding up all the initial costs associated with your solar setup, including the solar panels, installation and any additional accessories and fees.
2. Deduct Solar Incentives
Subtract any financial incentives you’re eligible for from the total cost. This includes the federal solar tax credit, local tax breaks and rebates. We’ll skip the long-term benefits of net metering, as these can vary greatly and are not available in all states.
3. Add Solar Financing Costs
If you opt for a solar loan, remember to add in any extra expenses related to your loan, such as interest over the life of your loan. You won’t need to factor in your down payment since it won’t incur interest fees.
4. Estimate Yearly Electricity Savings
Look at your electric bills and calculate how much you spend annually. Solar energy savings are higher in areas where electricity rates are high. Also, factor in expected utility rate increases based on former yearly bills.
5. Determine Your Solar Payback Period
Divide the net cost of your solar system (after subtracting incentives) by your annual electricity bill savings. This calculation will give you the estimated time for your solar investment to pay for itself, known as the payback period or break-even point.
