Is Solar Right For You
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One of the most common reasons homeowners choose to invest in solar is for financial benefits. The idea of eliminating electric bills and increasing your home value sounds great. But, solar panels arenât cheap. Thatâs why determining how long it will take for your solar panels to pay for themself, a.k.a payback period is an important factor to consider before going solar.
How Much Youll Pay For Solar
The first step in calculating your solar payback period is to determine how much youll pay for solar. The cost you pay for your system is dependent upon the size of the system and the equipment that you select.
For the payback period calculation, its important to also consider what solar incentives, tax credits, and rebates youre eligible for, as well as the timing of those incentives: do you receive them upfront, in year one, or over ten years?
Solar Panels Roi: How To Calculate Solar Payback
The average American household pays a monthly electric bill of $118.36. When you go solar, the power generated by your solar panels replaces the electricity you buy from the utility company, reducing or completely eliminating that bill.
Though solar is a big purchase up front, that investment quickly pays for itself in energy savings over the life of ownership. The payback schedule is accelerated by state and federal tax incentives that reward people who invest in green energy.
A grid-tied system can pay for itself in around 3 to 6 years for DIY projects, and 5 to 9 years if you hire a contractor. Since solar panels are warrantied for 25 years, any energy you generate beyond the initial payback period represents a profit on your investment.
Wondering how to calculate your payback period and solar panel return on investment ? Lets do the math.
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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 a tax credit equal to 30% of the total installation costs.
Many states offer additional solar incentives like solar 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. Thats the number well use to start subtracting energy bill savings from.
What Is A Solar Payback Period
As with other investments, the solar payback period estimates how long it will take for you to break even on your solar energy investment. The payback period for solar is calculated based on the cost of solar, net of any incentives, and the savings youll see by avoiding paying for electricity.
As an example, if your solar panel system has a payback period of eight years, this means that your solar panels will save enough on your electricity bills to cover the cost you paid for them in just eight years. But solar panels last for 25 or even 30 years, so after year eight, its all gravy: thats when youll truly start to see massive savings from solar, often on the order of tens of thousands of dollars over the next two decades.
In this piece, we talk through the payback period of solar when you pay for solar upfront. But thats not the only way to pay for a solar panel system: both solar loans and solar leases/PPAs are very popular methods of financing a solar energy system. In the case of a solar loan or a lease/PPA, you pay for solar monthly, as opposed to up front. While youll save less money in the long run by paying for solar with a loan or lease, so long as your monthly solar payments are less than what you currently pay for electricity, your payback period for solar is right away: youll start saving in month one!
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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
Average Solar Panel Payback Period In The Us
Though the average solar panel payback period is somewhere in the eight- to 12-year range, this can vary quite a bit from home to home. For some, it may be as little as five years. For others, it may be as long as 15 years. Local electricity costs and state-specific financial incentives, such as tax credits, solar rebates or net metering programs, are determinative factors.
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Will Solar Panels Supply All My Electricity
Yes, solar panels can supply all the electricity for some homes, but several factors need to be considered. This includes the size of the solar panel system, position and the number of hours of daylight that varies during the year.
Determining the amount of electricity that you may generate from solar panels for your property will be on a case-by-case basis. Some people opt for solar battery storage alongside their panels to maximise the system.
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 theyll 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 or 1,000 kilowatt-hours 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!
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What Is The Average Payback Period For Solar Panels In The Uk
The United Kingdom isn’t well-known for its warm sunny climate, so it may come as a surprise that solar power is increasingly popular in Britain.
Solar power harnesses energy from the sun, but it only requires some daylight to extract the sun’s energy. So, despite our frequent rainy and overcast days, UK residents can still easily benefit from switching to solar power. Solar power adoption continues to grow amongst UK homeowners as they discover renewable energy’s cost savings and environmental benefits.
Thanks to advances in solar technology, it is more affordable than ever before to make a power switch. By installing solar panels on your home, caravan, or cottage, you can capture energy from sunlight and use it to power your home, vehicles, businesses, and more.
Solar energy is incredibly efficient to run, so most of the costs associated with solar power come during the setup. Setup costs can be intimidating, but you’ll quickly benefit from your initial investment.
If you’re running the numbers to calculate the cost of installing solar power, you should be aware of the average solar panel’s payback period. The payback period is the amount of time it will take for the panels to pay for themselves – so its an important budgeting consideration.
Read on to learn more about the average costs of installing and running solar energy in the UK.
Cost Of Electricity And Rate Of Increase In That Cost
Heres 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, its not always that easy. Why? Because electricity rates increase over time, and some states do not offer net metering.
Example 5:
Heres where our friend in Bakersfield finally learns their solar payback period!
Californias net metering law is a bit complicated, and your average rate depends on time-of-use billing. Click on those links to learn more, but for our purposes, well use an average cost per-kWh here.
The solar energy our friends 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 dont go up between now and then.
If their solar panels were fully connected by January 2023, theyd be paid off before the summer of 2028 and will keep making electricity until at least 2048. Thats what wed call a great deal!
Electricity rates increase over time
Some states dont offer net metering
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Return On Investment For A 125 Kw Solar Panel Installation
Most solar panel installations, combined with the Feed in Tariff and energy savings will provide a reasonable return on investment. Obviously, the more energy your system produces and the more of that energy you directly use yourself, the better that investment is, even with the greater cost of installation.
A 1.25 kW solar panel installation is perhaps one of the smaller domestic ones you can get and will cost around £3,000. The Feed in Tariff will earn you roughly £20 a year and you may well save up to £70 on energy bills. With the export tariff included, your total investment return for a year will be approximately £80 to £120, ensuring that you pay off the initial cost within about 17 years at current prices.
How To Calculate Solar Payback
There are two common methods to calculate solar payback:
The simple payback method can be done on the back of a napkin. The simple payback method tells you the number of years it will take for the solar system to pay for itself.
For example, if your solar panels cost $20,000 and they save you $2,000 per year, the solar panels will pay for themselves in 10 years.
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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 like the federal solar tax credit. It is the number well use to begin subtracting savings from to determine the payback period.
Example 2:
As of January 2022, the national average cost of a 6 kW home solar system is about $2.85 per watt, or $17,100, before incentives. The homeowner in our example will either need to pay cash or take out a solar loan for around that amount.
The Cost Of Residential Solar Panels
The initial cost of an installation will obviously vary depending on the size and quality of panels installed. A small 1 kW system will more than likely set you back between £2-3,000 whilst a bigger, more efficient 4 kW panel array will be in the region of £6-7,500.
Most people who decide to have solar panels will either fund it themselves from savings or take out a loan. There is the option to have panels installed for free but you will have to hand over your Feed in Tariff to the company which means you will not make any money from generating excess electricity, though you will benefit from cleaner energy and cheaper bills.
There are other options to consider such as the Governments Green Deal, which you may qualify for and can provide a low interest loan for solar panel installations.
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Is $1600 Per Year A Good Return On A 5kw Solar System
A high-end 5kW system, at the time of writing , will cost you about $8k installed.
So $1,600 of annual savings is a simple payback of just over 5 years.
And this is where we come to another misconception about the returns from an investment in solar. Many folks believe that a payback of 5 years means that they see no financial benefit for 5 years. This is wrong, wrong wrong! We need to take cash flow into account.
When you work out the actual cash flows, many folks find that they are actually losing money by not having solar
How Is The Solar Panel Payback Period Calculated
To calculate your solar payback period, youll need to take the following steps:
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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, youll break even in about 8.7 years.
- You 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.
Myth #: Batteries Are Too Expensive To Make Solar Viable
This myth usually stems from people not knowing that most solar PV systems do not need batteries. Unless you really want or need backup power,batteries are not required or recommended for grid-connected solar arrays.
Yes batteries are expensive, which is precisely why we donot recommend the average homeowner to buy them.
Rather than store your excess energy in a battery, netmetering through your electrical retailer will allow you to sell your energyback to the grid for a credit, which will roll over month by month. When the sun is not shining such as at night,you will simply draw energy from the grid, potentially using up your storedcredit.
In select cases batteries are required such as for off-grid solar powered homes,then the expense of batteries is far superior to the alternative of not havingpower.
Key Takeaway: Grid-connectedsolar power systems do not require batteries. When the solar panels are not generating energy, you can draw from thegrid and use up your credit.
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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 homes 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 theyre 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.
Calculating Solar Panel Payback
The top question on every homeowners mind is, How long does it take to break even on solar panels? While most people understand that solar will save them money over time, few know exactly how much or how long itll take to accumulate.
Thats because these numbers vary. Factors like location, panel type, and climate all play a role. These factors aside, the average solar panel payback period is between 7 and 12 years.
So, exactly how long does it take to pay off solar panels? Heres how to calculate an estimate:
Keep in mind that these calculations do not account for electricity rate fluctuation over time.
In short, your payback period looks something like this:
Solar payback period = initial net investment / yearly benefit
For example, if you pay $14,000 for your installation and save $2,000 per year on electricity, your payback period is 7 years.
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