Solar power ROI: How solar panels pay for themselves
Solar panels can generate electricity for 25 years and more. Despite upfront costs, they’re often worth it to save money long-term on utility energy expenses.
The amount of time it takes for solar panels to pay for themselves in utility costs avoided is different for every homeowner. Determining your potential savings can be difficult to conceptualize and calculate if you’ve never installed solar before.
To help you see how much you could save, this guide explains solar power ROI (return on investment), demonstrates how to calculate your installation’s expected payback period, and details what you can do to maximize your investment.
Understanding solar power ROI
As an investment in your home’s energy expenses, solar power ROI can be measured in lifetime savings against total project costs.
While you may also be able to lease solar or enter a power purchase agreement (PPA) for immediate savings, solar panel ROI is a necessary calculation when you choose to finance your installation or purchase your system outright.
Solar installation costs
The total costs of your solar installation will be the sum of many parts, including expenses for system hardware, labor, permitting, and project overhead. While most homeowners can expect to pay between $12,000 and $36,000, your solar installation costs will depend on many unique project variables, including:
System design
The number of panels you install, the complexity of your roof, your inverter system, and battery storage capacity.
Installer selection
Competing solar installers may offer varying pricing models, recommended designs, overhead costs, and warranty options.
Property upgrades
Some homes will require roof replacement, structural improvements, or an electric panel upgrade to install solar.
Purchasing decisions
The nature of your contract agreement, including solar financing terms like “interest” and “loan length”.
Solar incentives
Your qualification for available solar tax credits and incentives to lower total investment costs.
Home solar energy savings
To calculate your solar panel ROI against your total system costs, you’ll need to determine how much your installation can help you save in ongoing energy expenses.
While solar panels can increase your property value for a higher real estate listing price, solar power ROI is almost always calculated in energy savings avoided, rather than real cash returns.
The easiest and most effective way to calculate how much you can save with solar is by connecting with a certified installer in your area. Using advanced design software and a wealth of local knowledge, a solar expert near you can accurately calculate your system’s ROI and help you understand the solar billing policies in your area.
Generally, the ideal home solar installation will eliminate your entire annual utility electricity bill beyond any unavoidable charges, such as grid upkeep and distribution. Unique for every installation, the total amount of money your solar panels can help you save depends on the following:
System performance
Daily, annual, and lifetime solar electricity generated—based on local sunlight hours, system size, efficiency, upkeep, roof characteristics, equipment lifespans, and more.
Electricity rates
Higher local electricity rates can result in more significant lifetime savings on utility bills, including protection against future energy price increases.
Solar billing rates
The value of your bill credits for sending excess solar electricity to the grid depends on your utility’s net metering or net billing policy, as well as the time of day or week the energy was shared.
Incentive participation
Enrolling your solar battery in a grid service program, where available, can lead to rebates, savings, and direct payments to help balance local energy supply and demand.
How to calculate your solar payback period and ROI
When calculating solar power ROI, one of the best ways to determine whether an installation will be worth it for your home’s ongoing energy costs is to estimate your payback period. Your solar payback period represents the moment in time when your accumulated savings on energy bills equal your investment costs, which is also known as the “break-even” point.
While solar panel ROI varies project-to-project and across different states, the typical payback period for a home installation is between 7 and 10 years. Although many other variables come into the equation, such as future utility rate increases and system degradation, you can use our solar calculator or follow these three steps to estimate your payback period.
- Determine your net installation costs.
- Estimate your annual energy bill savings.
- Divide your net installation costs by your annual bill savings.
For example, let’s say you install a solar energy system for $28,000. If you qualify for the federal solar tax credit worth 30% of project costs—in this case, $8,400—your net installation costs would be $19,600. While the upfront costs to your installer will be $28,000, you will be able to file a $8,400 credit against your federal income tax liability. Before going solar, we recommend you consult a tax professional to ensure you qualify for this credit.
To estimate savings, let’s assume that your system will offset 100% of your annual utility electricity bill spending and that you pay about $150 per month or $1,800 per year for grid-supplied power.
Dividing $19,600 by $1,800, your solar payback period would be approximately 10.88 years in this scenario. Over a 25-year lifespan, your system could then be expected to “pay for itself” more than twice over in utility energy costs avoided.
Maximize your solar energy installation ROI
To make the most out of your investment and maximize your solar ROI, there are many things you can do both before and after your installation. It’s very important to consider solar as a long-term investment, knowing that the cheapest options may not be the highest performing or longest lasting to optimize your home’s ongoing electricity expenses.
For the greatest long-term savings, there are a few tips you can utilize to speed up your payback period and increase solar power ROI.
- Design your ideal energy system with the help of a professional that’s based on your home’s electricity demand and your property's solar potential.
- Calculate whether a home solar battery is the best choice to maximize bill savings in your area—a popular approach in California and many other states.
- Invest in high-efficiency solar panels and microinverters to maximize the amount of electricity your system can generate with the available daily sunlight on your property.
- Leverage all the solar tax credits, incentives, and rebates available in your area to lower your total investment costs.
- Ensure your system continuously performs at peak efficiency with routine checks, regular solar panel cleaning, and ongoing production monitoring.
Unlock long-term savings with solar power
Going solar can help you save on energy costs, protect against rising rates, and boost property value. When you calculate your ROI and payback period and also choose the right system, you can see returns within a decade and enjoy lasting savings. Consult a local solar professional today to start exploring solar options to maximize your financial benefits.
Solar power ROI and payback period FAQs
How long do solar panels take to pay for themselves?
In the United States, home solar panels generally take between 7 to 10 years to pay for themselves in utility electricity costs avoided. This payback period depends on many factors, including local electricity rates, available incentives, and the total costs of the installation.
Do solar panels save money?
Yes, solar panels can help save money on energy expenses at home. After your installation, the electricity your panels produce will increase your energy independence, leading to decades of solar savings.
Is solar a good investment?
Yes, although not every home is eligible and savings vary, solar is a generally good investment for most homeowners today. Beyond utility bill savings, solar can also be seen as a good investment for the environment, playing an important role in combatting climate change worldwide.
How long do solar panels last?
High quality solar panels can produce electricity for 25 years and more. While some solar inverter systems last between 10 and 12 years, Enphase IQ Microinverters include 25 years of limited performance warranty coverage, matching the expected lifespan of your panels for maximum solar power ROI.
