How to Calculate Solar Panel Payback Period

Curious to know payback time for your solar panel technology? In other words, how long does it take for incoming returns to cover costs? The solar panel payback period depends on many factors, including the cost of the solar system you need for your home, federal and state tax incentives available, cost of retail electricity in your area and the amount of sunshine available on your rooftop.

Payback in Years = Net Solar System Cost/Annual Utility Savings from Solar.


How Much Does it Cost to Install Solar

Net Solar System Cost = Cost of the system Rebates & incentives

Cost of the system:

  • The cost of installing solar depends on capacity of solar system(i.e. how much electricity you want to generate). In the USA, an average house consumes 730 kWh of electricity/month. Electricity consumption trends vary widely in each state in the country (View average monthly consumption by state). Your usage will increase significantly when you use an air conditioning unit, a hot-tub, or extended use of any of the following (computer,TVs and video games etc). More usage means you need a bigger system. Then you need to buy more equipment. Also more labor will be needed to install it.
  • Next factor is the type of equipment and its  cost. Not all solar panels (or inverter) are created equal, and more efficient equipment comes with a higher price tag. Better hardware can produce more electricity with the same amount of sunlight, and often comes with a more comprehensive warranty, too.
  • The characteristics of your home such as slop of your roof, multiple level roof, dormers, or skylights etc can also add additional costs.

On average  Below are some average costs for some solar energy systems by size before tax credits:
6kW solar energy system cost: $23,100
8kW solar energy system cost: $30,800
10kW solar energy system cost: $38,500



Solar Tax credits, Rebates & incentive programs
A taxpayer may claim a credit of 30% of qualified expenditures for a system. In addition to this, many states, cities or utility companies offer solar rebates for home solar power systems. State solar incentive programs vary among states.

So, What is the net cost of solar system in US in 2017?

Overall,  homeowners report spending an average of $2.87 to $3.85 per watt to install solar. Note: Since the costs for solar panels are continuing to drop every year, total cost of the system might go down $1 /Kwh.


Utility rate

Utility rate is an important factor that determines the financial benefits of solar. The higher your electricity rates, the more money you will save by going solar. As utility rates continue to rise, your savings can grow every year.(View state by state electricity rates.)

Sun Hours

The performance of your solar system depends on several geographical factors like location, climate and the amount of sun an area gets. Solar panels do produce more electricity in sunnier states. The sunlight hours vary for different states in the United States. Arizona tops the list of places in United States with the most sun and Alaska the least. (Find the average sun hours per day in your state.)


Calculate Solar Payback Period in your area

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