Payback Period for Solar Panels: When Will You Break Even on Your Investment?

The United States is going through one of its worst energy shortage downturns of the last five decades in the form of a blackout crisis. As conventional energy sources fail, the demand for residential solar is at an all-time high: 2022 saw a record-breaking number of small-scale solar adoptions.

This increase in demand, coupled with the federal solar tax credit, has had a significant impact on the cost reduction of residential solar.

However, homeowners still pay anywhere between $15,000 to $25,000 on solar installations.

As an aspiring solar user, the upfront costs involved in the process may make you think twice about your decision to make the switch. Yes, going solar is an excellent way of gaining energy independence, but significant expenses are involved.

It is essential to learn about the payback period of solar panels so that you know when you can expect to break even on your initial investment. And the solar panels payback period varies widely from one setup to another, largely depending on use cases and the elements of each system.

While there is no one-size-fits-all prediction that will outline the exact amount of time you will earn back how much you’ve spent, you can calculate it roughly depending on certain factors.

Factors That Affect Solar Payback Period

The solar payback period refers to the time it takes for you to make utility savings equivalent to the initial cost of your solar investment. The solar panel payback time matters because investing in such a massive project is only as good as the return it yields.

Typically, this takes around six to ten years, sometimes more, depending on certain factors. This is a rough generalization at best, and you should not set much store by it.

Understanding factors that influence the solar panel's payback period puts you in a more well-informed position when deciding to switch to solar.

Here’s what you should keep in mind when calculating the payback period:

Solar Investment

Purchasing a solar panel installation is the most cost-intensive part of the process. How much you end up spending on your solar array will vary from brand to brand, overall capacity, installation charges, and a host of other factors. It’s best to use a solar panel cost calculator and consult with solar contractors to avoid overspending on your purchase.

Remember, the more money you spend, the longer your payback period will get.

Solar Investment

Power Production and Consumption

Next is how much power your solar array produces compared to how much electricity your household consumes. If you can completely offset your electricity consumption from the beginning, you will save a lot more and have a shorter payback period.

To do this, your solar panels must be installed at the optimal tilt angle and in the best position where they can receive the most sunlight and produce lots of solar power. You should also pair your solar with batteries to store all excess energy you produce for later use. These considerations will help you make the most of your solar arrangement.

If you’re lucky enough to live in a sunny location with a ton of sunshine throughout the year, you can produce lots of solar power and shorten your payback period.

Solar Incentives and Discounts

Since President Joe Biden signed the Inflation Reduction Act (spanning 2017 to 2034), homeowners who have installed solar panel systems are eligible for a federal tax credit. This credit can cover up to 30% of the purchase cost of your solar array, depending on certain conditions and qualifications.

Most states in the US also offer solar panel rebates and incentives for homeowners and businesses. Net metering plans, discounts on property tax, low-interest loans—solar purchases are incentivized. This works in your favor, as the more of these incentives you can avail, the less of an investment you’ve to recover. This means a shorter payback period.

Cost of Electricity

The cost of electricity also influences how quickly you can break even on your solar investment. It’s easy to assume that local utility rates only affect grid-tied solar users, but that’s not true.

For those on the grid, the cost of electricity can be self-defeating. If the utility provider does not provide reasonable Time-of-Use (ToU) rates but implements a strict rate increase, there is little progression in terms of savings and solar payback. A glaring example is the recent PG&E rate increase 2023 that affected residential solar users in California.

So, how long do solar panels take to pay for themselves? There’s no surefire answer to this question. The payback period of solar panels depends on conditions specific to your setup.

Cost of Electricity

How To Calculate Your Solar Panel Payback Period

How long does it take for solar panels to pay for themselves? Here are steps to calculate a rough estimate:

Calculate your total investment in terms of purchasing and installing a solar array. This should include recurring interests, purchase costs, roof repairs, etc.

Deduct the federal and other state-based solar tax discounts you have availed from the overall investment.

Next, calculate how much money you will save on your utility bill every year. This will be an estimation because your consumption and savings will vary from one month to another.

Divide your net solar investment by the average savings you will make on your electricity bills.

The figure you’re left with is the ballpark payback period of your solar investment.

Remember that the solar payback period is variable because most of the factors that contribute to it are also variable in nature. Some solar owners may recover investments in five years, while others may take ten or more years to get there.

Solar Payback Period and You

The shorter your solar panel payback period, the more time you have to make profits from your solar array. Whatever your motivation may be for going solar, it cannot override the long-term profit-bearing aspect. So, consult experts like AMECO, an experienced solar company in California, before finalizing your solar financing options.

We can help you make the most of your residential solar panel installation.