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The solar panel payback period is how long it takes to breakeven after you factor in the upfront investment. This is where real savings begins. Here's how long it takes.
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Mike De Socio is an independent journalist based in upstate New York, telling stories about cities, climate change and the LGBTQ+ community. His work has been published in Bloomberg, The Guardian, Fortune, HuffPost, Xtra, YES! Magazine and beyond.
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Mike De Socio
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Consideringsolar panelsto save money? You won't actually save right way.
You might, like many Americans, want to help the environment while simultaneously saving money by giving your home an alternative source of power.
"Solar is what's coming, in terms of how we start powering our homes, how we connect as a community to support energy needs within our community,"Jamie Haenggi, president of ADT Solar, told CNET.
But solar panels are expensive, and you need to factor in the solar panel payback period. This is whenthe breakeven period ends and the savings period begins. Before you invite a crew of solar installers onto your roof, you'll want to understand when -- or if -- the panels will start to pay for themselves through savings on your utility bill.
Here's your guide to understanding how long it takes for you to start saving money with solar panels.
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What is a solar panel payback period?
A "solar payback period" is a fancy way of talking about how long it takes for the money you spent to be outweighed by the money you're saving (or earning) on your electricity bill.
It's a key number -- usually a matter of years -- that tells you how long you'll wait to see a real return on your investment. Solar payback periods can vary widely, and also depend on how you pay for the system in the first place.
"There's a lot of factors that play into that for any given home or household," said Becca Jones-Albertus, director of the US Department of Energy Solar Energy Technologies Office.
Haenggi from ADT Solar said an average payback period in the US is between six to 12 years, with most households leaning closer to the latter. Like Jones-Albertus, she emphasized that it's a moving target.
"People are reluctant to say, 'Well here's the payback,' because the energy market has been so volatile," Haenggi said.
Factors that influence your solar payback period
No two solar systems are the same, and that means no two solar payback periods are the same, either. "It seems like an easy answer, but it's more complicated," Haenggi said.
Calculating your potential payback period will depend on a lot of variables.
Total solar system cost
The more you pay for your system upfront, the longer it's going to take to recoup your costs. Solar systems can range in price from a few thousand dollars to tens of thousands, depending on where you live, your electricity needs and what type of system you choose to install. It goes without saying: The steeper the price, the longer the payback period.
Incentives and tax credits
Once you know the total cost of your solar system, you also have to factor in any state or federal rebates you might qualify for. The federal residential clean energy credit, for example, gives you 30% back. Your state might also have additional incentives. Those credits can lop off a significant chunk of the money you pay for solar panels, making your payback period shorter.
Your home's energy consumption
Sometimes rooftop solar can completely cover your electricity needs -- reducing your utility bill to $0 -- and sometimes it only covers a portion of it. If you consume a lot of electricity, solar might only translate to a small reduction in your electricity costs, which means it could take longer for you to see a return on your investment.
Electricity production of your solar system
You probably never thought much about your roof, but it makes a big difference in how your solar investment will play out. If your roof has room for lots of panels that soak in the sun all day, you'll produce a ton of electricity, and see a quicker payback. But if you live on a shady lot, and your panels' production is more intermittent, you won't see a payback quite as quickly.
Cost of electricity and rate of increase
This is a huge, but sometimes overlooked, factor in the solar payback period. Basically, the higher the electricity rates where you live, the more lucrative solar can be for you. That's because, as utility rates increase, you save more money by relying on your solar panels instead of drawing power from the grid.
How to calculate your solar payback period
If you want to get a rough idea of your potential solar payback period, here's a way to do it. Keep in mind, you'll want to consult the experts (read: solar installers) to make sure you have accurate numbers here. But this can help you get an idea:
- Start with the total cost to install solar on your home. (Be sure to consider interest and fees if you're taking out a loan.)
- Then, subtract the value of any rebates, incentives or tax credits.
- Now you have the net cost of your solar system, after discounts.
- Estimate your annual electricity bill savings with solar panels. (Again, your solar installer or utility provider might be able to help here.)
- Divide the net cost of the system by the annual bill savings.
- The number you end up with is the number of years it will take for your panels to "pay for themselves."
Here's another look at the formula: (Total solar system costs - rebates) / Electricity bill savings per year = Payback period in years
In practice, here's what that could look like: Let's say the total system cost for your home is $25,000. You know you qualify for $10,000 in incentives, so now the net cost is $15,000. You also know the panels will help you save about $1,500 a year on electricity bills. So, $15,000 divided by $1,500 is 10. That means your solar payback period is 10 years.
Why knowing your payback period is important
Now you have your solar payback period. But how does that factor into your decision?
"It depends on what is motivating the household to make the decision to [install] solar," Jones-Albertus said. Maybe you just want to help the environment, and aren't worried about the costs. But "folks are interested in the resilience aspect and the economic aspect, as well," she said.
If you are interested in the financial aspect, then the payback period is an important number for your decision making. A payback period around 10 years, give or take, is pretty average, and could end up being a solid investment, Haenggi said.
But again, it depends on your goals and your comfort level. If you're planning on moving or selling your home in the near term, for example, that changes the calculus. You might not be in the home to see the payback in the form of electricity savings, but you could see a payoff in a higher sale price for your home.
"That system on your roof does translate to an increase in property value," Jones-Albertus said.
There are few scenarios, Jones-Albertus and Haenggi agree, when installing solar probably doesn't make sense, no matter the payback period. If you know your roof will need to be replaced soon, you'll definitely want to wait until that is done before you install solar panels on top of it. And if you have a ton of trees looming over your home, a solar system is unlikely to ever generate a significant return; in that case, Jones-Albertus recommends considering community solar.
How to pay for solar panels
There are a lot of different ways to pay for solar panels, and they all affect the solar payback period.
- Cash: If you simply save up for the purchase (using a high-yield savings account, for example), you'll avoid paying any loan interest, and reduce the overall cost of solar panels. "In the long run, typically the highest rate of return comes from paying for cash for a system," Jones-Albertus said.
- Solar loan: Some banks offer loans specifically designed to fund solar installations. Check in with your installer or with lenders to see what the options are.
- Home equity loan or line of credit, aka HELOC: Generally speaking, using the equity in your home to fund home improvements can be a solid idea -- especially because solar panels will increase the value of your home.
- Lease or power purchase agreement:If you want to minimize the upfront investment in solar, you could actually lease the system from the installer. The developer would own the panels, and would sell you the electricity generated at a reduced rate, basically negating the idea of a "payback period" all together.
More solar advice
- Save On Your Next Home Energy Upgrade With These Incentives
- Do Solar Panels Save Money? Yes. Here's How
- How Many Solar Panels Do You Need to Power Your House?
FAQs
Solar Panel Payback Period: How Long Does It Take to See Savings? ›
For most homeowners in the U.S., it takes roughly eight years to break even on a solar panel investment. For example, if your solar installation cost is $16,000 and the system helps you conserve $2,000 annually on energy bills, then your payback period will be around eight years (16,000/2,000 = 8).
How long does it take for solar panels to save you money? ›Solar panels typically pay for themselves within nine to 12 years. Solar panels reduce or eliminate the cost of electric utility bills. Utilities may pay solar panel users through a process called net metering.
Why are my solar panels not saving me money? ›Many homeowners use more power after going solar
If you start using more power after going solar than you were before going solar, you may not be saving money on electricity. Keep in mind that your solar system is designed to produce the amount of electricity your household was using before you went solar.
Solar panels cost money upfront, but will provide significant savings on energy bills over time. The average home can save between $20,000 and $97,000 over the lifetime of your solar panel system, depending on the cost of electricity in your area.
What happens after I pay off my solar panels? ›Once you pay off your loan or buy your system outright you will essentially be getting energy for free. When it comes to payment, those who are using solar energy will still get a monthly utility bill. This will show how much energy you produced versus how much energy you used for the month.
What is the break even point for solar? ›The payback period for solar panels is the amount of time it takes for the energy savings to exceed the cost of going solar. Also known as the break-even point, a typical payback period for residential solar is 7-10 years.
What is the average ROI for solar panels? ›What Is The Average Solar Panel ROI? The average ROI for solar panels in the U.S. is about 10%, but this varies depending on the location of your solar panels, your home and other factors. You can use a ROI calculator to determine the ROI for your specific solar panel setup.
What happens if my solar panels produce more electricity than I use? ›In most cases, if your solar system generates more energy than your home needs at any given time, the excess energy will flow back to your utility. Your utility company may provide you with a credit for energy you send back to it. This credit is called net metering.
Are solar panels financially worth it? ›Yes, getting a solar panel system is worth it for the excellent financial benefits and cost savings. However, solar panels aren't suitable for everyone. Residents with low energy needs, low electricity rates, or year-round inclement weather may not save money from a solar system.
Why is my solar true up bill so high? ›Increased Usage
If your electricity use increased from that initial 12-month usage estimate – for example, maybe you've installed a pool or switched from working in an office to working from home – you may be surprised with a larger True-Up Bill as a result.
Can solar panels work with AC? ›
The simple answer to this question is yes. You can most definitely run your AC on solar power. As long as you provide steady voltage and continuous current, you will have no problems.
How many solar panels are needed to run a home? ›An average home needs between 17 and 21 solar panels to fully offset utility bills with solar. The number of solar panels you need depends on a few key factors, including your geographic location and individual panel specifications.
Do you get money back from using solar energy? ›What are the residential solar tax credit amounts? Installing renewable energy equipment on your home can qualify you for Residential Clean Energy credit of up to 30% of your total qualifying cost, depending on the year the equipment is installed and placed in service. After 2034, the credit is scheduled to end.
Is a solar loan considered a second mortgage? ›If you purchased your solar panels utilizing a loan, this is technically considered a second mortgage requiring a subordination agreement signed by the solar company and could affect your rate. While quite common, this could affect the amount of equity available to you, and may affect the rate.
What is the best way to pay off solar panels? ›Cash is the cheapest way to pay for solar panels and their installation. You'll also reap savings more quickly because the lower utility bills won't be offset by loan payments. Alternatively, you can finance solar panels with a personal loan, home equity financing, a government loan program or through a contractor.
What is the 120 rule for solar? ›The NEC, 120% rule states that solar PV systems should be installed in electrical boxes up to 120% of the busbar's label rating. For example, if the home's electrical meter rating is 175 amps, the rule allows an additional 20%, an equivalent of 35 amps from the solar system.
How do you calculate solar savings? ›Divide the lifetime energy output by the cost of your system. If your 4 kWh system costs a total of $36,000, your system will cost $0.165 per kilowatt-hour to operate. Compare that sum to the cost per kilowatt-hour your electric company is charging you.
How do you calculate ROI on solar panels? ›How to calculate the ROI. Once you know how much you spent on electricity over the last year, to determine your solar ROI, simply divide the total cost of the system by the annual benefit of installing the system.
Will solar panels be cheaper in 5 years? ›Even their most conservative model suggests a 4-20% decline in costs from 2022 to 2038, with more optimistic models calling for the cost of solar to decrease by more than 50% between 2022 and 2038. Part of the cost reduction comes from an expected influx of polysilicon solar modules with higher efficiencies.
Is solar a good long term investment? ›Is getting solar panels a good investment? Solar panels are a good investment for many US households, especially those with ample sunshine and high utility rates. Going solar can lead to hundreds of thousands in energy savings over the 25-year lifespan of a system and can increase your home value.
What is a good return on investment for solar? ›
| System size (kWp) | Annual generation (kWh) | Investment rate of return (IRR) |
|---|---|---|
| 2 | 1,675 | 5% |
| 3 | 2,792 | 8% |
| 4 | 3,350 | 9% |
| 10 | 8,659 | 10% |
| Advantages of Solar Energy | Disadvantages of Solar Energy |
|---|---|
| Decreases use of non-renewable resources | High upfront costs |
| Reduces power bill | Sunlight dependent |
| Energy independence | Space constraints |
| Long-term savings | Environmental impact of manufacturing |
Photovoltaic panels can use direct or indirect sunlight to generate power, though they are most effective in direct sunlight. Solar panels will still work even when the light is reflected or partially blocked by clouds. Rain actually helps to keep your panels operating efficiently by washing away any dust or dirt.
Can solar panels be overcharged? ›What Happens When Solar Power Batteries Are Full? Solar power systems use batteries to store solar energy. However, if the power generated exceeds the solar battery's capacity, it can overcharge the system. An overcharged solar system can severely damage a battery's life.
Why is my solar panel overcharging? ›Higher charging voltage from the solar panels leads to higher Ah being delivered to the battery and ultimately leading to overcharging. The easiest way to control over charging of the batteries is to control the output voltage of the solar panel.
How do you avoid true-up charges? ›What Can I Do to Reduce My True-Up? First, to reduce your True-Up bill, ensure your system was built to offset your entire energy usage within the home. Second, be more mindful of how energy is being used.
Is solar worth it 2023? ›In 2023, we predict solar panels will be a substantial investment for homeowners with the available capital to overcome the upfront costs. With rising electricity rates and further increasing monthly electricity bills, more homeowners each year will be drawn toward solar panel systems to offset monthly utility bills.
What are 5 bad things about solar energy? ›- Solar Panel Installations Can Be Expensive. ...
- Solar Energy Doesn't Work at Night. ...
- Solar Energy Storage is Expensive. ...
- Solar Panels are Difficult to Move Once Installed. ...
- Some Solar Panels Use Rare Earth Metals.
In most cases, installing residential solar panels is worth it. Solar panels typically last 25 years or more and can dramatically reduce or even eliminate your electricity bills — you can save an average of $1,346 annually on energy bills by going solar.
How many solar panels does it take to run a 1 HP air conditioner? ›Since most AC systems use around 1,200 watts, the required number of solar panels is 5.
How many solar panels required to run 2 ton AC? ›
A 2.4kVA solar panel can be utilized to match the 1900 watts or 1.9 kW requirements of higher-powered ACs like 1.5 tonnes. If this isn't enough and you need to run a 2-tonne AC, you'll need a 3 kVA solar panel with a wattage demand of roughly 2500 watts or 2.5 kW.
How many solar panels does it take to run a washing machine? ›A standard washing machine running on solar energy will need a 300-watt solar panel if it utilizes 300-500 Kwh energy. Usually, you only need one solar panel from a reliable manufacturer to power a washing machine.
How long can a house run on solar power alone? ›How long can a solar battery power a house? Without running AC or electric heat, a 10 kWh battery alone can power the basic operations of a house for at least 24 hours, and longer with careful budgeting.
How many solar panels do I need for a 2000 square foot house? ›Thankfully, we've got the answer for you! A 2000 square foot house will need 28- 34 solar panels, which comes out to an average cost of \$3.50 per watt. Not only will installing solar panels save homeowners money on their electric bill, but they can also increase the value of their home.
How big of a solar system do I need for a 2000 square foot house? ›So, a 2,000 square foot home would be allowed a solar array of 4,000 watts. Depending on the type of panel that you choose, a system of this size would be anywhere from 12-18 solar panels. Keep in mind, this formula to estimate consumption varies depending on who provides your electricity.
How do you pay off solar panels? ›There are three primary ways to pay for solar: with a cash purchase, with a solar loan, or with a solar lease/power purchase agreement.
How many solar panels does it take to power a house? ›An average-sized home in the United States (2,480 square feet) will need about 15 to 22 full-sized solar panels to completely replace traditional energy sources. That being said, the exact number of solar panels needed for your house depends on several other factors.
Are solar panels a good long term investment? ›Is getting solar panels a good investment? Solar panels are a good investment for many US households, especially those with ample sunshine and high utility rates. Going solar can lead to hundreds of thousands in energy savings over the 25-year lifespan of a system and can increase your home value.
Will solar prices drop in 2023? ›In 2023, solar panels in the U.S. cost about $20,650 on average down from more than $50,000 10 years ago. In this article, we'll break down the cost of solar by system size, state, and panel brand, all of which can significantly impact the final number you pay.
Is solar worth it in 2023? ›In 2023, we predict solar panels will be a substantial investment for homeowners with the available capital to overcome the upfront costs. With rising electricity rates and further increasing monthly electricity bills, more homeowners each year will be drawn toward solar panel systems to offset monthly utility bills.
Are solar panels a good investment in 2023? ›
You get a good price for solar: in 2023, an average 10 kilowatt (kW) solar panel system costs about $20,020 on the EnergySage Marketplace. Prices on EnergySage are usually lower than market prices, so you know you're getting a good deal.
Can 1 solar panels power a whole house? ›Fact vs Myth: Can Solar Energy Really Power an Entire House? [2023 Update] One of the most frequently asked questions by homeowners in regard to solar power is, “can it really power my entire house?” The answer to that is actually quite simple – yes, solar can indeed power your entire home.
Will solar panels last 40 years? ›Solar panels last about 20 years, according to the Federal Trade Commission. The great news is that, with proper maintenance, your panel may actually run for as long as 40-50 years.
Is solar cheaper in the long run? ›The benefits of solar energy don't end with cost-savings. When you install solar panels, you'll increase the overall value of your home by an average of about 3%. If you eventually sell your house, you'll actually make money on your smart investment in renewable energy.