How Long Do Solar Panels Take to Pay for Themselves?

Estimated reading time: 6 minutes

If you're considering going solar, you're probably wondering how long it will take for your utility bill savings to cover the upfront cost of the solar system. This is called the solar panel payback period. In this article, we'll walk you through the process of calculating it and help you consider all the factors that impact it. 

How to Calculate Your Solar Panel Payback Period

To calculate your payback period, start by subtracting any incentives or rebates you qualify for from the total cost of your solar panels. Then, divide the remaining cost by the amount you save on your yearly electricity bill. Whatever number you get, that’s how many years it’ll take to make back your investment. Here's how to do the math: 

Total Cost of Installation - Rebates and Incentives = Investment 

Investment / Yearly Savings on Your Electricity Bill = Solar Panel Payback Period 

Factors to Consider

Before calculating your payback period, make sure to take these four factors into consideration: 

  1. Your electricity usage and rising rates
  2. Total system cost
  3. Solar tax credits, incentives, and rebates
  4. Efficiency of your solar panels

Keep reading to understand how you can determine each of these factors.

Electricity Usage and Raising Rates 

Determine how much electricity you use per month, so you can estimate your potential savings for when you go solar. Here’s the formula you can use to calculate your savings: 

Your Utility Company Rate * Yearly Usage = Annual Utility Cost 

Keep in mind that electricity prices tend to increase over time, so choosing solar power will not only enhance your long-term savings but also shorten your payback period. In the United States, the average annual rise in electricity rates over the past decade has been approximately 1-3%.

Total Cost of Your System 

To figure out your total solar panel system cost, you’ll first need to know what size of a system you’ll need. Your electricity usage will help you determine whether you require a larger or smaller system. Larger systems cost more, but they help you save more on your utility bill. You can determine sizing based on your annual electricity usage and how many kilowatt-hours you get per kW of solar in your area. Here’s the formula you can use to find this out:

Yearly Electricity Usage (kWh) / Kilowatt-Hours per kW of Solar = System Size (kW) 

Now that you know what system size you’ll need, you can start looking into prices. On average, systems 2.5 - 10kW average to be about $4.25 per watt. At Project Solar, our upfront costs are 50% less than the national average, which means our customers benefit from paying off their panels twice as fast. 

Solar Tax Incentives, Rebates, and Credits  

There are financial benefits for going solar that you can get from the government or your utility company to help bring down the cost of your solar system. Here are some examples:

Incentives: There are many government incentives that are meant to encourage the adoption of solar energy. For instance, the federal solar tax credit, introduced in 2005 by Congress, offers a 30% credit on the total cost of installing a solar energy system. That credit deducts from what you owe on taxes that year. 

Net Metering: With net metering, any excess electricity your solar panels generate can be fed back into the grid. This can earn you credits that can offset your future energy bills. For example, if your solar panels generate 500 kilowatt-hours more electricity than you consume in a month, you would receive a credit for that excess energy, reducing your future energy costs.

Solar Renewable Energy Credits (SRECs): Some states have programs that require a certain percentage of electricity to come from renewable sources. Homeowners with solar panels can earn income by selling Solar Renewable Energy Credits. For example, you might earn one SREC for every 1,000 kilowatt-hours of solar electricity generated, which can be sold to utilities or other entities participating in the SREC market.

Efficiency of Your Solar Panels

Over time, solar panels naturally become a little less efficient, which means that as they get older, they may not generate as much electricity as they did before. This can result in you still needing some electricity from your regular electrical provider. So, towards the end of their lifespan, the panels may not be able to completely cover all of your electricity needs.

When we talk about solar panel production, it's important to understand the idea of "offset." Basically, it means how much of your electricity usage the solar panels can replace. Some calculations assume that the panels can completely offset all of your energy consumption, but that's not always the case. Depending on the size and efficiency of your system, it might not be able to generate enough power to cover all of your needs. On the other hand, in some cases, the panels might actually produce more electricity than you use, and that excess energy can earn you credits on your electricity bill through a process called net metering.

Another factor to consider is the amount of sunlight your state gets. Different states have different levels of sun exposure. For example, in Hawaii, where there's plenty of sunshine, solar panels can pay for themselves in a shorter period of time compared to a state like Washington, where there's less sunshine.

What’s a Good Payback Period?

Solar panels typically have a lifespan of around 25 years, and with regular maintenance, they can even last longer. When we talk about the "payback period," we're referring to the time it takes for the savings you get from using solar panels to equal the cost of installing them. Ideally, a "good" payback period would be 12.5 years or less, which is half of the panel's lifespan. This means that for at least 12.5 years, you can enjoy monthly savings that go directly into your pocket.

Here at Project Solar, we take pride in offering high-quality solar panels that guarantee a production rate of at least 85% even after 25 years. This means that our panels will continue to generate a significant amount of electricity throughout their lifespan. Additionally, our prices are 50% lower than the national average price of solar panels, which means our customers can pay off their panels in half the time compared to other providers. This allows you to start reaping the benefits of savings much sooner.

Final Thoughts

Once you've finished reading this article, you'll be able to calculate the estimated payback period for solar panels. It's important to note that the formula we gave earlier in this article provides a simple estimate and doesn't take into account factors such as potential increases in electricity costs or panel degradation over time. 

One of the great benefits of solar panels is that they can do more than just save you money on your utility bills. They can also increase the value of your home by up to 5%. If you're interested in finding out how much return on investment you can expect from installing solar panels and how they can boost your home's value, we have a quick online calculator that can help you get those numbers.