What Is the Payback Period for Solar Panels?

There’s no question that solar panels are a great investment for most homeowners. Solar systems provide excellent rates of return, allowing you to recoup the cost of the panels by dramatically lowering or even eliminating your electricity bills entirely. And in most cases, a solar installation can significantly increase the value of your home; however, if you want to maximize your return on investment (ROI), it’s essential to understand the payback period for solar panels. In this article, we’ll provide an in-depth look at the solar payback period and show you how to calculate it.

What Is the Solar Panel Payback Period?

A payback period refers to the length of time it takes to recover the cost of an investment. With respect to solar panels, it is the amount of time needed to recoup the cost of the installation fee, solar panels, batteries, and other solar accessories by saving money on your utility bills.

How Do You Calculate the Solar Payback Period?

To estimate your solar payback period, you’ll need to determine the total price of the solar system and subtract any rebates or incentives to calculate the net price. Next, you’ll divide the net price by your estimated yearly electricity savings to determine the time it will take to break even.

For example:

Net Price

$14,700 (Total cost of system) – $4,410 (Federal solar tax credit) = $10,290 (Cost of system after incentive)

Annual Savings

$120 (Monthly electric bill savings) X 12 (Months) = $1,440 (Annual savings)

Payback Period

$10,290/$1,440 = 7.2 (Years to break even)

This example does not account for any rise in your electricity bill. If the bill goes up, your annual savings will also increase, further shortening the payback period. It also does not account for incentives such as net metering, with can increase your electricity bill savings even more.  

What Is the Average Solar Panel Payback Period?

According to recent market research, the average solar payback period is approximately 8.7 years; however, numerous factors can affect how long it takes to pay off your solar panel installation. The size and efficiency of your solar system, the incentives available in your area, your average monthly electricity usage, and the total installation cost can all affect how long it will take to break even on your investment.

For example, a small photovoltaic (PV) system will have a lower upfront cost than a large one but will provide lower monthly electricity savings. And if you choose to save money upfront by installing low-quality solar panels, you may have to shell out for repairs or replacements before you recoup the initial investment.

Most solar panel systems tend to last more than 25 years, maintaining at least 80 percent efficiency until the end of that period. Some high-quality systems can last even longer while providing higher efficiency. So, if your payback period is 8.7 years, that means you’ll have another 16.3 years or longer to save on monthly electricity bills. In fact, EnergySage estimates that most homeowners can save between $10,000 and $30,000 on utility bills throughout the lifetime of a solar panel system.

Factors That Affect the Solar Panel Payback Period

When calculating your payback period, there are several factors to consider:

  • Cost of your PV system
  • Rebates and other incentives
  • Your electricity usage
  • Size and efficiency of your solar system

Total Cost of Your Solar Energy System

The total cost of your solar system includes the installation fee, solar panels, backup batteries, and any other solar products included in the installation; however, it does not include the final cost after incentives and rebates have been applied.

The cost can vary greatly, depending on the solar installer, the size of the solar system, the quality of the solar products, and the financing method used to pay for the system. If you want to get the best price on your installation, it’s essential to work with an experienced and reputable solar contractor. At Lake Mary Solar, we can help you choose the right solar system and financing method to maximize your savings. We’ll also match the price of any licensed solar installer in Florida.

Check out our solar calculator to see how much your solar system will cost


Rebates, Tax Credits, and Other Incentives

There are numerous solar incentives available to residents of the United States. These can be used to significantly lower the price and shorten the payback period of your PV system. These include property tax exemptions, sales tax exemptions, local utility rebates, the federal solar tax credit, and more.

By participating in a net metering program, you’ll be able to shorten the payback period of your solar system even more. These programs allow you to earn credits from your electric company for sending excess power back to the grid. Florida offers full-retail net metering, so you’ll be compensated at the current retail rate for the additional energy your solar system generates.

Click here to learn more about the rebates and incentives available to homeowners in Florida.

Cost and Consumption of Electricity

The price you pay for electricity, and the amount of power you use, will largely determine how much money you save with a solar panel system. The higher the rate and usage, the more you will save. And if your utility rate increases in the future (which it likely will), you’ll be able to save even more money each month.

For example, if your current rate is 10 cents per kWh, and you use an average of 1,400 kWh per month, your monthly electric bill will be approximately $140. Therefore, you can expect to save $140 a month by going solar, and you can use that savings to pay off your solar panel system. Once you’ve paid off the system, all that money can go directly into your pocket.

Size and Efficiency of Solar System

The size and efficiency of your solar system will significantly impact the total price of your installation and how long it will take to pay it off. It will take longer to recoup the investment if the solar system isn’t big enough or efficient enough to offset your electricity usage completely.

Another consideration is that your solar panels will become less efficient throughout their lifespan and may eventually be unable to offset your power consumption completely. However, most solar panels on the market are designed to function at 80 percent efficiency or more for 25 years or longer.

Financing Method

How you finance your solar system will also determine how long it takes to pay off your investment. If you decide to pay upfront with cash, you’ll pay less overall; however, most homeowners don’t have enough money on hand to cover the cost. Fortunately, many solar loans come with zero-down financing and no payments for 60 days after installation. And if you choose to finance your PV system with a loan, you’ll still be eligible for the federal solar tax credit and other solar incentives.

Check out our Florida Solar Financing Guide to learn more.

Conclusion: What Is the Payback Period for Solar Panels?

If you’re considering making the switch to renewable solar energy, it’s crucial to understand how quickly you’ll be able to recoup your investment. By knowing the total cost of your PV system, the incentives available in your area, and the amount of electricity you consume, you’ll be able to choose the right solar system and estimate its payback period.

At Lake Mary Solar, our licensed and experienced Florida solar contractor can help you minimize the payback period for your solar system. We’ll recommend the best solar products for your home, help you make the most of the solar incentives available in your area, and assist you in choosing the right financing option.  

Get a quote from Lake Mary Solar today if you’re ready to lower your electric bill and join the renewable energy revolution.

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