How long will it take to return on my solar investment?

Purchasing a solar energy system counts as an investment. The system generates power for your home, cuts down the costs of your electricity bills, and increases the value of your property. Considering the cost of a solar energy system, you will also want to know how long it will take to return on the initial investment. This will give you an idea of the performance of your system and an idea of the savings you could accumulate with your system.

Factors that affect your payback period

Your current energy usage is an important consideration. You will have to know how much energy your property uses monthly. Along with your solar energy system’s average energy output. You can use your electricity bills to find both figures. This information will help you understand how many additional panels you could add to your system. Figuring out how many panels you need based on your electricity bills can be tricky. Our articles on understanding your utility bill and calculating potential solar power can help. You can also contact us directly to help you figure out how many additional panels you would need for your system.

Your existing solar energy system

There are two types of costs that are factored into your payback period:

  • The gross cost of your solar energy system will include the amount you have paid for your solar energy system and its installation.
  • The average monthly electricity cost will note the amount of energy you use before going solar. With this amount, you will have an idea how much energy your system will need to produce to offset your electricity bills. Keep in mind that you will yield the most benefits here if your electricity bills are high. Since solar energy will cut down the amount of power you consume from the grid.

Benefits and Incentives

Benefits and incentives can come in the form of up-front incentives for purchasing and installing your system. Other benefits and incentives are earned over time as your system generates excess electricity which is fed into the grid:

  • Up-front financial incentives can come in the form of tax credits and rebates that lessen the cost of going solar. These can come from the government and/or your utility company. The Federal Solar Tax Credit is the most well-known tax credit provided for solar energy. The program provides a 26% tax credit for systems installed between 2020 – 2022, and 22% for systems installed in 2023. Your local states may also have their incentives you can claim as well. If your solar energy system is tied to the grid. Your utility company may offer a rebate for your interconnected system.
  • On-going financial incentives allow you to benefit from the excess energy that your solar panels generate. Some states offer incentives in the form of solar renewable energy certificates (SRECS). This allows homeowners to earn SERCs for the energy their system generates. These SRECs can be sold in certain states for additional income. Some utility programs also offer per-kilowatt-hours credits for the energy your system generates. These programs can allow you to expedite the return on investment time.
    Solar Generation

    Your solar energy system’s electricity generation

    The amount of energy that your system can produce will be a key factor for your payback period. While your system is made to suit your energy usage and consumption, it is still affected in numerous ways. Weather and sunlight hours will directly affect the amount of energy your system produces, and the amount can vary from month to month.

    How do I calculate my solar payback period?

    Here is how you can calculate your solar payback period:

    1. Add up all of your upfront costs, then subtract it by the amount you have gained from your incentives and rebates. This will give your solar energy system’s gross cost.
    2. Add all of your annual financial benefits, including the savings you have made from electricity, SRECs, etc.
    3. You will then divide the gross cost of your system by your annual financial benefits. This will give you the number of years it will take to pay back your investment.

    A guided example

    We’ll give an example of how you would go about calculating a solar energy system’s payback period.

    Your solar energy system costs $16,500. To calculate the gross cost of your system, we’ll factor in the up-front incentives from tax credits and rebates. With the ITC’s 26% tax credit, you’re eligible for $4290. We’ll also assume that the utility company will provide a rebate of $2000. The total from these incentives is $6290.

    The combined costs of your system would be $16,500 (System Cost) – 6290 (Up-front Incentives) = $10,210 in combined costs.

    You’ll then need to add up your annual benefits from yearly energy savings and the amount you earned from additional financial incentives such as SRECs. We’ll assume you save about 75$ each month on electricity bills, which adds up to $900. We’d also assume you sold some SRECs totaling about $300 in value.

    The combined annual benefits of your system would be $900 + $300 = $1200 in annual benefits.

    With both amounts you just need to divide your combined costs by the annual benefits:

    $10,210 (Combined Costs) / $1200 (Annual benefits) = 8.5 Years to pay back your solar energy system.

    Keep in mind this is an estimate of the amount of time. The previously noted factors that affect your payback period can alter this estimated time. Your payback period can be sooner or longer than the period you have calculated.

    Get started with solar energy today

    If you are looking to start your transition to solar energy, we are here to help. Our website also has a free online estimate tool that generates a personalized report for you from a simplified questionnaire. That report will contain the potential savings you can net, and the cost of a solar energy system installed on your property. You can also contact us directly via phone at +1 (602) 363-8919 or via email at Scott@elitesolarenergy.org for more information regarding solar energy for your property.