Solar Panel Payback Period (Guide)

Table of Contents

The solar panel payback period is important for every solar buyer since it’s necessary to know when solar energy production offsets the investment in solar panels. This article aims to go further into the solar panel payback period and explore all the nuances of such an investment.

Solar Panel Payback Period

This refers to the duration it takes you to save money on your electric bill until it equals the payment for your solar panel system. However, your payback period will differ if you’re financing your solar power system from a solar company. This is because that saving can be used for other things like paying off a solar loan.

Firstly, you’ll have to calculate the cost of installing solar panels. After this, you’ll subtract any rebates or incentives received. Lastly, divide the remaining cost with your monthly electric bill savings until you get to your original purchase amount. This calculation assumes that your electricity rates are consistent and don’t increase. If they do, then your solar panel payback period will be shorter.

A Good Solar Payback Period

A good payback period can last from 6-10 years. This seems like a lot of time, but considering the factors that can change this duration, a lot can influence your monthly savings. For instance, a large-sized solar installation is bound to cost more. This also means that it will also have higher monthly savings. However, your electricity rate is equally important in your long-term savings.

Modern solar panels can last twenty-five years or more and have at least 80% efficiency by the end of your solar payback period. So if your payback period is short or moderate, you can still look forward to many years of additional savings on your electrical costs.

Calculating Solar Power Payback Period

Many factors can influence your ultimate payback period, but this formula will provide the fundamentals for calculating your solar panel payback period:

Combined Costs/Annual Benefits=Solar Payback Period

In combined costs, you’ll include the cost of your photovoltaic system and subtract the solar tax credits. Any incentives or solar tax credits aren’t counted because you don’t have to pay them back. This also includes SRECs and net metering credits.

Also, incentives are bound to fluctuate monthly, which assists you in reaching the solar panel payoff point quickly.

Factors Influencing The Solar Power Payback Period

Your solar panel payback period depends upon the following factors:

  • Electricity fees.
  • Power generation.
  • The efficiency of solar panels.
  • Bonus incentives.
  • Rebates and solar tax credits.
  • Electricity consumption.
  • Price of the system.

Total Cost Of The System

To calculate the total cost of your system, you have to look at certain things.

The Size:

It all depends upon your electricity consumption. If your electricity use is high, you’ll require a larger system. If your electricity use is low, you’ll require a smaller system. You should carefully consider your electricity usage and buy a system.

Annual Electricity Consumption:

The best way to calculate your total energy consumption over a year is to collect your monthly electricity bills, keep them safe, and calculate your annual electricity consumption by adding them all up. If you didn’t save those bills, wait one month and then check that bill. Now, you can take that month to estimate your electricity bill by multiplying it by 12. Ensure to keep seasonality in mind too.

Tax Credits and Incentives

Any discount that lowers your solar installation price is called an incentive. This money, once given to you, is yours. You don’t have to return it to anyone. An incentive can significantly shorten your solar power payback period. You also need to calculate the credits you get from net metering.

In net metering, excess electricity from your solar panels is fed to the grid. The grid then awards you credits which can lower your electricity bills. Another thing is SRECs. These are credits for using clean energy. They allow you to make more money from solar electricity generation. You can sell SRECs if you produce at least 1,000 kilowatt-hours (kWh) of solar electricity.

Electricity Generation

You need to know the efficiency of your solar panels. Most calculations will consider solar panels offsetting 100% of energy consumption. This may seem fine in theory, but in reality, it doesn’t work like that.

Solar panels aren’t designed to offset 100% of your energy consumption. A few may even generate more electricity than you need, which is when net metering credits are useful. As they reach the end of their lifetime, solar panels are bound to lose efficiency.

This means that your savings will also go down with time. However, you don’t need to worry much about this since solar panels only drop to 80% efficiency in their 25-year life, surpassing the solar panel payback period by a long shot.


You need to know the ways to get a return on your investment in solar panels. You also need to know the time it will take to offset all of your investment in solar panels. Installing solar panels is a long-term investment and seeing the positive effects takes time.

The solar panel payback period can only be calculated by understanding the relationship between rebates and solar tax credits, electricity consumption, energy generation, additional incentives, electricity fees, and system costs. Since there are many variables, it’s hard to accurately determine the solar panel payback period. However, you can estimate it to reach closer to the right answer.

Relates Posts

Table of Contents