What is the solar payback period?

March 15, 2023

Going solar is not just good for the planet, solar energy can save you money by lowering your utility bills. Solar panels last for 25 years or more, saving homeowners thousands of dollars. While oil and gas prices fluctuate, solar energy stays more stable.

Solar energy systems save money on utility bills, paying for themselves over time. The solar payback period is the time it takes to make back your initial investment — or the amount of time it pays for itself. The average payback period for most solar buyers is between four to ten years, according to our energy advisor Kavya Kosana. Multiple factors can influence the payback period of your solar system, but you can see savings.

What is the average payback period for solar in 2023?

The average payback period for residential solar energy systems is between four to ten years in 2023. Kosana said the payback period can vary state by state. It’s important to realize that with solar projects, each installation is a case by case basis and your payback period could take more or less time. As you research, you’ll find different estimated payback periods. We trust EnergySage and CNET, which estimated the average payback period to be between 9-10 years. 

It’s important to realize that solar panels are warrantied for 25 years or more and last for 35+ years based on panels in space satellites or on roofs. And if they can pay for themselves in four to ten years, you can have over 20 years of profits from your solar investment. Even after 35 years, your solar panels will continue to produce electricity. Production decreases over time – approximately 15% degradation after 25 years for high quality panels. Over the solar panel lifetime, homeowners save thousands of dollars on utility bills. The level of savings seen is dependent on a few factors, especially the robustness of your home’s solar energy system.

How to calculate the payback period?

To calculate your individual payback period for your solar energy system, it’s important to know the up-front costs, incentives or rebates and solar benefits.

  1. Determine combined costs: Take a look at the total costs of going solar for your home. This combines the cost of your solar panels, inverters, supporting equipment and potentially a storage battery. Add the cost of installation and inspections related to this figure.
  2. Subtract incentives & rebates from the total combined costs. Incentives are available at multiple levels of government, but mostly from the federal government and state governments. These can be tax credits or rebates. Subtract these from the cost of your solar system. The number you’re left with is the true cost of your solar system and is important to remember.
  3. Determine your annual solar savings, which can be calculated by multiplying your average monthly utility bill savings by 12 months or first year’s savings — remember this isn’t going to be exact, but an estimate
  4. Determine other potential solar benefits such as Solar Renewable Energy Certificates or net metering benefits. Add this number to your utility savings.
  5. Calculate your estimated payback period by dividing your after-incentives solar cost by your annual savings.

As an example, let’s assume a homeowner named Sofia purchases a solar energy system that costs $23,170 — the higher end of EnergySage’s average 2023 solar installation cost. 

The Federal Tax Credit is currently 30%, which means you can subtract $6,951 from the total costs. Sofia lives in Austin, Texas and her utility company offers a $2,500 rebate for going solar. The total incentives from the Federal Tax Credit and local rebate now total $9,451, which is subtracted from the $23,170 installation cost. Her combined cost after incentives is now $13,719.

Sofia calculated her average monthly savings at $125 per month. Multiplied by 12 months makes this $1,500 per year.

To calculate the payback period, Sofia takes the cost of her system after incentives and divides that by her annual savings. Sofia’s payback period is approximately 9.15 years.

Factors that affect the solar payback period

Cost of Solar Energy System

The cost of your solar energy system impacts the payback period. If the cost of equipment and installation increases, you could experience a longer payback period.

Value of Solar Incentives

The total value of financial incentives for your home’s solar system can impact the payback period. Both residential and commercial solar projects can qualify for federal incentives.

The Federal Investment Tax Credit offers residential solar buyers the ability to deduct 30% of the cost of their system from their taxes. Additionally, states, counties, cities, utility companies and even nonprofits offer incentives or rebates for going solar. The higher the value you’re able to take off of your solar cost, the shorter your payback period.

Electricity Use and Cost

When designing your solar system, you might be able to provide all or some of the energy needed to power your home. Your monthly electricity usage indicates the system size needed for your home and the amount of electricity that you can offset through solar. Higher electrical bills can potentially mean a shorter payback period if your solar system is able to significantly reduce or eliminate your monthly bills.

Solar Energy Generation

The size and ability of your solar system depends on your home, roof, location and other conditions. Some homes have limited usable roof space for solar panels, and therefore might not produce enough electricity to cover your entire utility bill. The more energy you’re able to generate through home solar panels, the less time it will take for your solar system to pay for itself.

See your return on investment through Enact

After going solar, Enact not only accelerates the transition to clean energy but we also empower clean energy consumers. Using the Enact Home digital platform, solar homeowners or businesses powered by solar can track their payback period over time. Users of the web app can see how much of their solar investment has paid for itself through an easy-to-understand visual dial graph.

Users can understand how much they’ve paid off their solar system

Enact Home is for homeowners or businesses with solar and/or energy storage systems. You can sign up for Enact Home on our website. All we need from you is your name, email address, utility data and solar data — your data can be connected in a secure transfer. Enact Systems values user privacy by protecting your personal information.

After starting your Enact Home account, you can login on our website and view how much you’ve paid off, as well as other key metrics. Users can view how much energy their solar energy system is generating and their monthly savings.

If you want to make the most of your solar investment and have peace of mind, sign up for Enact Home. Our platform will visually show you how your solar system is working for you.

Sign up here for a solar quote today.