Americans are becoming more and more conscious of the financial benefits of installing solar panels. Solar energy is a means for individuals, organizations, industries, governments, and even utility corporations to invest in significant savings that will compound over time while also being more eco-conscious.
However, the most common question is, “How long does it take for solar panels to pay for themselves?”
A number of factors determine the payback period of your solar panel installation. Some are simple to compute, while others are more difficult.
The Solar Payback Period
The payback period for solar panels is a computation that determines how long it will take your solar system to pay off. It is the amount of time it takes for the system to “break-even” and return your initial investment cost. This period is also known as the solar break-even point.
Average Break-Even Point in the U.S.
Though the typical payback period for solar panels is between eight and twelve years, this varies significantly from home to home. It could take as little as five years for some, and others may have to wait up to 15 years.
Local electricity costs and state-specific financial incentives like tax credits, solar rebates, and net metering programs are important considerations.
How to Calculate Your Solar Payback Period
The combined expenses and advantages of installed solar panels must be determined in order to calculate your solar panel payback period. Several elements determine the total costs and benefits of adopting solar.
The variables include:
The Cost of the System
The largest factor in determining your payback period is the gross cost of your solar system. This is the cost of your installation, equipment, and labor prior to any financial incentives or rebates.
The Incentives Received
There are various incentives at the federal, state, and local level available to property owners that install solar systems to help power their structures. The incentives can be rebates, solar renewable energy credits, tax credits, and other financial gains. The incentives received can reduce the cost of installing your solar system by thousands of dollars.
Monthly Utility Costs
Choosing the size of your solar panel energy system is directly determined by the property’s average electricity usage. The higher your utility bill, the more savings you stand to earn by installing solar. It will also shorten your payback period.
Estimated Solar Power Generation
The solar company that installs your solar panels will attempt to match your system with your energy needs. The system design will consider your current energy needs, future demands, seasonal weather changes, and the space for panels on the property.
How to Calculate the Payback Period
Now that you understand the factors that influence the total costs and advantages of solar panel installation, you can calculate your solar panel payback period.
Step 1: Determine the gross cost of your solar system and subtract the total value of the incentives, rebates, and tax credits.
Step 2: Determine the ongoing benefits of your solar panels such as savings on your yearly energy costs.
Step 3: Divide the number you got in step one by the number you got in step two. The answer is the number of years it will take for you to break even or achieve your solar payback.
What’s a Good Payback Period for Solar Panels?
Examining the whole lifespan of your solar energy system is one approach to determine whether you’re getting a decent return on your investment. The average lifespan of a domestic solar system is between 25 and 30 years. If you have an eight-year payback period, you will be “profiting” from the system for 17 to 23 years.
Most solar industry professionals agree that solar panels are a good investment if the payback period is less than half the life of the system. Another factor to consider is the internal rate of return or IRR. Think about what would happen if you put your money into a more traditional financial investment instead of investing in solar.
How much better would that investment have to perform to be more cost-effective than a solar system? Depending on your investment methods, solar panel installations may or may not provide a better return on investment than stocks, real estate, or other investments. It’s critical to properly consider IRR in order to make the most informed decision.
Solar panels can be a great option, whether you’re seeking to save money on your monthly bill, lower your carbon emissions, or both. The cost of electricity, which can vary greatly depending on your location, is the most important aspect in calculating how much money a solar panel system will save you in the long run.
Connect with a solar supplier near you and request an estimate to get a better idea of your solar payback period.
