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Solar Panel Payback Period (Guide)

Solar Panel Payback Period

Solar power is becoming an increasingly popular choice for homeowners and businesses seeking to reduce their reliance on traditional energy sources and lower their carbon footprint. While the environmental benefits of solar power are clear, many people are hesitant to make the investment due to concerns over the initial cost and length of time it takes to see a return on investment. This is where the concept of the solar panel payback period comes into play. In this blog, we will provide a comprehensive guide to understanding the solar panel payback period, including how to calculate it, factors that influence it, and strategies for reducing it. Whether you are considering solar power for the first time or are looking to optimize your existing solar system, this guide will equip you with the knowledge to make an informed decision.

What Is a Solar Panel Payback Period?

Solar panels decrease your dependency on utility power. That means that once you have a comprehensive system in place, you will collect solar energy, have that transferred into electricity, and use that energy to power your home. That greatly reduces or eliminates your dependency on utility energy.

After owning solar panels for long enough, they will end up paying for themselves, which means that you will eventually have saved more money in electricity than you paid to purchase the solar panel system. The length of this period is called the solar panel payback period.

In most situations, you want this to be as short as possible, as that indicates you are saving money on energy sooner. Not all solar panels are the same, though. As you compare products to purchase, you need to specifically ask and get information about this. What is the payback period for solar panels for this specific make and model in your community?

What Is a Good Solar Payback Period?

Each panel system is different. The material used, the configuration and even the installation will impact just how long it takes for the system to pay for itself. What is the average payback period for solar panels, then?

The average amount of time it takes for the solar panel system to pay for itself is 8.7 years. However, this is dependent on where you live and the overall type of system you buy. Typically, the payback period will range from 6 to 10 years.

Consider that the lifespan of most solar panel systems is at least 25 years, and that means you have more than half of the solar panel’s lifetime to generate free energy for your home. That often makes it well worth the investment.

Calculating Your Solar Power Payback Period

You can learn how to calculate the payback period of solar panels based on the information provided by the manufacturer.

To determine the solar power payback period, you need to know your annual cost savings. To get started, then, determine how much energy you use each year. Look at your utility bill. That can give you an idea of how much you are spending, on average, each month to power your home.

Next, determine what the system is costing you. To do that, determine how much the total cost of the solar panel system is for you to purchase. Lower that by any solar tax incentives or other savings opportunities that you have. If you plan to use a loan, you’ll also need to add in the cost of interest on the loan paid over time. Take the solar panel system’s original cost and subtract all discounts and incentives from it. Next, divide the total cost to you by the annual cost savings you have.

Let’s say that you learn you spend $2,500 each year on electric costs from the utility provider. You decide to invest in a solar panel system to reduce those costs. You have a system designed that eliminates your need for electricity from the utility company. That system costs you $20,000 after cashing in all federal and local solar incentives.

In this situation, take $20,000 and divide that by $2,500. This means that the system will have paid for itself in 8 years. After that first 8 years, you are saving money – about $2,500 per year, on electricity costs.

Factors That Impact Your Solar Power Payback Period

Numerous factors will play a role in the length of the payback period. You can learn how to determine the payback period for solar panels using the above formula in every situation. However, the system you invest in and a few other factors will play a role in this calculation.

How much electricity do you use?

The solar panel system you invest in must be enough to meet all of your needs to eliminate your dependency on the utility company. Sometimes, that’s not the case. Some property owners still have to spend a small amount each month on electricity from the utility company to compensate for periods when they need more electricity than their system can produce.

How much does your solar panel system cost?

Finding an affordable solar panel system is a nice benefit, but a quality product that is more efficient tends to be better. The higher the cost of the system, though, the longer it will take for you to pay off the solar panels in terms of energy savings.

What incentives are available to you?

Solar panel incentives are available in many ways. Some are tax credits that lower your tax obligations but don’t necessarily provide you with a refund (be sure that helps you when calculating your taxes). There are also local solar tax incentives as well. There’s also the potential to sell back some of your extra solar power to the utility company in a process called net metering. That can also lower your costs.

The cost of electricity in your area

Be sure to consider how much electricity costs in your area. This can change this figure significantly, especially in areas where there is a significant amount of difference from one provider to the next.

Let Solar Energy World Guide You to a Wise Investment

At Solar Energy World, our goal is to help you find out how well solar could meet your needs. If you want to invest in solar to eliminate your energy bills, talk to us now about solar panel installation and how much money it could save you!