Understanding Your Solar Panel Payback Period

It’s no longer a question whether solar panel systems can consistently provide positive financial benefits over traditional electricity. Today, lower-cost and higher-efficiency solar energy systems allow homeowners and businesses to significantly lower monthly electricity bills, increase property value, avoid future energy rate increases, and get a positive return on investment (ROI).

Best of all, this ROI, and the length of time it will take you to realize it is something that can be precisely calculated before you even start your solar panel installation project. Read on to learn more about the solar panel payback period and how to calculate yours.

freeport solar panels for home roof

What does solar panel payback period mean?

The solar panel payback period is a calculation that estimates how long it will take for you to “break-even” on your solar energy system investment. Increased utility electricity rates and lower equipment costs are making it easier and less expensive for Americans to own, rather than lease, their solar panel systems. Owning or financing your solar panel system generally provides you with greater financial benefits.

When you determine your solar panel payback period before going solar, you gain a clear picture of both your future fixed monthly costs and exactly how long it will take for those costs to be negated by energy savings. That sure sounds better than waiting to be surprised by your monthly electricity bill or the next rate hike increase announcement from your utility company!

If you’re having trouble deciding what size of solar panel system to install, consider comparing the payback period for multiple system sizes. This helps ensure you install the best solar panel system for your needs and your budget. 

How is the solar panel payback period calculated?

There are a handful of variables that go into calculating solar panel payback period. In the end, your payback period is the net result of the combined costs divided by the annual benefits of going solar. Here’s what you’ll need to know to accurately calculate solar panel payback period:

  • Average monthly electricity usage: The amount of electricity that you consume monthly is an indicator of both the size of system you need and the amount of electricity that you can offset each month with solar. The higher your electricity bills are, the shorter your estimated payback period will be as you can reduce or eliminate your electricity bill as soon as your panels are operational.
  • Gross cost of solar panel system: this cost is dependent on the size of the system you install, the type of solar equipment you use, and of course any labor costs for professional electrical work and installation. Get a free, no-obligation solar installation quote from MOXIE to learn your total cost.
  • Estimated electricity generated from solar panel system: the amount of electricity your solar system can produce is typically matched up with your unique electricity consumption. However, factors like the size of your roof and seasonal weather variation may impact the amount of electricity you can produce with solar. On the other hand, some folks choose to build a system that produces more than their electricity consumption in order to take greater advantage of renewable energy credits and incentives.
  • Value of upfront financial solar incentives: Tax breaks and solar rebates can dramatically reduce the upfront cost of going solar. The federal investment tax credit allows you to deduct 26% of the cost of your system from your taxes (through 2020), and additional state and local financial incentives may also be available in your area.
  • Additional financial incentives: Depending on where you live, you may be able to earn additional incentives in the form of solar renewable energy certificates (SRECs) or other utility programs that give you a per kilowatt-hour credit for the electricity that your solar panels generate. Depending on the size of your solar energy system, these can represent a significant monetary benefit.
calculating solar panel payback period

Steps to calculate your exact solar panel payback period

MOXIE’s team of in-house financial and solar experts is always happy to help you determine your solar panel payback period and talk through your options for system sizes and costs. Here’s an overview of the steps to calculating your solar panel payback period:

  1. Determine initial costs: Subtract the value of up-front incentives and rebates from the gross cost of your solar panel system.

  2. Determine annual benefits: Sum up your annual financial benefits, including avoided electricity costs and any additional incentives.

  3. Divide your costs by your annual benefits: The result will be the number of years it will take for you to achieve payback on your solar panel system. Every month of savings after that point in time is essentially financial gain that you wouldn’t get if you do nothing and continue renting your electricity.

Get started with solar today

The sooner you get started on your solar panel installation project, the sooner you can standardize your electricity costs and reach your solar panel payback period. Contact MOXIE today so you can take advantage of 2020 solar incentives and control of your financial future!