When Do Solar Panels Pay For Themselves?

Solar panels are expensive, but they can pay for themselves in a few years. Juan Silva/Getty Images

Are you thinking about solar panels? Like many Americans, you may want to help the environment while providing your home with an alternate power source in the event of a power outage.

"Solar is what's next, in terms of how we power our homes and how we connect as a community to meet the energy needs of our community," Jamie Hynge, president of ADT Solar, told CNET.

But solar panels are expensive, and purchasing them is a major financial decision. Before you invite a team of solar installers to your roof, you need to know when or if the panels will pay for themselves in savings on your electric bill.

Here's your guide to understanding how long it takes to save money with solar panels.

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What is the payback period for solar panels?

“Solar payback time” is a great way to talk about how long it takes for the money you spend to equal the money you save (or earn) on your electric bills.

It's a key number, usually a number of years, that will tell you how long to wait before you see a real return on your investment. Solar payback periods can vary greatly and also depend on how you pay for the system.

"There are many factors that affect this in any house or home," said Becca Jones Albertus, director of the US Department of Energy's Office of Solar Energy Technologies.

The average payback period in the United States is between six and 12 years, ADT Solar's Haenggi said, with most homes coming close to the latter. Like Jones Albertus, he indicated that he was a moving target.

"People are hesitant to say, well, here's the performance because the energy market has been so volatile," Hyenji said.

Factors Affecting Your Solar Payback Period

No two solar systems are the same, which means that no two solar return periods are the same either. "The answer seems simple, but it's much more complicated," Henji said.

The calculation of the potential payback period depends on many variables.

The total cost of the solar system.

The more you pay up front for your system, the longer it will take to recoup your costs. Solar power systems can cost anywhere from a few thousand to tens of thousands of dollars, depending on where you live, your power needs, and the type of system installed. It goes without saying: the higher the price, the longer the payback period.

Tax incentives and exemptions

Once you know the total cost of your solar installation, you should also consider state or federal rebates. For example, the Federal Clean Energy Credit gets 30%. Your state may also have additional incentives. These loans can take a significant chunk off the money you pay for solar panels, thus reducing the payback period.

energy consumption in your home

Sometimes a rooftop solar system can cover all of your electricity needs (and bring your electric bill down to $0), and other times it only covers part of it. If you use a lot of electricity, going solar can result in a slight reduction in your electricity bills, which means it will take longer to recoup your investment.

Produce electricity from your solar system.

You may not have given your roof much thought before, but it makes a world of difference in the outcome of your solar investment. If your roof has space for multiple panels that capture the sun's rays throughout the day, you'll generate much more electricity and get a faster return on investment. But if you live in shady areas and your panel production is patchy, you won't see a quick payback.

Cost of electricity and rate of increase

This is a huge factor in solar performance, but it is sometimes overlooked. Basically, the higher the electricity prices in your area, the cheaper solar power will be. This is because when utility prices are higher, you can save more money by relying on your own solar panels instead of getting electricity from the grid.

How to calculate the payback period of solar energy

If you'd like to get a little idea of solar payback time, here's one way to do it. Keep in mind that you should check with the experts (read: solar stabilizers) to make sure you have accurate numbers here. But this will give you an idea:

Start with the total cost of installing solar on your home. (Be sure to factor in interest and fees when applying for a loan.)
Then subtract the value of any rebates, incentives, or tax credits.
Now you have the net cost of your solar installation after discounts.
Calculate the annual savings on the electricity bill with solar panels. (Again, your solar provider or installer can help you here.)
Divide the net cost of the system by the annual bill savings.
The number you get is the number of years it will take for your panels to "pay for themselves".

Here's another look at the equation: (total cost of solar system - rebates) / annual savings on electric bill = payback period in years.

In practice, it might look like this: Let's say the total cost of your home system is $25,000. You know you are eligible for $10,000 in bonuses, so your net cost is now $15,000. They also know that the panels can save you about $1,500 a year on your electric bill. So $15,000 divided by $1,500 equals 10. That means the payback time for solar energy is 10 years.

Solar panels and electric vehicle charging can be a useful couple. Simon Skafar/Getty Images

Why is it important to know the payback period?

Now you have your solar return period. But how does that affect your decision?

"It depends on what motivates the family to decide to go solar," Jones-Albertus said. Maybe you want to help the environment and not worry about the costs. But he said: "People are also interested in the flexibility side and the economic side."

If you are interested in the financial aspect, the payback period is an important number in the decision-making process. According to Haenggi, the payback period of around 10 years is pretty average and can be a solid investment.

But again, it depends on your goals and comfort level. For example, if you plan to move or sell your home at short notice, the bill will change. You may not see a return in the form of electricity savings, but you may see a return in the form of a higher sales price for your home.

"Having this system on your roof adds real estate value," Jones Albertus said.

Jones-Albertus and Hengey agree that there are a handful of scenarios in which a solar installation may not make sense, regardless of the payback period. If you know your roof will need to be replaced soon, you should definitely wait until it does before installing solar panels. And if you have a lot of trees on your house, a solar system probably won't produce significant returns; In this case, Jones Albertus recommends looking into community solar.

How to pay for solar panels

There are many ways to pay for solar panels, and they all affect the payback period of solar energy.

Money: By saving for the purchase (for example, in a high-yield savings account), you avoid paying interest on the loan and reduce the overall costs of solar panels. "Over the long term, the highest return generally comes from cash payments from a system," Jones Albertus said.
Solar loan: Some banks offer loans specifically to finance solar systems. Check with your installer or lender for options.
Home equity loan or line of credit, also known as a HELOC – In general, it can be a good idea to use home equity to finance renovations, especially since solar panels add value to your home.
Leasing or PPA – If you want to reduce your initial solar investment, you can lease the system from the installer. The developer will own the panels and sell you the electricity generated at a discount, negating the idea of a "payback period."