Solar Panel ROI Calculator
Estimate your payback period and long-term financial gains from switching to solar energy.
How to Calculate Your Solar Panel Return on Investment
Investing in solar energy is one of the most effective ways for homeowners to reduce their carbon footprint while simultaneously securing a high-yield financial return. To accurately determine your ROI, you must look beyond the initial price tag and consider net costs, energy offsets, and local utility rates.
Our calculator uses several key variables to provide a realistic estimate:
- Net Investment: This is the gross cost of your solar installation minus the Federal Investment Tax Credit (ITC) and any state-level rebates.
- Production Factor: We calculate your annual kWh production by multiplying your system size (kW) by your local peak sun hours and an efficiency derate factor (typically 0.78 – 0.82).
- Payback Period: The amount of time it takes for your cumulative electricity savings to equal the initial net cost of the system.
Example Calculation
Imagine a homeowner in California installs a 7kW system for $21,000. With a 30% Federal Tax Credit, the net cost drops to $14,700. If the area receives 5 peak sun hours daily, the system produces roughly 10,220 kWh per year. At an electricity rate of $0.22 per kWh, the annual savings would be $2,248. Dividing the net cost ($14,700) by the annual savings ($2,248) yields a payback period of approximately 6.5 years. Since solar panels are rated for 25 years, the remaining 18.5 years represent pure profit.
Factors That Influence Your ROI
Several external factors can speed up or slow down your solar ROI:
1. Utility Rate Increases: Historically, electricity rates rise by about 2-3% annually. As utility prices go up, your solar panels become more valuable because the energy they produce is worth more.
2. Net Metering Policies: "Net Metering" allows you to sell excess energy back to the grid at retail rates. If your utility has favorable net metering, your ROI will be significantly higher.
3. Degradation Rates: Solar panels lose about 0.5% efficiency per year. A quality system will still produce 85-90% of its original power after 25 years.