Solar Panel Payback & Savings Calculator
How to Use the Solar Panel ROI Calculator
Calculating the return on investment (ROI) for solar panels is crucial before committing to a renewable energy transition. This calculator helps you estimate how many years it will take for the system to pay for itself through energy savings.
- Average Monthly Bill: Look at your utility statements from the last 12 months to find your average spending.
- System Size: Most residential systems range from 5kW to 10kW. A 6kW system is a standard average for US households.
- Sunlight Hours: This varies by geography. Southwest states might see 5.5+ hours, while Northern states may see 3.5 hours.
- Cost per Watt: The national average is typically between $2.50 and $3.50 depending on equipment and labor.
Understanding the Math Behind Solar Savings
The calculation for solar savings involves three primary phases: total investment, energy production, and offset valuation. Here is how our tool determines your results:
First, we calculate the Net Cost. If you install a 6kW (6,000 watt) system at $3.00/watt, your gross cost is $18,000. Applying the current 30% Federal Investment Tax Credit (ITC) reduces that cost by $5,400, leaving a net investment of $12,600.
Next, we estimate Energy Production. We use the formula: System Size (kW) × Peak Sunlight Hours × 30 days × 0.78 (efficiency derate factor). The derate factor accounts for real-world losses like wiring, inverter heat, and panel soiling.
Finally, the Payback Period is found by dividing the Net Cost by your annual savings. If your system saves you $1,500 per year, your payback period is 8.4 years.
Example Calculation
Imagine a homeowner in Arizona with the following profile:
- Monthly Bill: $200
- System Size: 8kW
- Sunlight Hours: 5.8
- Electricity Rate: $0.13/kWh
An 8kW system in this environment generates roughly 1,085 kWh per month. At $0.13/kWh, that is a savings of $141 per month. If the net cost of the system was $16,000 after rebates, the payback period would be approximately 9.4 years. Over 25 years (the standard warranty for panels), the total savings would exceed $42,000.