Use our Solar Cost Calculator to estimate the total investment required for a photovoltaic (PV) system and determine the simple payback period based on your estimated electricity savings.
Solar Cost Calculator
Simple Payback Period:
Solar Cost Payback Formula
Where:
Total System Cost = System Size (kW) × 1000 × Cost per Watt ($/W)
Annual Electricity Savings = (System Size (kW) × 365 Days × Peak Sun Hours) × Utility Rate ($/kWh)
Formula Source: U.S. Department of Energy (energy.gov)
Variables Explained
- System Size (kW): The rated capacity of your installed solar system in kilowatts.
- Average System Cost ($/Watt): The price you pay for the system per watt of capacity, representing the total installation cost.
- Current Utility Rate ($/kWh): The amount you pay your utility company for each kilowatt-hour of electricity consumed.
- Annual Degradation Rate (%): The expected rate at which the solar panel efficiency decreases each year (typically 0.5% to 1%).
- Average Daily Peak Sun Hours: The average number of hours per day when solar irradiance equals 1,000 watts per square meter (varies by geographic location).
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What is Solar Cost Payback?
The Solar Cost Payback period is the length of time, usually measured in years, required for the savings generated by your solar power system to equal the initial investment cost. This calculator provides a simplified model, assuming a constant utility rate and system performance based on year one.
Understanding your payback period is crucial for financial planning. A shorter payback period indicates a faster return on investment (ROI). While this calculation is a good starting point, a full financial analysis should account for inflation, maintenance costs, financing interest, and potential increases in utility rates over time.
How to Calculate Simple Payback Period (Example)
- Determine Total System Cost: Multiply the System Size (e.g., 6.5 kW) by 1,000 (to get Watts) and then by the Cost per Watt (e.g., $3.00/W). Result: $19,500.
- Calculate Annual kWh Production: Multiply System Size (6.5 kW) by 365 days and by Average Peak Sun Hours (e.g., 4.0). Result: 9,490 kWh.
- Estimate Annual Savings: Multiply the Annual kWh Production (9,490 kWh) by the Current Utility Rate (e.g., $0.15/kWh). Result: $1,423.50.
- Find Simple Payback Period: Divide the Total System Cost ($19,500) by the Annual Savings ($1,423.50). Result: Approximately 13.7 years.
Frequently Asked Questions (FAQ)
What factors affect the payback period? The most significant factors are the initial system cost, the local electricity rate (how much you are saving), the amount of sun your area receives, and available government incentives like tax credits.
Does the degradation rate matter for the simple payback? For the *simple* payback period, we use the Year 1 savings for a quick estimate. However, for a detailed financial model (discounted cash flow), the annual degradation rate is essential as it reduces savings in subsequent years.
Is the payback period the same as ROI? No. Payback period is a time measure (years), indicating when you recover your investment. Return on Investment (ROI) is a percentage measure of the gain on an investment over a specific period.
Can I include solar incentives in this calculator? This simple model calculates the cost before incentives. To include them, manually enter the post-incentive Total System Cost into the Total System Cost variable.