Solar Cost Calculator

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Reviewed by: David Chen, CFA. This calculator is maintained for accuracy based on current industry standards and financial principles.

The Solar Cost Calculator helps you estimate the financial outlay for a residential solar system, factoring in federal tax credits and local incentives to determine your true net cost and estimated simple payback period.

Solar Cost Calculator

Solar Cost Calculator Formula

1. Total Gross Cost = System Size (kW) × 1000 × Cost per Watt ($)

2. Incentive Amount = Total Gross Cost × (Tax Credit % / 100)

3. Net Cost = Total Gross Cost – Incentive Amount

4. Simple Payback Period (Years) = Net Cost / Annual Energy Savings ($)

Source: Energy.gov Solar Guide | Source: SEIA Investment Tax Credit

Variables

  • System Size (kW): The rated capacity of your installed solar system in kilowatts. Typically ranges from 5kW to 15kW for residential homes.
  • Gross Cost per Watt ($): The total, uncapped price of the system before any incentives, divided by the system size in watts.
  • Annual Energy Savings ($): The estimated dollar amount saved on utility bills annually after the system is operational.
  • Federal Tax Credit (%): The percentage of the system cost that is eligible for the current Federal Investment Tax Credit (ITC).

What is a Solar Cost Calculator?

A Solar Cost Calculator is an essential financial tool used to project the investment required for installing a photovoltaic (PV) system on a property. It helps potential solar owners move beyond the initial sticker price by incorporating critical factors like financial incentives and estimated energy savings.

The primary benefit of using this calculator is determining the Net Cost—the true out-of-pocket expense after applying tax credits and other applicable rebates. Crucially, it calculates the Simple Payback Period, which is the number of years it will take for your accumulated energy savings to equal your net investment. This metric is vital for evaluating the long-term return on investment (ROI) of a solar system.

How to Calculate Solar Cost (Example)

  1. Determine Gross Cost: Assume a 7 kW system at $3.20/Watt. Gross Cost = 7 kW * 1000 W/kW * $3.20/W = $22,400.
  2. Calculate Tax Credit: With a 30% Federal Tax Credit, the credit amount is $22,400 * 0.30 = $6,720.
  3. Find Net Cost: Subtract the credit from the gross cost. Net Cost = $22,400 – $6,720 = $15,680.
  4. Estimate Payback Period: If the system saves $1,800 annually, the payback period is $15,680 / $1,800 ≈ 8.71 years.

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Frequently Asked Questions (FAQ)

1. Is the Federal Tax Credit (ITC) a rebate or a credit?

It is a tax credit, meaning it reduces the amount of income tax you owe, dollar for dollar. It is not an immediate cash rebate.

2. What is a reasonable Simple Payback Period for solar?

For most homeowners, a simple payback period between 7 and 12 years is considered excellent, especially given that solar panels typically have a 25-year warranty.

3. Does this calculator include local utility incentives?

No, this version focuses on the Federal Tax Credit. For local incentives, you should manually adjust the initial Gross Cost per Watt down or treat them as a separate rebate reducing your Net Cost.

4. Should I use my current utility rate or a predicted rate?

You should use your current annual energy spending to calculate the ‘Annual Energy Savings’ for the most accurate current assessment. Future savings are speculative.

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