Solar Panel ROI & Savings Calculator
Estimate your annual energy production, financial savings, and payback period.
How to Calculate Your Solar Panel Return on Investment
Switching to solar energy is a significant financial decision. To understand if the investment makes sense for your home, you must look beyond the initial installation cost and evaluate the long-term energy production and savings. This calculator helps you determine the "Payback Period"—the point where your cumulative energy savings equal the cost of the system.
Understanding the Key Metrics
1. System Size (kW)
Residential solar systems typically range from 5kW to 10kW. A larger system generates more power but costs more upfront. Most homeowners choose a size that covers 80% to 100% of their average monthly electricity consumption.
2. Peak Sun Hours
This isn't just the time between sunrise and sunset. Peak sun hours refer to the intensity of sunlight. For example, while the sun may be up for 10 hours, you might only receive 4.5 "peak" hours of intensity sufficient for maximum panel efficiency. Areas like Arizona have higher peak hours than states like Washington.
3. Electricity Rate ($/kWh)
This is what your utility provider charges you. The higher your current rate, the more money you save by producing your own power. Solar acts as a hedge against rising utility costs, effectively "locking in" your electricity rate for decades.
Solar Calculation Example
Let's look at a realistic scenario for a standard US household:
- System Size: 6 kW
- Avg Sun Hours: 4.0 per day
- Utility Rate: $0.16 per kWh
- Net Cost: $12,000 (after federal tax credits)
Step 1: Annual Energy Production
6 kW * 4.0 hours * 365 days = 8,760 kWh per year.
Step 2: Annual Savings
8,760 kWh * $0.16 = $1,401.60 saved per year.
Step 3: Payback Period
$12,000 cost / $1,401.60 savings = 8.56 years.
Factors That Influence Your ROI
While this calculator provides a solid estimate, several real-world factors can shift the results:
- Panel Degradation: Solar panels typically lose about 0.5% efficiency per year. Most manufacturers guarantee 80-90% performance after 25 years.
- Net Metering Policies: Some states allow you to sell excess energy back to the grid at the full retail rate, while others offer lower wholesale rates.
- Incentives and Credits: The Federal Investment Tax Credit (ITC) can significantly reduce your net cost by allowing you to deduct a percentage of the installation cost from your taxes.
- Roof Orientation: South-facing roofs in the northern hemisphere capture the most sunlight. North-facing roofs may see a 20-30% drop in production.