How to Calculate Solar Power ROI

The price tag on a new residential solar panel system may give you sticker shock. 

The average Canadian home requires an initial investment of about $15,000 or more to supply adequate electricity to meet at least a substantial portion of demand.

And that doesn’t include potential ongoing costs like maintenance and inspections. 

That said, most homeowners see a sizeable return on their investment in clean, renewable solar power over time.

That’s right!

Installing a residential photovoltaic (PV) system can do more than just help the planet and save you money on your electric bills… 

You can even turn a profit in the long run.

Read on to find out if investing in home solar power is worth it for you and your family. 

What Is the Average ROI for Solar?

The estimated average return on investment for residential solar power systems that generate electricity in Canada ranges from 6% to 20% (not compounded) over the lifetime of the photovoltaic (PV) modules (solar panels).

The difference between 6% and 20% is significant, to say the least.

Too many varying factors go into calculating residential solar ROI for nationwide averages to be of much use.

For example:

• Electricity cost per kilowatt-hour from your utility provider
• Total cost of your photovoltaic system
• Estimated power output from the solar panels and balance of system
• Expected lifespan of your PV modules, solar inverter, and other components
• Government incentives
• Grid-connected, off-grid or hybrid solar system?

However, just because there’s no easy answer to “What is the Average Solar ROI in Canada?” doesn’t mean you can’t calculate how much you can expect to earn from your investment.

First, let’s examine how solar panels pay for themselves.

How Do Solar Panels Pay Back Their Investment Cost?

In many parts of Canada, investing in solar panels to generate some or all of your household electricity will earn a significant return on investment.

But how long does it take to recover your initial costs?

The technical term for the amount of time it takes to break even on a residential photovoltaic system is the solar payback period.

You’ll learn exactly how to calculate yours below.

But first, let’s take a look at how solar panels save — and make — you money over time.   

Average Monthly Electricity Costs for End-Users in Canada as of September 2023 (¢/kWh)

(Source: Statista)

Energy Bill Savings

Homeowners recoup their investment in residential solar energy systems primarily by spending less money on electricity bills.

The more kilowatt-hours your solar panels generate, the more you’ll save each month.

Depending on the size of your system and other factors, you may be able to eliminate electricity bills completely.

Residential electricity costs vary substantially across Canada based on three primary factors.  

1. Electricity cost in cents per kilowatt-hour (¢/kWh)
2. Delivery costs over power lines from the power generation source to your home 
3. Fixed and variable costs such as taxes, minimum customer charges, and administration fees

Recent estimates show the national monthly average price of electricity varying between 7.59¢ and 19.48¢ per kilowatt-hour, based primarily on customer location.

Average Residential Electricity Prices in Canada as of April 2022, by Select City

(Source: Statista)

For example, in 2022, the average consumer in Edmonton paid 11.89¢ more per kWh for electricity than the average consumer in Montreal — almost three times as much.

The higher your rate for on-grid electricity, the more money you’ll save per kWh of power your solar panels generate.

Because solar power is renewable, there are no ongoing costs for the electricity your system produces.

Peak Demand and Time of Use

If you opt for a hybrid (solar + storage) PV system, there’s another way you can save money and increase ROI.

Look closely at your most recent electricity bill.

Chances are you’re being charged a different power rate during peak demand hours. 

Unlike on-grid inverter + PV module systems, hybrid PV solutions store the electricity your panels generate in a solar battery for later use.  

For example, EcoFlow DELTA Pro Ultra can store up to 90kWh power and deliver 21.6kW of AC output.

The EcoFlow app makes it virtually effortless to avoid using utility power charged at a higher time-of-use rate. 

Even more importantly, 90kWh is enough power to run most homes for up to a month during a blackout.

Grid-tied solar power systems don’t work during power outages.

(Source: ISED Canada)

Net Metering

Net energy metering (NEM) is a billing mechanism between you and your electricity provider that enables you to transmit electricity your PV system generates in excess of consumption to the power grid.

All of Canada’s provinces and territories offer net metering, although the programs differ significantly based on location and provider.

It’s rare to make a profit from net metering.

Instead, you’ll earn credits towards your electricity bill for the power you consume from the grid.

All renewable energy sources — like wind and solar — are intermittent.

Wind turbines don’t generate power on still days.

Solar panels don’t work at night.

Residential photovoltaic systems solve the problem of intermittency in one of two ways:

• Energy storage
• Connection to the utility grid

Grid-connected systems typically cost less upfront than solar + backup battery storage solutions because they require fewer components.

Unfortunately, no matter which type of grid-tied renewable energy system you choose, they all have a substantial drawback.

Grid-tied solar, wind, and hydroelectric systems automatically shut down during a blackout and must remain offline until power is restored to the grid.

If you’re concerned about home energy security, a hybrid solar + storage system is a much better solution than being tied to the grid. 

Your peace of mind is likely worth more than any money you might save with net metering and lower initial investment.

Government Incentives

Transitioning from burning fossil fuels for electricity generation to renewable energy sources like solar, wind, and hydropower is a global priority for governments and organizations worldwide.

Canada is no different.

Electricity Generation in Canada, by Source (2022, in Gigawatt Hours)

(Source: Natural Resources Canada) 

Hydropower generates over three times more of Canada’s electricity than fossil fuels.

Utility-scale solar installations produce significantly less of the nation’s power than wind and hydro…

However, small wind energy and hydropower systems are largely impractical for residential use.

Home PV systems are much more accessible for consumers.

Rigid and portable solar panels have minimal operating requirements and are ideally suited for ground or rooftop installation almost anywhere there’s sunlight.

Over the years, federal, provincial, and municipal governments Canada-wide have offered generous programs to incentivize the purchase and installation of residential solar power systems.

For example, the Canada Greener Homes Loan program offers eligible homeowners up to $40,000 in 10-year interest-free loans for new ground and rooftop solar panel installations. 

At the provincial level, BC Hydro offers up to $10,000 to homeowners purchasing solar + battery storage systems that meet its requirements. 

Toronto’s Home Energy Loan Program (HELP) provides up to $125,000 in low-interest loans to homeowners that invest in energy efficiency — including rooftop solar panel installations and home backup battery storage.

Electricity providers often offer additional solar incentives to their customers.

New programs are announced regularly, and existing ones are subject to change.

Do your research before purchasing a residential solar power system.

Don’t leave money on the table.

How To Calculate the Solar Payback Period

Calculating how long it will take for your photovoltaic system to recoup your upfront investment is an imperfect science.

At best, you’ll end up with a rough estimate of how many years it will take before you break even and your solar panels start making you money.

This is as true for utility-scale renewable energy systems as it is for rooftop solar.

There are simply too many variables to predict with 100% accuracy, including:

• Available sunlight
• The price of electricity generated by burning fossil fuels 
• Unforeseen events

All investments are inherently unpredictable to a certain extent.

But that doesn’t mean there isn’t value in determining a reasonable estimate of how long solar payback will take — and the eventual return on your investment.

Here’s how.

Solar Payback Formula

Here is the formula for calculating your solar payback step-by-step.

1. Total Your System and Installation Costs

Start by adding up all of your initial purchase and installation costs. Depending on whether you opt for an all-in-one solar generator or solar panels with separate balance of system components, your calculation should include the following items:

• Photovoltaic modules (solar panels or shingles)
• Solar inverter
• Charge controller*
• Solar Battery*
• Monitoring system
• Cables & wiring
• Mounting hardware
• Transfer switch (for integration with home circuit board)
• Bidirectional or smart meter**

* For off-grid and hybrid systems
** For grid-connected systems

• Installation costs
• Permitting costs (if required)

2. Subtract Solar Incentives

Deduct any federal, provincial, municipal or utility provider incentives (such as tax rebates or credits) from the figure you calculated in step one.

3. Add Financing Costs
   If you take out a loan or finance your residential solar power system, make sure to factor in interest and other expenses.
   
4. Estimate Annual Spending On Electricity Bills

The simplest way to estimate your annual spending on electricity is to add up the previous year’s bills. Or you can calculate your home kWh usage and multiply it by the average power rate. Don’t forget that electricity prices vary significantly over the course of the year — particularly in the winter months.

5. Forecast Electricity Generation From Your Solar Power System

All solar energy systems that generate electricity do so using the photovoltaic effect, which converts photons from visible sunlight into direct current (DC). It’s essential to recognize that PV modules don’t always generate their full rated power output (watts) during the day. There’s much more to predicting electricity output than adding up the rated power wattage of your solar panels and multiplying that by daylight hours. Learn how to calculate solar panel output.

6. Estimate Net Metering Credits
   If you elect to purchase a grid-connected system and your utility provider offers net metering, estimate the annual savings you can expect based on your PV arrays’ output and the billing arrangement.
   
7. Calculate Your Solar Payback Period

Once you’ve made all of the above calculations, divide the net cost of your system (minus incentives + financing costs) by your expected electricity bill savings (annual spending minus the dollar amount your PV array generates and net metering credits).

The result indicates the number of years your residential solar power system should take to recoup expenses.

Once you’ve achieved solar payback, ongoing electricity bill savings go straight to your wallet.

Money Saved is money earned.

Here’s an example of calculating the break-even point for a $25,000 system (including parts and installation).

• Subtract the total solar incentives from your system cost. Assuming you qualify for $5,000 in combined incentives, the net cost of your system would be $20,000 ($25,000 – $5,000). 
• Add financing expenses (interest, fees, etc.) over the system’s lifetime to the net cost. For example, if you receive a low-interest 10-year amortized loan at 3% interest (APR), your total interest cost is $3,175 (exclusive of fees.)
• Total your electricity bill savings. The average electricity bill in Toronto is around $130/month ($1,560 p/a). If your solar power system generates 80% of your household electricity, your annual savings is $1,248. ($1,560 x 0.80)
• Calculate payback period: Divide your system’s net cost of $23,175 ($25,000 – $5000 + $3,175) by your annual savings ($23,175 / $1248) = 18 years

In the example above, it would take 18 years to break even on your solar investment. However, most homeowners achieve solar payback in eight to twelve years.

Once you achieve solar payback, the electricity your system generates is free and clear.

How To Calculate ROI for Solar Panels

Return on investment (ROI) is related to the solar payback period. 

Instead of calculating the time it takes to break even, ROI estimates the total savings and earnings a home photovoltaic system can be expected to deliver during its lifetime. 

Here’s a simplified version of the formula: 

Lifetime Cost of Solar Power System – Lifetime Electricity Bill Savings = ROI of Solar Panels

Despite constant exposure to the elements, high-efficiency monocrystalline and polycrystalline silicon solar panels have an average lifetime expectancy of 25 years or more. Many rigid solar panels don’t require replacement for over three decades.

If you purchase the right system, the ROI calculation will result in a negative number that reflects the amount of money you’ve earned by investing in solar power.

For example, if your net system cost is $23,175 and your electricity bill savings are $1,248 per year for 30 years ($37,440), your solar panel ROI is $14,265 (61.55%).

What Factors Affect Solar Power ROI?

There are many variables to consider when determining your return on investment (ROI): electricity costs in your area, local and state incentives, the warranty on your panels, permits, maintenance, and more. 

Here are the top factors to consider: 

Purchase and Installation Costs

Solar panel equipment and installation costs are the steepest financial hurdle to overcome. 

A full-sized residential system often costs $25,000 or more, depending on location, installation and equipment purchase costs. 

Government and utility provider incentives are usually available to lower this initial cost. 

Utility Grid Electricity Prices

The price of on-grid power ultimately determines the ROI of your system.

Of course, determining how much money you can earn on your home solar investment ignores significant additional benefits like reducing your carbon footprint to aid in the struggle against climate change and providing energy security for your family.

Putting a price tag on the intangible benefits is impossible, so electricity bill savings are a primary factor in determining financial return on investment.

In a nutshell, the higher the power rate at your location, the more money you stand to earn.

Maintenance

Residential solar systems require very little routine maintenance.

Aside from semi-annual cleaning and clearing your panels of obstructions like snow, you can set it and forget it.  

Of course, solar panels occasionally fail, wiring and connections can degrade, and balance of system components like solar batteries only last so long. 

That said, such failures are increasingly rare, thanks to ongoing advancements in solar panel and LiFePO4 battery technology. 

Solar panels typically last 25-30 years or more, meaning you’ll recoup your investment long before the system experiences any serious issues.

Additionally, as more people opt to purchase solar power systems, the costs of replacement parts are likely to decrease drastically over time due to economies of scale.

Fees and Permits

Many provinces, territories, and municipalities offer incentives for solar power adoption. 

But fees and permits may also be required to ensure safe installation and compliance with net metering programs (for grid-connected systems).

Pre and post-installation inspections are required in many parts of the country. 

Depreciation

Unlike many big-ticket purchases, solar panels have an extremely low depreciation rate.

New cars are famously said to lose half their value the minute you drive them off the lot, but that’s not the case for PV modules.

With an average lifespan of over 25 years, there’s a good chance that your solar panels may outlast the roof you install them on.

However, like everything else, PV modules aren’t completely immune to ageing.

According to NREL, the efficiency of crystalline silicon PV modules decreases by about 0.5% a year over time.

Solar panel efficiency is a specific metric that measures how much electricity a solar panel can generate per square meter of photovoltaic cells under ideal conditions. 

On average, a solar panel array will generate about 80% of its initial output capacity after 25-30 years of use.

Frequently Asked Questions

Final Thoughts

Don’t let the initial expense of investing in a residential solar power system put you off.

Most homeowners realize a significant investment over time, often in the double digits.

EcoFlow’s solar generators provide everything from portable off-grid power for outdoor adventures to whole-home battery backup with high-efficiency PV modules.

Check out our selection today.