The price tag on a residential solar system gives many homeowners sticker-shock. The average home may require an initial investment of $15,000 or more, which doesn’t include potential ongoing costs like maintenance and inspections.
That said, most homeowners see a sizeable return on their investment. That’s right — installing a solar power system can do more than just help the planet and save you some money on your electric bills. You can even make a profit in the long run!
Here’s how to calculate ROI and the solar payback period to decide if an investment in home solar power is worth it for your energy needs.
How Do Solar Panels Pay Back Their Investment Cost?
Solar panels usually provide a positive return on investment over time. But how long does a solar system take to “break even”?
There’s actually a way to estimate the solar payback period. Weigh the energy bill savings and available solar incentives against the initial cost of equipment and installation to determine whether it’s worth it for you.
Energy Bill Savings
Homes with PV solar panels have drastically-reduced energy costs. Since most or all of your energy is self-produced, you won’t have large electricity bills anymore. Many homeowners have used solar to reduce their electric bills to $0.
And if your PV solar array produces enough energy, the electric company may even start paying you. Many states now have net metering laws, requiring utility companies to purchase any excess power generated by your solar panels.
If you live in a state with high amounts of sunshine, you can expect a decent monthly payout if you’re thrifty with your electricity usage.
Some states have full-retail net metering programs, where utility companies purchase excess energy at the same rate they charge customers. This program is ideal and lets you reap the most rewards.
Other states will pay out at a lower-than-retail rate, also referred to as an avoided cost rate. While this benefits you, utility companies will also profit from your excess energy.
Solar Incentives
Many local, state, and federal programs are available to incentivize homeowners to go solar.
The Federal Tax Credit for Solar Photovoltaics is the most well-known renewable energy incentive. With this government-sponsored program, homeowners can receive a 30% rebate on the installation costs associated with a residential solar system. The rebate pays out as a tax credit. The 30% rebate applies to PV panel purchases, contractor costs, batteries, wiring and other components, and sales tax.
Many states have their own programs in effect. For example, California offers low-income residents the Single-Family Affordable Solar Housing (SASH) program. Homeowners can earn an up-front incentive of up to $3 per kWh when installing a new solar array.
The Arizona Residential Solar Energy Tax Credit offers a 25% tax credit to help fund the initial purchase of a residential solar system (up to a maximum of $1,000). Arizona also provides a property tax exemption for the added value that a solar system can bring to a residence and reduced sales tax on the purchase of solar equipment.
Some utility companies even offer their own incentive programs. For example, some San Francisco and Sacramento residents can receive cash incentives through their utility company for installing a solar system.
How Do You Calculate the Solar Payback Period?
The “solar payback period” is the time it takes to recoup your initial investment in a solar power system. That’s right — most residential renewable energy systems end up performing as a solid investment, in which you eventually yield a return.
The payback period length can vary wildly due to differences in peak sunlight, solar array size, and other factors. Many homeowners report breaking even on their investment within 8 to 10 years.
Solar Payback Formula
You can calculate the solar payback period with a simple formula:
(Initial Cost) / (Annual Savings) = Solar Payback Period
For example, let’s say the initial purchase cost of a solar system was $15,000. This solar array ends up saving the homeowner an average of $1,500 per year against on-grid energy costs.
If we divide the initial cost of $15,000 by the average annual savings of $1,500, then we can determine that the solar payback period for this installation is ten years.
How Do You 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 calculates the total amount of money and savings that a PV array will provide over its lifetime.
Here is a simplified version of this calculation:
Lifetime utility costs – lifetime cost of solar = Solar System ROI
So, to calculate the ROI for PV panels, we have to figure out a few other things: the lifetime cost of a solar system and the expected utility costs for the same period.
What Factors Affect Solar ROI?
There are many variables 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:
Installation Costs
Solar panel equipment and installation costs are the steepest financial hurdle to overcome. A full-sized residential system often costs $20,000 or more, depending on the region, contractor costs, and the equipment required.
Up-front incentives are available to lower this initial cost. The 30% Federal Tax Credit is the most significant rebate available, but other state and local programs can decrease costs even further.
Any one-time incentive can lower the initial purchase and installation costs. For example, if a $20,000 solar installation receives $8,000 in initial rebates and incentives, the installation costs would come to $12,000.
Maintenance
A residential solar system will inevitably require maintenance and replacements over the system’s lifetime. Don’t let this deter you — it’s just part of the deal!
Solar panels occasionally fail, wiring and connections can degrade, and batteries only last so long. That said, these failures are increasingly rare, thanks to ongoing advancements in solar panel and battery technology.
Most solar panels last 25-30 years, meaning you’ll recoup your investment before the system experiences any 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
While many states have incentives for solar power adoption, fees and permits may also be required to ensure safe installation and fairness with the net metering programs.
For example, Phoenix homeowners must purchase a $300 permit for roof-mounted residential PV systems. The Fair Permit Act caps permit costs at $500 for residential installations in Colorado.
Pre and post-installation inspections are required in many parts of the country. A PV solar array inspection can range anywhere from $150 to $300. Some states or utility companies will also require an inspection every year or two to ensure that the wiring and connections are still in good shape.
Incentives
Incentives can deduct from the ongoing costs of maintaining your solar system. Most utility companies participate in a net-metering program, where homeowners can sell excess energy back to the utility company.
Calculating Lifetime Utility Costs
The ROI depends not just on the initial investment but also on the lifetime utility costs. Installing an entire Smart Home Ecosystem can save more money than buying one or two panels because the savings on utility costs are more significant.
You can calculate lifetime electricity costs with this equation:
Electricity Cost per kWh x Monthly Usage in kWh x 12 months x 25 years
The “lifetime” of a PV solar array is generally 25 years.
We can calculate an example using the national averages for electricity cost and monthly usage. If we plug in these numbers, our equation looks like this:
$0.1632 x 886 kWh x 12 x 25 = $43,378.56
So, the average homeowner is hoping to save over $40,000 in the lifetime of a solar array. That’s a lot of utility bills avoided if the solar array covers the energy usage for a household!
How Long Does It Take for a Power Kit To Pay Back?
The EcoFlow Power Kits are all-in-one solar solutions that make calculating ROI and the solar payback period easy.
The base Power Kit — with 10 kWh of batteries — is currently priced at $9,999. To stick with our national average example, we will need enough solar panels to produce around 886 kWh per month. The system would require around 16 EcoFlow 400W Rigid Solar Panels, or an additional $8,000 of the initial cost.
With the 30% Federal Tax Incentive, the initial costs would come down to around $12,600 (this doesn’t include any other local or state programs that you may be eligible for when you enroll).
The installation costs are free, as the Power Kit is an easy plug-and-play system you can install yourself.
So, we can reference the equation from above:
(Initial Cost) / (Annual Savings) = Solar Payback Period
Our annual savings are similar to the lifetime utility costs equation above, except we don’t need to calculate it over 25 years:
$0.1632 x 886 kWh x 12 = $1,735.14 saved per year
Now we can plug in our numbers:
($12,600) / ($1,735.14) = 7.26 years
It would take just over seven years to earn back the initial investment on a 10 kWh Power Kit system. Not only that, but you’ll be immune to power outages, and the utility company may even reimburse you for any extra energy you produce!
Solar Power ROI Key Takeaways
- The average solar power ROI is around 10% but depends on the size, performance, efficiency, and location of the system.
- To calculate solar panel ROI, divide your net profit over the lifetime of your solar panels by the combined cost of purchase and installation, then multiply by 100.
So, Is Investing in Solar Power Worth It?
In almost every case, solar power is a worthwhile investment. Unless you live somewhere the sun never shines, you should see a return on your investment within 10 to 15 years.
If the initial investment is too steep for your budget, consider investing in a smaller system like a solar generator — it can be a lifesaver during a power outage.
With EcoFlow, you can find a range of solar solutions suitable for any budget. The time is right to go solar.
