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Switching to renewable energy is a no-brainer for the planet.
But if you’re a homeowner, investing in residential solar power isn’t necessarily a no-brainer for your bank account — at least not on the surface.
Look deeper, and you’ll find that switching to solar is an excellent long-term investment.
Particularly in South Africa where load-shedding doesn’t appear to be ending any time soon.
If you’re worried that switching to renewable solar energy is too expensive, you need to learn about the solar payback period.
After you recoup your initial investment in solar, you can save massively on electricity bills over the long term.
Sounds too good to be true?
Become a believer!
Here’s everything you need to know about the solar payback period.
What Is the Solar Payback Period?
The solar payback period is the amount of time between the initial purchase of a solar power system and when that cost equals (or is less than) what you’ve saved on electricity bills.
For example, if your solar panels and balance of system cost you R100,000 in total, you would need to save R100,000 on your electricity bills before achieving solar payback.
The solar payback calculation is a simplified way to measure the return on investment (ROI) of switching part (or all) of your household’s electricity consumption to a renewable energy generation source instead of on-grid power.
Simply put, the solar payback period is the time before you break even and start making money on your solar investment.
With a grid-tied solar power system, you may actually get paid for the electricity you generate in excess of your consumption. With off-grid solar, you’ll no longer pay the utility company for the electricity you generate.
Money saved is money earned.
What Is the Average Solar Payback Period?
How long your solar payback period will take depends on myriad factors.
However, most homeowners who switch to residential solar power recoup their investment — through savings on reduced or eliminated electricity bills — in 6 to 10 years.
Given the lifespan of a solar panel system is approximately 25 years, committing to the upfront costs carries the promise of up to 2 decades of free electricity.
What Is Considered a Good Solar Payback Period?
It’s well-established that purchasing a residential solar power solution can lead to financial gain in the long run.
But how good of an investment is it in actuality? And compared to more conventional investment vehicles, how does investing in solar stack up?
To figure that out, knowing what industry experts consider a “good” solar payback period is helpful.
One standard is this: If you can pay off your renewable energy equipment in less than half the system’s lifespan, it’s worthwhile.
Experts also suggest considering the IRR, or internal rate of return.
To determine if you’re making a solid financial investment, consider how you would fare if you placed that same amount of money into a different investment vehicle. If the two are comparable or the payoff with solar is greater, you’ve made an excellent choice!
It’s also crucial to consider that the numerous benefits of investing in solar are not as easily quantifiable. Investing in renewable energy can positively impact climate change and help make our planet habitable for future generations.
While hard to put into numbers, it’s difficult to argue that the benefits of reducing your family’s carbon footprint aren’t valuable in the grand scheme.
If you’re unsure where to start with switching, contact a solar provider in your area and ask for an estimate.
Professionals can give you valuable local data you can use to make calculated and informed decisions about investing.
You can also estimate your solar payback period by considering the factors below.
Factors That Impact Your Solar Payback Period
No two households will have the exact same solar payback period. There are simply too many variables at play.
Here are some of the most common factors impacting your payback period.
Once you understand the impact of these elements, you can devise ways to speed up your payback period and start saving money faster.
Total Cost of System and Equipment
The most significant factor that impacts the length of your solar payback period is the cost of your home renewable energy system. Cost is dependent on a variety of factors.
For example, if you live in a two-story five-bedroom house with six people, you require much more electricity to power your home than living alone in a tiny home. The more electricity it takes to power your lifestyle, the more equipment you require.
The flip side is that the more electricity you currently pay for — the more significant the potential long-term savings.
The total cost of a residential solar power system includes the solar panels, installation, and the balance of the system.
Balance of system (BOS) components are required to convert and store the solar energy gathered by PV panels as usable AC (household) electricity.
Required BOS components include:
- Inverter
- Solar Battery
- Charge Controller
- Battery Management System
- Wiring and cabling
You can choose to build a DIY solar power system using these (and additional) components.
Or you can avoid the hassle (and potential compatibility issues) by purchasing a portable power station (PPS). A PPS that supports solar charging from PV panels typically has all the BOS components built-in.
Government Tax Breaks and Incentives
Thanks to the global imperative of achieving a net-zero future, federal and local governments worldwide are offering generous incentives for switching to solar power.
The more money you can save on your initial solar power system purchase, the shorter your solar payback period!
Residential solar solutions like EcoFlow’s Smart Home Ecosystems can qualify for significant tax breaks.
Currently, South Africa has two federal tax incentive programmes to reduce the cost of purchasing and installing a solar energy system. One is designed for individuals, while another is targeted at businesses. The Minister of Finance announced the solar panel incentive on 22 February 2023, and it will remain in effect for one year to encourage clean energy investments as soon as possible.
For the individual incentive, as long as you pay personal income tax, you can claim a rebate of 25% of the cost of your system against your tax liability after installing a solar panel system (up to R15,000 per individual).
A few things to know about this incentive:
- It’s only applied for new and unused PV panels
- Panels have a minimum capacity of 275W per panel to qualify
- They must be installed on a domestic residence
As for businesses, they can claim an accelerated depreciation allowance of 125% of the initial costs during the year the company first started using the solar system as of 1 March 2023.
These government credits and incentives can significantly reduce the cost of your residential solar power system. The lower the upfront investment, the faster the solar payback period.
Thoroughly research what programs you qualify for in your location to maximise your savings and shorten your solar payback period.
Average Recurring Electricity Cost
While there will always be variation month-to-month, you can typically anticipate how much electricity your household consumes at different times of the year.
Consumption levels are significantly affected by weather patterns (especially winter vs. summer) and lifestyle habits. Identifying your average expected electricity costs is essential to estimating your solar payback period.
Even more crucially, you must determine your total electricity consumption to purchase a solar power system that meets your household needs.
The more electricity you consume, the more electricity your solar panel array and balance of system must generate.
If your electricity needs are substantial, you’ll have to spend more money upfront on equipment. However, the additional investment also means you’ll save even more money every month on your electricity bill.
Cost of Electricity in Your Area
The cost of electricity in your region also has a substantial impact on your solar payback period.
Electricity costs widely vary from place to place due to regulations, transportation and transmission procedures, and the cost of running a power plant. Your local energy prices can directly affect your return on investment.
The higher your electricity costs per kilowatt-hour (kWh), the more money you’ll save month-to-month by switching to solar.
While it may seem counterintuitive, the higher your electricity bills — the shorter your solar payback period and the greater your potential return on investment.
Estimated Electricity Generation
The amount of electricity your residential solar power system generates also substantially influences your solar payback period.
Generating enough electricity to eliminate your electricity bills in full is the goal for most residential home solar system users…
However, not everyone can achieve it.
Myriad factors influence the amount of electricity your solar panels and balance of system can produce.
One essential consideration is totally out of your control: the number of peak sunlight hours your location receives.
If you live in an area with ample sunshine year-round, — you can likely harvest all the solar energy you need to make electricity bills a thing of the past.
But if you live in a region with minimal sunshine and lots of cloudy days, sufficient electricity generation isn’t guaranteed.
Additionally, if your rooftop has substantial shade from overhanging trees or nearby buildings, affected panels won’t operate at their optimal capacity. The more sunlight you capture, the more money you save.
Other Financial Incentives
In some places, you can benefit from RECs, or renewable energy credits, which can further minimise your payback period. Your local municipality can provide monetary credits per kWh of electricity your panels generate and send back to the grid for use.
South Africa uses a voluntary REC (TREC) market that allows renewable energy generators, such as those with solar PV arrays, to receive credits for the clean energy they produce. They can then register the RECs with zaRECS Registry, where they can either sell them to recoup some of the solar costs or, for businesses, they can display their redeemed certificates to customers as a selling point.
Net metering is another option for selling excess electricity back to the grid in some areas, but South Africa is still developing a national framework to support net metering. However, it’s already starting to take off in popular areas. Cape Town recently announced a new net metering program as of 1 June 2023.
It’s crucial to note that these options are only available for grid-tied solar power systems.
Off-grid systems offer you complete energy independence — but you can’t send electricity back to the grid. Instead, you can save any additional energy you generate in solar batteries and use it on demand.
The net result is the same whether your system is grid-tied or off-grid — the more electricity you generate, the more money you’ll save on utility bills.
If you generate significantly more electricity than you consume, grid-tied buyback programs can potentially reduce your solar payback period.
How To Calculate Your Solar Payback Period: A Quick Guide
You don’t need to be a math whiz to estimate your solar payback period. You only need the right data and a few moments to crunch the numbers.
Let’s walk you through the steps.
Calculate the Total System Cost
To start, you’ll need the total cost of your energy equipment. The total includes any installation fees and related expenses in addition to the solar panel array and balance of system.
If you haven’t yet purchased your home solar system, you can contact a reputable local solar power company for a quote.
Alternatively, you can often save a substantial amount of money by purchasing an easy-to-install, plug-and-play solar solution from a manufacturer like EcoFlow.
Factor in Credits, Rebates, and Incentives
Next, factor in any available solar incentives.
Savings can be in the form of government tax credits, rebates, or installer discounts. Subtract the total expected savings from the total cost of the system. To get the most accurate calculation, research local opportunities before making a purchase:
Gross Cost of System – System Savings = Net Cost of System
Include any potential RECs income or, if you’re in Cape Town, income from local net metering programs for grid-tied systems.
Add in any Additional Costs, like Financing Fees
Not everyone can afford to buy their solar panels and equipment outright. Most solar installers and manufacturers provide options to finance your system and pay it back over time.
If you finance, this will likely influence your payback period. Consider any additional fees or interest that will accrue while you pay off your equipment.
Financing shouldn’t disqualify you from federal tax credits, but be sure to read the fine print with the lender. However, solar financing is not as easy to obtain in South Africa as in many other countries, and many who decide to go solar do so with cash.
Calculate Your Estimated Monthly Electricity Cost
Identify how much you typically spend on electricity. Reputable solar installers will do their best to design a system that produces the energy you need.
Additionally, having a solid understanding of your monthly electricity consumption empowers you to purchase a solar power solution without paying an installation company commission.
In an ideal world, with the right residential solar system, you won’t have an electricity bill at all post-installation.
Calculate how much you typically spend to identify how much you’ll save on utility bills monthly. Many utility companies list your annual consumption on your statement. Or you can simply add up your previous 12 bills to determine your yearly electricity costs.
Depending on fuel costs and numerous other factors you can’t predict, electricity costs vary over time. But using an average cost is sufficient for estimating your solar payback period.
Divide the Total Cost of the System by the Annual Financial Benefit
All that’s left to do now is some basic math.
To determine your solar payback period, divide the system’s total cost (factoring in any fees or savings) by the expected annual financial benefit (the dollar amount you’ll save each year by not having an electricity bill).
The result is the expected amount of time required, in years, before you realise a return on investment from your home solar equipment.
For example, say you spend R100,000 on your equipment, and your typical annual electricity cost is R20,000. To determine your payback period, divide R100,000 by R20,000.
100,000 / 20,000 = 5 years
This calculation shows that your solar payback period is approximately five years. Because a typical home solar system lasts at least 25 years, you’ll get 20+ years of electricity savings.
Using the example above, that’s more than R400,000 in savings during the equipment’s lifespan.
The potential savings show that solar power can be an excellent investment for the planet and your pocketbook.
FAQs
While the answer isn’t entirely so black and white, yes, your investment in solar panels will pay for itself in the long run. Upfront costs may be steep, but the long-term savings over the panels’ lifespan is significant and should provide a healthy return on investment.
It depends. Ultimately, your estimated electricity savings depends on how much electricity you produce and how much you consume. You’ll have an electricity bill if you consume more power than your panels generate. Even if you don’t go 100% solar, you can still achieve substantial savings by reducing the amount of electricity you consume. With a smart home ecosystem, you can schedule your solar power system to supply electricity during peak times with higher per kWh charges.
Data suggests that the average user saves around R130,000 over the lifespan of their solar panels. While the exact number depends on the cost of electricity in your area, the savings are astronomical no matter where you live!
Conclusion
When it comes to any significant financial decision, knowledge is power.
The better you understand your solar payback period, the better you can anticipate and set your family up for a bright financial future.
Investing in solar technology goes one step further by supporting a world with fewer climate catastrophes and more thriving ecosystems.
It’s a total win-win.
When you’re ready to switch, EcoFlow has industry-leading off-grid solar power solutions at competitive prices to make your renewable energy dreams come true.
Whether you’re looking for an on-the-go solution like the portable DELTA 2 or a Smart Home Ecosystem, EcoFlow has you covered.
Flip the solar switch today!