Solar Payback Formula
To figure out payback period without the solar panel monetary value calculator, we first calculate the true cost of installing solar after incentives have been claimed. then we compare that against the monetary value of electricity from the utility company, which tells us how long it takes to break even on the system. Use the formula below : ( total System Cost – Value of Incentives ) ÷ price of Electricity ÷ Annual Electricity Usage = Payback Period System cost is the sum cost to install your arrangement, which includes equipment, permitting, ship, contractor wages, and other associated project costs. Value of Incentives covers any credits or incentives you receive for going solar. The main bonus is the Solar Investment Tax Credit, a 26 % accredit toward your union taxes. Most people are eligible to claim it, so we factor that into our calculations. There may be other express or local incentives in your area.
Cost of electricity can be obtained from your utility supplier. State-by-state averages can be found here. Your electricity usage is printed on your electric bill. Take your monthly use and multiply by 12 months, or gather a full class ’ s deserving of bills from your utility for a more accurate estimate .
Payback Period Examples
Let ’ s count a few unlike payback scenarios. Scenario #1: US national average electricity rates, installed by a contractor at $1/watt Let ’ s assume your family is “ average ” in every way, using 914 kWh per calendar month billed at a rate of 12.95 cents per kWh. 914 kWh/mo. x 12 months = 10,968 kWh/yr A 6.9 kilowatt system would completely offset your department of energy custom. We presently sell a 6.9 kilowatt SolarEdge / Astronergy system for $ 10,224.70 ( price is current as of 11/22/2019, the date we published this guide ). A local contractor might charge you $ 1/watt to install your system, which works out to $ 6,900 for this 6.9 kilowatt ( 6900-watt ) system. We will besides estimate $ 1,000 to cover allow and ship fees. In total, the price to install your system is $ 18,124.70. 26 % of that can be claimed under the federal tax credit, a value of $ 4,712.42. ( $ 18,124.70 – $ 4,712.42 ) ÷ $ 0.1295/kWh ÷ 10,968 kWh/yr. = 9.44 years In this scenario, it takes 9.44 years to break evening on your investment. That assumes you have median energy costs and hire a contractile organ to install your organization. Scenario #2: US national average electricity rates, DIY install You can besides choose to install your organization yourself. This will negate the $ 6,900 facility cost, but we should add another $ 500 for tools and the cost of an electrician to complete the final hookup. We besides keep the $ 1,000 estimate for shipping and permitting. That brings your organization cost down to $11,724.70, with a 26 % tax citation of $3,048.42. here ’ s how the vengeance menstruation changes if you DIY install : ( $ 11,724.70 – $ 3,048.42 ) ÷ $ 0.1295/kWh ÷ 10,968 kWh/yr. = 6.11 years When you install the arrangement yourself, it takes 6.11 years to recoup the initial cost of the system. Taking on a DIY install allows you to pay off your system about three years faster than hiring an installer. Scenario #3: High electricity rates If your electricity costs are higher than average, that makes your payback period even shorter, because you are saving more on utility bills each calendar month. Let ’ s function Rhode Island as an exemplar, which has the highest monetary value of electricity in the conterminous 48 states. At 21.74 cents per kWh, it ’ s closely bivalent the US national average. Let ’ s assume average department of energy custom with installation serve from a local contractile organ : ( $ 18,124.70 – $ 4,712.42 ) ÷ $ 0.2174/kWh ÷ 10,968 kWh/yr. = 5.63 years And the same scenario if you choose to DIY install : ( $ 11,724.70 – $ 3,048.42 ) ÷ $ 0.2174/kWh ÷ 10,968 kWh/yr. = 3.64 years As you can see, solar is even more appeal in states with high electricity costs. Eliminating high electric bills leads to quite a rapid vengeance period of 3.64 years if you take on a DIY install, or 5.63 years if you hire a contractile organ. Scenario #4: Low electricity rates, more expensive system For comparison ’ south sake, let ’ s go to the other end of the spectrum. We are going to try to find the worst-case solar scenario : the lowest electricity costs in the state ( Louisiana, at 9.09 cents/kWh ). How long would it take to pay off the same 6.9kW system ? ( $ 18,124.70 – $ 4,712.42 ) ÷ $ 0.0909/kWh ÷ 10,968 kWh/yr. = 13.45 years The payback period balloons to 13.45 years if you hire a contractor for installation. tied taking this worst-case scenario into report, you inactive break even about halfway through the life of your 25-year panel guarantee and stand to make a fair return key on your investment .
How Do I Calculate Solar Panel Return on Investment?
The other figure you ’ re probably interest in is how much money you stand to save over the life of your arrangement. For that, we want to calculate the cost of possession over the life of your control panel guarantee ( 25 years ), and compare it to the cost of buying electricity from the utility company over that like time menstruation. besides note that inverters have shorter lifespans than solar panels. You ’ ll need to replace your inverter at least once over the arrangement ’ mho life, which should be factored in to your ROI calculations. At its simplest, here ’ s how to calculate your hark back on investment into solar : Lifetime cost of electricity from utility – lifetime price of solar = Solar ROI The life cost of solar includes :
- Permitting & inspection
- Incentives & rebates (Federal tax credit applies to all above line items)
- Financing fees (if applicable)
- Grid connection fees
- Part replacements
And here ’ s how to calculate life cost of electricity : cost of electricity per kWh ten Monthly kWh use x 12 months ten 25 years
Sample ROI Calculations
Let ’ s use the lapp 6.9 kilowatt system from the scenarios above. In our model, the system costs $8,676.28 if you choose to install it yourself, or $13,412.28 if you hire a local anesthetic contractor to install it at $ 1/watt. That system contains a SolarEdge string inverter with a 12-year guarantee, presently priced at $ 1,691. Replacing the inverter at the 12-year and 24-year mark adds another $ 3,382 to the costs outlined above. The utility will charge a monthly fee for access to connect to the grid. That ’ s about $ 15/month, or $ 4,500 in power system connection charges over 25 years. Taking these extra costs into consideration, the life cost of owning this system is $16,558.28 if you self-install or $21,294.28 if you hire a contractor. Using national averages, hera ’ s how much it would cost to buy electricity from the utility over 25 years : $ 0.1295 x 914 kWh x 12 ten 25 = $35,508.90 Compare these figures to calculate the life solar control panel hark back on investing : ROI for DIY systems: $ 35,508.90 – $ 16,558.28 = $18,950.62 in savings over 25 years ROI for systems installed by a contractor: $ 35,508.90 – $ 21,294.28 = $14,214.62 in savings over 25 years
What Are Some Factors That Affect Solar ROI?
several factors can influence the ROI of your solar system. here are some top contributors that affect the ROI of your solar investment :
facility makes up a major helping of the cost of your project. A 2018 reputation by the National Renewable Energy Laboratory cites $ 2.65 to $ 3 per watt for systems built by Vivint and Sunrun. however, the equipment itself costs fair $ 1.20 to $ 1.50 per watt, with the remaining charges going toward initiation and overhead costs. That ’ s more than 100 % markup on the facility fees from national solar installers. local contractors offer better rates, but they still charge 75 cents to $ 1/watt to install the equipment you order. You ’ re hush looking at several thousand dollars for the installation. many of our customers save money by choosing to self-install their system, cutting out the initiation fees. Some institute in an electrician for the final hookup to the grid, a visit that costs equitable a few hundred dollars. Wondering what it takes to self-install a solar system ? Check out our DIY Solar Timeline. We provide free system design consultations and installation guidance to give you the tools you need to install your organization yourself .
Through 2020, the Federal government is offering a 26 % tax credit off the integral monetary value of your system, which includes equipment, ship, fees, facility, etc. Most people are eligible to claim this bonus ( you must owe union taxes to claim the credit ). The credit steps down in value starting in 2020, until the plan expires in 2022. Learn more about the Federal Tax Credit.
There might besides be state or county-specific rebates and grants for your sphere, which farther reduce the cost of solar. Check our State and Local Incentives page to search for extra programs in your area. These incentives should be deducted from the monetary value of your project when evaluating your fall on investment into solar department of energy .
Fees & Permits
States and counties normally charge a fee to inspect and permit your newly solar initiation. This varies by placement, but typically full less ( sometimes much less ) than $ 1000. To start the permit process, you ’ ll need to contact your local authority having jurisdiction ( AHJ ). The AHJ is the organization responsible for permitting and inspecting new solar installations where you live. There may be multiple AHJs that oversee the process. common places to look are :
- Your Electric Utility
- Your City/County Planning Department
- Your City/County Fire Department
A quick call to your city hallway or plan department can help you get started. For more guidance, download our solar let guidebook .
Maintenance & Replacements
solar systems contain few moving parts, and as a result, there is very little sustenance involved. Beyond keeping the panels clean and clear of debris, you don ’ t need to perform much maintenance on grid-tied systems. however, you should budget part replacements into the equation when calculating your retort on investment. solar panels are warrantied to final for 25 years, and they much last quite a bit longer than that ( albeit at reduce efficiency ). String inverters are typically warrantied for 10-15 years, which means you should expect to replace your inverter at least once over the life of ownership. This surrogate price should be factored into the solar jury ROI equation. You can handle it one of two ways :
- Buy a replacement inverter when you need one.
- Buy the extended inverter warranty up front to extend the replacement warranty to match the life of your panels.
The second option is more cost-efficient but requires you to pay a act more up front. Either means, the cost of an inverter substitute should factor into your ROI calculations. Read our article on solar warranties for more information .
Leasing & Financing
We do not recommend entering into a solar lease or power buying agreement ( PPA ). They eat into the value of your investing, and can actually cause you to lose money in some cases. Leases have high life costs due to compounding sake built into the lease social organization. They besides prevent you from claiming the Federal Tax Credit or any other incentives. Those benefits go to the company offering the lease—they own the equipment, which means they retain the right to claim the incentives. Leases besides make your home hard to sell. We recommend reading this Bloomberg article : “ What Happened When I Bought a House With Solar Panels “, which reflects on the headaches caused by purchasing a sign of the zodiac and inheriting solar panels leased from Sunrun. If budget is a concern, we recommend financing your arrangement alternatively. Banks offer better lend rates, and you get to keep the incentives because you own the organization. You may besides be eligible for reduce rates through an FHA ( Federal Housing Administration ) lend, which covers home improvement projects like adding a solar arrangement to your home .
Utility Billing Structure
The monetary value of electricity can vary based on your location, with averages falling in a image of 9-22 cents per kWh. ( Hawaii is an outlier at 33.82 cents per kWh, due to the necessitate to maintain their own utility grid because they are separated from the mainland ). What ’ s more, most utilities don ’ triiodothyronine bill a flat rate for electricity. Most will charge higher rates during peak function periods, and some set unlike rates for energy generated by solar vs. energy provided from the grid. Your utility will outline the bill structure as separate of your contract with them, called a net meter agreement. The bill exemplar can have an impact on your solar dialog box retort on investment. here are some terms to keep an eye out for :
Net Metering Agreements
You may be able to sell excess baron from your arrangement back to your electric utility. This is called “ net metering ” or “ net energy meter ( NEM ). ” In most cases, your electricity generation v custom is tracked each calendar month, and any excess is returned to you as energy credits that apply to future bills. Some utilities buy and sell department of energy at the same retail pace, while others pay a reduce rate for the solar energy you feed into the grid ( $ 0.08/kWh in credit value vs. $ 0.13/kWh sale price, for exercise ). other companies offer month-to-month rollover credits, but don ’ t give a cash refund. Under this system you can not get cash for surfeit generation, only circular credits .
Utilities charge more for electricity during top out custom periods—typically the flush, when most people are home from school and workplace. This besides applies during the center of summer and winter months, when people are running their fastball or A/C at entire bang. Utilities do this to better adapt to the hourly supply and demand curves they see, both for fiscal and hardheaded reasons. Sudden spikes and dips in electricity usage can be hard for traditional power plants to keep up with, because it takes time for them to ramp their production up or polish. The profit to the solar homeowner is that—with the right field equipment, in the right jurisdiction—you can sell solar power back to the grid at top out day rates and buy it back at lower night rates. This apparatus requires a grid-tie arrangement with energy storage. These systems use a battery bank to facilitate department of energy resale and provide backup world power in the shell of outages. The bare savings from time-of-use meter may or may not pay for the extra costs of adding a battery bank to your system. however, the peace of mind from having hand brake backup in case of outages may be worth it to you—especially if you live in an area with an unreliable office grid, or a climate that is susceptible to flooding or extreme upwind conditions .
Feed-In Tariffs (FITs)
While most states offer internet Metering programs, a few besides offer “ feed-in tariff ” scheme. This means the utility installs two separate meters, one for the power you use and one for the power you generate, and charges each at a different rate. Contact your utility to find out if this is applicable to you .
This is a measure of how much sunlight an area receives throughout the year. Your system hits top out production when it is exposed to full sunlight, and some areas receive more “ sunlight hours ” than others. A arrangement in Arizona or Southern California will enjoy a lot longer extremum production windows on a casual basis than one construct in Michigan or Alaska. The total of sun exposure your system receives has a huge impact on production, and higher production translates to a immediate payback period. That said, solar is still financially viable in cold and cloudy climates. ( This shell sketch from a Wisconsin customer does a great job demonstrating how solar produces in a heavy snow region. ) Take a attend at our US sun hours map to get a sense of how a lot sun exposure you can expect in your placement.
Continuing with the last point, shading on your panels prevents exposure to sunlight, which will reduce their output. If your arrangement is built under trees, chimneys, or other obstructions, it won ’ t grow at utmost efficiency, which will negatively impact your solar dialog box ROI. certain products like power optimizers and micro-inverters help oneself mitigate shading issues. They come at a higher up-front cost than string inverters, but the extra product from shade extenuation more than makes up for the initial purchase price. If you think shade will be a business, look for systems managed by optimizers or micro-inverters, like the SolarEdge HD-Wave or the Enphase IQ7+, and factor the higher system cost into your payback calculations. These products help manage sites with fond shade. Full ghost distillery needs to be avoided, as solar won ’ thymine be a feasible solution if the panels are never exposed to sunlight .
Mount Angle & Orientation
solar panels work good when they face directly into the sun. But that job is complicated by the fact that the sun moves across the flip throughout the day. It besides changes angle in the flip as the seasons change. You can buy punt mounts or trackers to adjust your panels to the optimum slant throughout the class, but the product gains from these adjustments are minimal. Most organization owners will be happy adequate to mount panels at a cook angle, which saves money on racking and facility costs. ideally, solar panels should be tilted at an angle that is peer to your latitude. The natural slope of your roof should come pretty close up to this angle, so you normally don ’ t need extra adjustments. You besides want to point your panels toward the equator so that they are facing the sun. In the US, south-facing arrays offer the most production. You can generally make do with east or west-facing arrays, but will need to oversize your system to account for a drop in output. PVWatts is an invaluable creature for calculating the efficiency of your system based on the above factors. For more information, check out our article on fish and azimuth, which explains the optimum position to mount your panels .
As a normal separate of their lifecycle, solar panels very slowly lose performance over time, at a rate of about 0.5 % to 1 % per year ( source : NREL discipline ). A good manufacturer guarantee will include this degradation explicitly in their terms. A typical guarantee is for panels to however produce at least 80 % of their initial output after 25 years. This means a 300-watt jury nowadays would be guaranteed to hush produce at least 240 watt 25 years from now. Panel degradation should be factored into ROI calculations and solar panel tax return on investment calculations, since panels will put out a bit lower product near the end of their life .
electricity rates have risen gradually over the past few decades, from 1 % to 6 % a year depending on the area. On wallpaper this may look like electricity is getting more and more expensive, but in commit, the annual rate of ostentation must besides be taken into account. In light, the “ real ” inflation-adjusted price of electricity has decreased significantly since 1960 and risen entirely slenderly since its lowest point in 2002 ( source : EIA ). While it ’ sulfur hard to predict future pace changes, solar can offer fiscal security by locking in a repair electric rate over the adjacent 25 years. It keeps your placard predictable and shields you against future rate increases. This usher focuses on investing value for grid-tied systems. Calculating payback period for an off-grid system is quite a bit more complex, based on two chief factors :
Battery-based systems cost quite a snatch more up-front, and batteries have a shorter life than your panels. Lead-acid batteries are the most monetary value effective batteries, but they are typically warrantied for 3 to 7 years. lithium batteries come with 5 to 10 class warranties. design consequently and factor the surrogate costs into your payback calculations .
Lack of Grid Access
For grid-tie systems, we calculate the solar empanel ROI of your system against the monetary value of buying electricity from the utility company. Since you have access to power lines, the monetary value of solar is measured against the option of buying power from the grid. Off-grid systems are built in distant locations without access to the baron grid. As a solution, we measure the value of solar against alternative methods of delivering baron to a distant property. That might include the monetary value of running baron lines to your property, which can cost tens or hundreds of thousands of dollars depending on your proximity to the nearest power system hookup. If grid association is not feasible, you must provide your own power source—whether that be solar, wind, water system, or a gas generator. In these cases, the monetary value of solar should be compared to early methods of department of energy generation for your property .
The Verdict: Is Solar Worth It?
sol, to answer the question, “ are solar panels worth it ? ” In most cases, yes ; specially if you can connect to the grid and reduce the burden of department of energy storage costs, or if you need to provide world power in a outside location. DIY grid-tied systems pay up for themselves in about 5 years on average, and contractors extend that window to 8 to 10 years. consider panels are warrantied for 25 years, both options become a profitable investment in the long rivulet.
Off-grid considerations are slenderly different. Batteries add a significant up-front cost, and they will besides need to be replaced over the life of the system. But it allows you to buy low-cost, rural estate and produce clean ability where you need it. organization costs must be evaluated against other means of delivering energy to the property. Running power lines to your property can cost an estimate $ 20,000 for a half-mile political campaign. Though battery memory is expensive, it may placid be cheaper than the alternatives. Need help designing your organization or help calculating your solar gore ROI ? Click hera to get in refer for a exempt consultation or give us a call at 1-800-472-1142 .