Solar Panel ROI

Solar panels are a great way to save money on your electricity bill and reduce your carbon footprint. Unlike other home improvement projects, you can recoup back the money you invested in purchasing and installing a solar energy system at home by saving on your electric bill.

But how much money can you expect to save, and how long will it take to recoup the initial investment?

The safe answer is —- it depends.

To begin, let’s discuss the cost of purchasing and installing a solar energy system at home.

The Cost of Solar Energy Systems

According to a survey conducted by Marketwatch, the cost of solar panel installation is between $15,000 - $20,000 per home. But this can go as high as $25,000 as per the Solar Energy Industries Association or SEIA.

Energy needs, equipment selection, and location are some of the contributing factors that dictate the cost of solar panel installation.

Factors that affect your Solar Panel ROI

If you're considering installing solar panels, it's important to do your research and get quotes from multiple installers.

You should also factor in the federal tax credit for solar panels, which can save you up to 30% of the cost of your system.

The Residential Clean Energy Credit, previously known as the Investment Tax Credit, has been extended by the US Congress in August 2022 until 2034. They also increased the amount of federal taxes that can be deducted based on the total cost of the solar energy system. This can also be retroactively applied to purchased systems for the year 2022.  

Other factors that can affect the ROI of solar panels include:

• The efficiency of the solar panels. More efficient panels will generate more electricity, which can lead to a shorter payback period.
• The tilt and orientation of your roof. Solar panels that receive more sunlight will generate more electricity.
• The presence of shading. Shading from trees or other objects can reduce the amount of sunlight that reaches your solar panels.
• Installation fees, inspection and permit fees, and repair and maintenance fees 
• Local incentives. Some states and localities offer rebates or tax credits for solar panels, which can lower the cost of your investment. Utility companies may have a similar incentive as well. 

These factors can aid you in getting your solar panel ROI back quicker. So, make sure to ask around and do some research on federal and local tax credits to fully experience the benefits of having renewable energy.

Solar Panel ROI per State

Fourteen years is the average payback period of solar panels in the U.S. but it depends on the state you’re currently living in and energy usage. Provided below is a table that uses information from Find Energy, showing the length of payback on an 8kW price per watt in each state.

Calculating your Solar Panel Payback ROI

The return on investment (ROI) of solar panels depends on several factors, including the cost of the system, the amount of sunlight your home receives, and your local electricity rates. In general, solar panels can have an ROI of 10-20%.

Here's how to calculate the ROI of solar panels for your home:

1. Estimate the cost of the solar system. This includes the cost of the panels, inverter, mounting system, and installation.
2. Know your annual electricity usage. You can find this information on your utility bill.
3. Then, calculate the amount of money you would save on your electricity bill each year by using solar panels. This is the difference between your current electricity bill and the estimated amount of electricity that your solar system would generate.
4. Lastly, divide the cost of the solar system by the amount of money you would save each year. This will give you the payback period of your solar investment.

For example, let's say the cost of your home solar system is $12,000. You currently use 10,000 kWh of electricity per year, and your local electricity rates are $0.15 per kWh. Your solar system would generate enough electricity to offset 100% of your annual electricity usage.

The amount of money you would save on your electric bill each year by using solar panels is $1,500 (10,000 kWh x $0.15/kWh). Your solar investment payback period would be 8 years ($12,000 / $1,500/year).

Calculating your Overall ROI

Another way of calculating your ROI is through the system’s lifetime usage. The caveat is that the system is well maintained and can last through its life expectancy of 25-40 years.

The formula is:

Lifetime cost of electricity - Lifetime cost of solar = Solar ROI

For example:

• Lifetime cost of electricity = $1,700 x 30 years = $51,000
• Lifetime cost of solar (installation, equipment, incentives, rebates, etc.) = $15,000
• $51,000 - $15,000 = $36,000

This assumes that your electricity bill stays the same, but as we’re all aware this is not the case. So your savings can go higher along the way.

Is it worth it?

The answer lies in you.

But in most cases, having this renewable energy source is worth it in the long run. Almost everywhere on the planet, there’s sunshine that can be cultivated to generate power.

Due diligence is key to ensure that you get your money’s worth whether it be in having your own solar panels or not. 

Have a firm grasp of your current electric bill. This will guide you in answering this question as you do the legwork and research on installing a solar panel in your home.

You may contact us for any questions and queries about our solar energy system and your needs and requirements.

 * We want to give credit where credit is due. Professional writer, Cris Ilao, contributed research and content to this blog titled: Solar Panel ROI Thank you, Cris, for your contributions!