In many ways, your solar power system is a financial product – one that is capable of generating annual returns ranging anywhere from 10 percent to more than 30 percent. The average EnergySage shopper pays off their solar purchase in just seven to eight years and earns a strong solar ROI, receiving free electricity for the remainder of their solar panel system’s 25+ year lifespan.
You can calculate your annual returns by dividing the financial benefits you receive each year by your initial investment in your solar power system. Many factors can impact your solar panel ROI, including:
Electricity Rates: How high are your current electric bills? This determines your savings over the life of your system. The higher your rates, the more you can save with solar.
Financial Incentives: Are there local or state tax programs or rebates in your area that encourage solar adoption? Are you a business or other organization that can take advantage of depreciation tax benefits, including accelerated depreciation? Higher incentives mean lower upfront costs and a shorter payback period.
Solar Renewable Energy Certificates (SRECs): Does your state or utility have a market where you can sell the SRECs associated with your solar energy system’s electricity? What kind of income can you earn by selling these SRECs? New income from SRECs will help you break even on your solar investment more quickly.
Cost: Did you compare your options to find the right price? Were you able to take advantage of rebates and tax incentives that offset the cost of your installation? Lower costs mean a shorter payback period.
Technology: How efficient is your system, i.e. is it producing electricity at optimal levels? A more efficient system will offset a greater percentage of your monthly electric bill.
Property Characteristics: How sunny is it where you are? Which way does your roof face? What is the pitch of your roof? All of these factors can affect your production levels.
Property Value Increases: How much does the value of your property increase when you install a solar panel system? Solar panel system ownership tends to increase your property resale value, while third party ownership (e.g. leasing) does not.
Business Benefits: How much will your profits increase because of your lower costs? What is the value of the goodwill your solar power system generated? What level of revenues is attributable to your green credentials? All of these factors can increase your company’s return on solar investment.
Getting a good price on your solar energy system is key to maximizing your financial benefits. The best way to find the right combination of price and quality for your needs is to compare multiple options from different solar installers. By registering on the EnergySage Solar Marketplace, you can receive quotes from qualified, pre-vetted solar installers in your area.
While the ROI earned through investing in solar panels is different than the returns from investing in stocks and bonds, solar panels offer many superior characteristics that make them strong contenders for inclusion in your overall investment strategy, including:
Your solar panels can produce free electricity for 25+ years with minimal maintenance and upgrade expenses. Over that time, you will generate returns in the form of savings, equal to what you would have otherwise paid your utility. In some areas, you may also be able to sell your system's SRECs for additional income.
It’s safe to say that the cost of electricity will continue to rise, which makes the savings and returns from your solar PV system low risk and consistent over its useful life. There are not many other investment options capable of producing consistent, relatively safe returns of ten percent or more over such a long time period.
Historical trends suggest electricity prices will increase by an average of three percent each year. When you invest in a solar PV system, that’s good news for you. The higher the cost of electricity in your state, the higher your avoided costs are when you use solar energy. That means your solar return on investment is higher, too.
The majority of the returns you receive from your solar PV system come in the form of savings, not income. This is an important difference because, unlike income, savings are not subjected to federal or state income taxes. Depending on your tax bracket, your solar power system can deliver 20 to 35 percent more cash in your pocket than a taxable mutual fund investment earning a comparable rate of return.
You can also take advantage of local, state and federal tax benefits designed to encourage solar adoption. The federal investment tax credit (ITC) allows you to apply 30 percent of the cost of your solar PV system as a tax credit to your income tax bill. This means that if your system cost $20,000 you can reduce the amount you owe the IRS by $6,000. Some states also have tax credits or rebates for solar.
Solar panel systems can be financed with a solar loan, and the interest on these loans may also be tax deductible. Business owners have the added benefit of accelerated depreciation schedules that allow them to deduct the depreciation they take on their investment over a shorter period of time.
Multiple studies show investing in solar panels can increase the value of your property, particularly if you buy your system in cash or with a solar loan. Properties equipped with solar panels sell for significantly more than similar properties without solar. Buyers are interested in properties with low or non-existent utility bills and in reducing their impact on the environment – and they are willing to pay a premium to accomplish these goals.
Your investment in a solar power system doesn’t just benefit you. Your whole community will enjoy the environmental benefits that solar provides. Businesses who go solar may also experience a top-line benefit in the form of increased sales from customers who are attracted to the company’s “green” credentials and demonstrated commitment to sustainable practices such as solar power.