Solar panel ROI: what returns can I earn on my solar investment?
Last updated 7/15/2020
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.
Solar payback period = solar panel ROI
Taking all of the above factors into consideration, you can get an idea for what your solar payback period might be, which is the best way to put a number on your solar panel ROI. A solar panel payback period is the amount of time it will take you to earn back the money you spend upfront on a solar energy system, usually in the form of avoided electricty costs.
For example, if your solar panel payback period is 7 years, after that length of time, you can easily calculate your actual monetary solar panel ROI by simply looking at your electricity usage and local electricity rates. If you usually use 1,000 kilowatt hours (kWh) of electricity a month at $0.15 per kWh, that's $150 you would spend on electricity per month without solar. With solar installed (and after your payback period is up), each month you essentially pocket $150. This money saved ends up being even more per month over time, as electricity rates historically rise over the years.
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