A Guide to Calculate the Payback Period of Solar

August 29, 2023

Look, saving the planet is great and all, but the honest truth is that most people install solar for the financial benefits.

One of the most common questions people have when considering solar is, "How long will it take for the system to pay for itself?" This is where the concept of the payback period comes into play.

In this blog post, we'll dive into what the payback period is, how to calculate it, and why it's an essential metric for solar investments.

1. What is the Payback Period?

The payback period is a financial metric used to determine the amount of time it will take for an investment to generate enough returns to cover its initial cost. In the context of solar energy, it refers to the duration it takes for the savings from reduced or eliminated electricity bills (and any other financial incentives) to equal the total cost of installing the solar system.

2. How to Calculate the Payback Period for Solar

To calculate the payback period for solar panels, follow these steps:

1. Determine the Total Cost of the Solar System: This includes the cost of the panels, inverters, labor, permits, and any other associated expenses.

2. Factor in Government Incentives: Many regions offer tax credits, rebates, or other incentives for installing solar panels. Subtract that from the total cost of your solar system.

3. Estimate Annual Energy Savings: Calculate how much energy your solar panels will produce annually and multiply this by the rate you pay for electricity. This will give you your annual savings.

* For example, if your solar system produces 13,000 kWh per year  and you pay $0.12 per kWh, your annual savings would be $1,560.*

4. Calculate the Payback Period: Divide the total cost of the solar system by your annual savings (including incentives). The result is your payback period in years.

* Using the previous example, if your solar system costs $11,000 after government incentives and you save $1,560 per year, your payback period would be 7.1 years.*

Notice through this entire process that the price compared to how much your electricity your system will produce is the critical element! The same system size for a lower price will yield a faster payback period.

3. Why is the Payback Period Important?

The payback period is a crucial metric for several reasons:

- Financial Planning: Knowing your payback period helps in budgeting and financial planning. It gives you a clear timeline on when you can expect to start benefiting financially from your investment.

- Comparing Investments: If you're considering multiple energy-saving solutions or comparing solar providers, the payback period can be a decisive factor in determining which option offers the best value.

- Long-term Savings: After the payback period, your solar system continues to generate savings for many years. Most solar panels come with a 25-year warranty, meaning you can enjoy over a decade of virtually free electricity after the system has paid for itself.

4. What is a “Good” Payback Period?

Here's how we see it:

Less than 6 years = great

Between 6 and 8 years = acceptable

Between 8 and 10 years = starting to suck a little

Over 10 years = are you f*^&$# kidding me?!

Why DIY Solar?

Our average customer has a payback period of 5.5 years!

We make this possible by getting you solar for an actually affordable cost. We cut out the door-to-door solar sales bros and other middlemen that make solar expensive, passing the savings to you.

Interested in learning more? Fill out our quoting form and we will text you asap!

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