Follow these steps to calculate your expected solar payback period and solar ROI:
1. Add Up Your Total Initial Solar Costs
Costs include the price of equipment and labor, permits, inspections, taxes and other fees.
For example, you may pay $22,800 upfront for your solar panel system.
2. Apply Tax Credits and Other Incentives
Most homeowners qualify for a 30% federal tax credit on the total cost of their system. You may also qualify for several state and local incentives that can reduce your initial cost. With incentives applied, you’ll have your initial investment amount.
For example, the $22,800 you paid upfront minus a 30% tax credit leaves you with an initial investment of $15,960.
3. Estimate Your Annual Energy Costs
Use your recent utility bills or average rates in your area to estimate your annual energy cost.
For example, you may be paying an average of $125 per month for electricity, which leaves you with an annual energy cost of $1,500.
4. Calculate Your Solar Payback Period
Divide your initial investment by your annual energy cost. This is your solar payback period or the number of years it will take for you to recoup your initial investment and start making a profit.
For example, your initial investment of $15,960 divided by your $1,500 annual energy cost leaves you with a solar payback period of roughly 11 years.
5. Calculate Your Lifetime Savings
Subtract your solar payback period from 25, which is the expected number of years a solar panel lasts. Multiply your result by your annual energy cost. The result is your lifetime savings.
For example, 25 minus your solar payback period of 11 is 14. Your annual energy cost of $1,500 multiplied by 14 leaves you with a lifetime savings of $21,000.
6. Calculate Your Solar ROI
Subtract your initial investment from your lifetime savings. The result is your potential solar ROI over the lifetime of your system. Divide your solar ROI by your initial investment and multiply the result by 100. This is your solar ROI given as a percentage.
For example, your lifetime savings of $21,000 minus your initial investment of $15,960 gives you a solar ROI of $5,040. Divided by $15,960 and multiplied by 100, your result is a solar ROI of 31.5%. This is well above the national average ROI of 10%, meaning that solar panels could be a good investment for your home.
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