Do you own a solar panel system and want to know how long the payback period takes? Or perhaps you prefer to find out before you buy one? If so, you’ve come to the right place!
Many people talk about how solar panels are an excellent investment because it grows your savings in the long run. Besides getting energy from sunlight, solar panels also pay you back in power after a while.
But you might be wondering, how does that happen?
We’ll explore when and how long do solar panels take to pay for themselves. Let’s start.
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What Does Solar Panel Payback Period Mean?
When you switch to solar power, you can expect a payback period from your system. It refers to the time it takes to save power costs equal to the price you paid for your solar energy system. Basically, it’s finding when your electric bill breaks even with your solar investment.
Solar power systems cost more upfront than the price you pay for monthly electric bills. But unlike paying for power every month, the payment is one-time. It means you can save on energy costs as long as your system is up and running.
For example, if your solar panel system has a payback period of five years, it takes that long for you to save on electricity bills to cover those costs. Your total savings is any power it produces after that.
How Long Should Solar Panel Payback Period Be?
A rule of thumb when identifying acceptable solar panel payback period is at least six to ten years. Although that sounds like a long time, it’s much shorter than their usual lifespan. At most, you expect to save up to two-thirds of your power costs or longer.
Note that the exact payback period varies on several factors, like cost and consumption. Additionally, some solar panels only reduce efficiency once they reach their maximum lifespan. So they still work, but they don’t work as well.
Good solar payback period estimates usually range from half or less than your system’s expected lifespan. Anything higher may not bring you as much savings as you think it does.
It’s also good to note that solar power is a long-term investment. Calculating your system’s payback period is also one way to determine whether you get a good return.
How Long Do Solar Panels Last?
The standard lifespan of most solar panels is 25 to 30 years. But even after it reaches that time, it still continues running. Instead, it operates at lower efficiency unless it needs repairs or has severe damages.
A solar power system that runs less efficiently means the panels produce less power than the amount manufacturers predict. For example, if your system used to generate extra power for an entire day, it might only be able to produce half of it.
Either way, less efficiency doesn’t directly impact your energy costs. Solar panels require a single upfront payment, so you don’t have to worry about a change in your current expenses. Instead, it might change your total solar panel savings.
It’s also good to note that the amount you save using solar panels can also change when repairs are necessary. The same applies if you replace the entire system.
Factors That Affect Solar Payback Period
Your solar power payback period considers several factors. But generally, you should include the following when you make calculations.
Solar Power System Cost
The first thing you should note once you get a solar power system is the total expenses. It includes the cost of solar panels, installation fees, and extra payments for labor or permits.
When you calculate your solar power system cost, you shouldn’t depend on how much you paid. Individuals who install residential solar energy systems in their homes get several payment benefits. So, you should check the price you could have paid without those deductions.
There are some general ways to calculate your total costs, but these usually depend on your usage and solar power system size. You can also request a breakdown or receipt from your solar installation company.
Energy Consumption Cost
When you pay for electricity, one factor that affects your savings and total expenses is your energy consumption. The more power you use, the more you have to pay. But with solar power, you can use as much power as your system produces.
You can calculate your energy cost by identifying how much you consume on a regular basis. After, find out how much you can save using the rate you usually pay your utility company.
Let’s say it’s 10 cents per kWh. If you spend around 1,500 kilowatts per hour monthly, your total power bill would be $150. Likewise, it means you save that much money when you switch to solar power.
Note that it also varies on the current cost of electricity per kWh. If the prices increase, you save much more in a month.
Solar Power Incentives and Tax Benefits
One of the top reasons many property owners go solar is to get all the incentives. You can get federal tax credits and state-level tax benefits, like exemptions or credits. But how do these affect your payback period?
These credits and exemptions apply to the amount you spend on the solar power system. For example, if you live in a state with solar sales tax exemption, you can buy the solar system tax-free. Moreover, you can apply for the federal tax credit to get up to 30% deductibles to your total solar costs.
And so, the price you pay for the system is likely less than the initial price of the solar system with added fees. Additionally, utility companies provide compensation when you send your electricity back into the grid. You can also sell SRECs for every 1,000 kWh of solar energy your home produces.
Your System’s Power Production Rate
Another factor affecting the payback period is how much power your solar panels generate. Usually, it’s tied to your system’s efficiency. The more efficient it is, the more power it can produce.
The thing is, payback calculations assume that your system will offset 100% of your energy consumption. In truth, it can produce less or more than you need, depending on how much sunlight it converts in a day.
If your solar panels need repairs or start to wear, you can expect them to produce less power. It’s often due to the efficiency getting lower. But you don’t have to worry about it supplying energy to your home. It still works! It just might not make as much as you expect.
Electricity Costs
Even when you go solar, electricity costs still impact how much you can earn from your extra solar power. If your state has net metering, you can multiply how much energy your system generates in a year by the per kWh rate your utility company provides. The total equates to your solar savings in a year.
One thing to note is that electricity costs can vary by increasing over time. In that case, you can save up more than you initially expected in just a year.
The rate of change in electricity prices is a common reason many states don’t offer net metering. If your state is the same, utility companies credit your excess power based on their wholesale price for energy.
While that’s less than using electricity rates as a basis, you still save lots from using your solar system’s energy to power your home. It’s also possible to store extra solar power in battery storage for later use.
How to Calculate Your Solar Payback Period
You can calculate how much your solar payback period is by using online calculators or contacting solar companies. You can also compute it yourself if you prefer.
To do this, you should start by finding the total price you paid for the system. It means knowing how much your solar panels cost, including installation and other fees. Subtract the total amount you get from incentives or rebates, like credits, tax exemptions, or possible compensations.
Next, calculate how much energy you use in a year and get the current cost of electricity per kWh. Once you have those, divide your total solar energy expenses by the cost of electricity. Divide the answer to that by your annual electricity usage.
The result you get from it is the estimated time it takes before your system starts paying for itself. The following months until the day it stops operating amounts to how much you earn and save.
Find Out How Long Do Solar Panels Take to Pay for Themselves
Many homeowners think twice about going solar. Even with all the benefits in line, you might wonder, how long do solar panels take to pay for themselves? The answer varies, but a fair estimate is between six to ten years.
Solar power systems also last longer than most people think. It continues to operate after the standard lifespan as long as it has no damage. It means you can save on energy costs for several years more!
So, what do you think? Check out our blog for other guides and tips on topics like this.
