Substantial savings are the number one reason to go solar. However, panels can also increase your property value, make sure you’re not left in the dark during a blackout, and combat climate change. Of course, you want real value for your money, so let’s break down the savings by the dollar.

How much will my electric bill go down?
When will my energy savings exceed out-of-pocket costs?

These answers will vary depending on where you live, qualifying incentives, and how much you’re paying for grid electricity. Let’s shed some light on how many sun rays it takes to estimate your solar payback period.

Make your investment back and more

What exactly is a solar payback period? It’s how long it takes to save as much on your electricity bill as you paid for your solar system. This simple solution estimates how long it’ll take to break even. But if you’re financing your solar through a company provider, your break-even point may differ from the payoff timeline, since you might decide to use your newfound savings on something other than your solar loan.

Let’s do the math. Take the total cost of installing the panels, minus any rebates or incentives, and divide the remaining cost by your monthly electric savings until you reach the initial amount spent.

10-year solar payback period
This calculation assumes your electricity rates are not going up. Ha! If they do, your savings will increase, and your payback period decreases.

Take the long view

The average payback period is anywhere from six to ten years. It’s a pretty wide range because of the numerous factors influencing the payback timeline and the monthly savings. For instance, a larger installation will have higher upfront costs and greater monthly savings. And if your grid electricity goes up unusually, that’ll have a huge impact on your long-term savings, too.

Modern photovoltaic (PV) solar technology, often referred to as solar PV, should last about twenty-five years. The warranty states they’ll be at least 80-90% efficient at that point. Newer models can last even longer. So, if your solar payback period is ten years, you’ll get around fifteen years of additional savings on your energy bill.

A plan formulated specifically for you

Your ultimate payback period will differ depending on numerous factors; however, this proven formula will give you a pretty good idea of what to expect.

Payback period = combined cost ÷ annual benefits

What are combined costs? The total amount of your solar system, minus solar tax and any other incentives. Credits and incentives are not included in the total fees, because that’s money you don’t have to pay back.

What are annual benefits? Incorporate the savings on your electric bills with additional factors such as net metering and solar renewable certificates (SRECs)*.

Here’s how it breaks down:

• Combined Costs — $20,000 system – $6,000 solar tax credits = $14,000 (Solar tax credits are subtracted to form a precise starting number.)
• Annual Benefits — $120 monthly electric bill savings x 12 months = $1,440 (If you’re saving $120 in electricity costs each month because of your panels, you multiply that by 12 months for a total yearly savings of $1,440.)
• Proven Formula — $14,000/$1,440 = 9.7 years (Take your adjusted combined costs, minus credits & incentives, and divide them by your annual benefits. The result? Now you know how many years it’ll take to recoup what you paid for solar to equal the savings reflected in your electric bill.)

Of course, this example doesn’t include net metering or selling SRECs, which can equal greater energy savings. Most example calculations don’t include them, because incentives may vary month-to-month. However, SRECs can still help you pay off your panels faster if you place the value of these incentives towards your payment. Then you’ll reach the payoff point quicker.

Significant factors on solar payback

To determine an accurate payback period, there are numerous factors to consider:

• Total cost: What’s the full installation amount?
• Credits and rebates: Did you receive rebates?
• Additional incentives: Any clean energy incentives?
• Electric usage: How much are you using each month?
• Energy production: Are your panels efficient?
• Electric costs: How much is your grid electricity?

It all adds up to satisfaction

Figuring out the total system cost is simple: How much was the installation without any assistance from federal, state, or local government programs?

To determine the entire cost of your system to meet your home’s energy needs, you’ll need to do some calculations. At Integrity Solar, we’ll do this math for you.

• Count up how much electricity you use per year: Take a year’s worth of electric bills and add up each month. If you don’t have those readily available, you can use a sample month and extract from that the typical power usage of your home during the year, taking the seasons into account. (Say your home uses 1,200 kilowatt-hours (kWh) a month, totaling 14,400 kWh yearly.)
• Assess the system size: If one kilowatt (kW) of solar can produce around 1,600 kilowatt-hours (kWh) of electricity yearly, and you use 14,400 kWh every year, you’d divide 14,400 x 1,600 to get an expected system size of roughly 9 kW. (Depending on electricity usage, you may need a larger or smaller solar system to offset your energy use. Figure out exactly what you’ll need, so you don’t end up with a system that can’t support your house or a network that produces more than you can consume.)

• Panel projection: How many panels do I need on my roof? Integrity has developed the best method for determining the panel amount based on the square footage of your home.
• Calculate overall cost: An 8 kW solar home energy system costs around $3.25 per watt, or about $26,000 before any incentives are applied.** (Integrity’s per-watt pricing is often much lower than the industry average; this is just an example.) Plus, it’s easy to get incentives that’ll decrease your costs by thousands, such as the Residential Clean Energy Credit.

Incentive to start saving early

Any money you can get to offset the total cost, whereas you don’t have to refund, can help make your solar payback period even shorter. One of the most important is the Federal Residential Clean Energy Credit, which reduces the amount of tax you owe by 30% of the total investment. Some states and townships offer other credits and rebates that’ll lower your cost even further.

You must also consider any savings that stem from net metering — the credit from your utility company for supplying extra electricity back into the grid. Based on availability, it can be a sizable amount of savings, even though the value of credit varies by location. Make sure you understand your local and state regulations.

SRECs create a marketplace for clean energy, while enabling you to make more money from generating solar electricity. You can sell one SREC for every megawatt-hour, or 1,000 kilowatt hours of solar electricity — however much overflow your home generates (the value of SRECs varies by location). Some states must produce a certain amount of electricity from renewable resources, so they pay homeowners with residential solar panels for what they produce. New Jersey offers SRECs through its Successor Solar Incentive (SuSI) Program.

Home sweet home-energy consumption

How much power your home uses will impact how much you pay each month for electricity. Which, in turn, will impact your potential savings.

Step one in calculating your home’s energy cost is to determine how much electricity you use. Then, determine how much you’ll be saving based on the rate you pay your utility company.

Hypothetically speaking, if you pay 12 cents per kWh, and you consume 1,200 kWh each month, you’d spend $144 on monthly electricity. Now you can expect to save that amount each month by converting to solar, which can be used to pay off the panels. Once you own them outright, your savings will increase substantially because every dollar goes right into your pocket.

But in reality, the cost of grid electricity may go up. If that’s the case, so will the money you’ll save in the long run, plus your payback period will be shortened. Thank you, sunshine.

Maximizing electricity production

Another essential element you need to consider is the efficiency of your panels. The majority of solar payback period calculations assume that your panels offset 100% of your energy usage. This isn’t always the case. Some systems aren’t designed to offset 100% of your energy; others will generate more than you need, enabling you to benefit from metering credits.

Furthermore, panels will become less efficient over time, meaning you won’t save as much near the end of their life. So you may still need some electricity from your utility. Good news! Most panels retain roughly 80% generation efficiency for their typical 25- year life span, which is sufficient to reach your payback period and beyond.

Spreading a little light on leases

If you’re looking for no upfront cost, a lease or a power purchase agreement might be the way to go. Since you don’t own the panels, you don’t have to pay for them. Instead, you pay a monthly fee. Once your panels save you more money than you paid, then you’re ahead.

So, payback periods don’t apply to leases, since there’s no initial payment. However, several factors affect whether you’ll save and how much. Leases are attached to an annual escalator, which calculates how much your lease increases annually. If the increase is less than your electricity rate, you’ll save more at the end of the lease than at the start. Keep in mind that the opposite is also true. If lease costs increase faster than electricity rates, you’ll hardly save. Good news. The national average cost of grid electricity has only increased three times since 2000***.

You’ll take a shine to our solar panels

Hopefully, now you understand the value and importance of seeing a return on your solar panel investment. Sure, a system can save you money in the long run, but it might take some time to see those savings come to fruition. And that, my friend, is the solar payback period.

At Integrity, we advocate for homeowners and are committed to providing fair and transparent solar solutions for everyone throughout New Jersey and Greater Philadelphia. Let us analyze your home, determine your consumption needs, and evaluate your solar production expectations. Once these elements are decided, we can help you calculate your solar payback period.

To get started or for more information about Intergity, click here.

*srectrade.com/markets/rps/srrec
**seia.org/solar-industry-reearch-data
***eia.gov/todayinenergyy/detail.php?id=51438