Solar Panel Return on Investment

Solar panel return on investment

Solar panels can reduce your electric bills, boost your home value, and lower your reliance on the power grid. Over time, solar can provide significant financial savings. But is it worth the investment? We’ll cover everything you need to know about how to estimate your solar payback period and maximize your solar panel return on investment (ROI).

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How to calculate solar panel return on investment

The solar payback period is the time it takes to recoup the initial amount spent on solar panels. If your solar panels cover most of your electricity usage, you’ll significantly reduce your monthly electric bill by powering your home with energy from your system instead of paying for power from the grid. The savings you experience on energy bills will eventually amount to more than your solar installation costs, meaning you achieved an ROI. If you take out a solar loan to pay for your system, you will achieve your ROI once your loan is paid off.

To calculate a solar panel payback period, you’ll need to know the estimated cost of the solar system, including how incentives and tax credits impact the total price, and your average monthly electricity bill.

According to the Lawrence Berkeley National Laboratory, the average residential cost of an 8.6 kilowatt (kW) solar system is $3.67 per watt, amounting to $31,558 total. The 30% federal tax credit brings that cost down to $22,091. Using rate and usage data from the Energy Information Administration, we know that the average residential energy bill in the U.S. in 2022 was approximately $134 per month, or $1,608 annually. Based on this information, the typical solar panel payback period is within 14 years. Here’s how we calculated the average solar panel ROI:

(Total system cost – 30% tax credit savings) ÷ Annual electricity bill costs = Payback period

($31,558 – $9,467) ÷ $1,608

$22,091 ÷ $1,608 = 13.7 years

What is the average solar panel return on investment?

Because the average solar panel ROI depends on several factors, your payback period could be higher or lower than your neighbor’s. The average price per watt tends to vary by state, as does the typical electricity bill. Each household also requires a different system size to cover energy usage, leading to varying prices even across the same city. To estimate the most accurate solar ROI, you’ll need to know the estimated cost of a solar panel system for your home. You can get quotes from solar installers or receive an instant estimate by filling out the form on this page.

Using national averages, the typical solar panel ROI is within 14 years. While that is a significant amount of time, solar panels have an average lifespan of 25–30 years. A properly maintained solar array can operate efficiently for even longer. Once you recover your installation costs, you can achieve a solar ROI with electricity bill savings by using energy from your panels.

Solar panel return on investment by state

The following table shows the typical solar ROI in the top 10 states for solar generation using the average price of solar panels and annual energy bills. The information in this table uses data from Find Energy to show the average price per watt for an 8 kW system in each state. Remember the system size and price per watt will vary depending on your location and energy usage.

Maximize your solar panel ROI

Once you reach your solar ROI, your savings will go straight into your pocket instead of paying off the system. While some components of your payback period are set in stone (like the cost of the system itself), there are ways you can lower the payback period and benefit from your investment faster.

Solar incentives

As mentioned in the calculations on this page, solar incentives can significantly reduce the cost of your solar panels, which lowers the payback period. The Residential Clean Energy Credit is a major solar incentive available in every state. Under the federal tax credit, you’ll receive 30% of the cost of your solar panels as a credit when filing your tax return. The value of this tax credit depends on the cost of your solar system, but there is no cap on how much you can claim — you can receive the full 30% regardless of system size or cost. Based on the average U.S. solar panel cost of $31,558, this tax credit alone is worth around $9,467.

Many states, local governments, and utility companies offer incentives to go solar, like performance-based incentives, cash rebates, and property tax exemptions. The more you save through solar incentives, the faster you can achieve your solar panel ROI. 

Net metering

Net metering is a popular type of solar incentive available in many states. Net metering programs let you send extra solar power generated by your panels back to the power grid in exchange for credits on your electric bill. Your local utility company sets the amount you receive for the excess solar power. Most solar panel owners keep their systems connected to the power grid to participate in net metering. Because these programs offer energy bill credits, you can lower your solar panel payback period through near-immediate savings. 

Solar batteries

Solar batteries offer a variety of benefits, including protection against power outages. Batteries also let you store extra solar power from your system to use later, like at night or when cloud coverage impacts your system’s power generation. According to a recent report from Aurora Solar, 83% of solar professionals said they’ve seen increased customer interest in battery storage paired with solar systems.

The growing number of solar owners investing in solar batteries is because energy storage can lead to increased savings. Some states have revised their net metering policies to be less favorable for consumers (like NEM 3.0 in California), so residents choose to store extra power to use later instead of sending it to the grid. 

Overall, electricity rates have risen significantly in recent years. Solar batteries can help you lower your dependence on the power grid, so you won’t need to pay the rising price of energy. While battery storage will increase the total cost of a solar system, it will also give you more control over the electricity your panels produce and can help you reach your ROI faster.

Home value increase

Installing solar panels can increase the value of your home. According to the Department of Energy, solar panels can raise your home value by an average of $15,000. The solar premium will vary by state. If you decide to sell your home, you’ll most likely leave your solar panels when you move because uninstalling and reinstalling them would be more expensive than purchasing another system for your new home. Some states offer property tax exemptions that prevent solar owners from having to pay more in property taxes if solar panels raise their home value.

Managing your energy usage

Once your solar panels begin to generate power, lowering your energy usage can help maximize your investment and shorten the payback period. For instance, perform energy-intensive activities —such as running the dishwasher and washing machine — during the day when your solar panels are producing the most energy. Your solar system can also power your air conditioning or electric heating during the day or charge your electric vehicle overnight if you have a battery installed.