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How Solar Payback Really Works
Payback is net installed cost divided by first-year bill savings. The 25-year picture adds panel degradation, rate escalation, inverter replacement, and loan cost.
Payback is net installed cost divided by first-year bill savings. The 25-year picture adds panel degradation, rate escalation, inverter replacement, and loan cost.
Start with net cost
Gross cost is system size times dollars per watt. Subtract the tax credit you actually qualify for. That net figure is what payback divides.
Price the savings honestly
Annual kWh times your current rate is year-one savings. Degradation trims output yearly; rising rates lift savings. Both belong in a 25-year screen.
Cash and loans are different screens
A loan adds monthly payments that can exceed early savings. Compare the loan payment against monthly savings before signing.
Formulas
Simple payback
payback = net cost / year-one savings
Simple payback ignores financing and the time value of money. Use it to screen, not to approve.
Worked example
7 kW example
Inputs: 7 kW at $2.80/W; 30% credit; 9,800 kWh/yr at 17 cents.
Calculation: Net cost is $13,720. Year-one savings are $1,666 for an 8.2-year simple payback.
Frequently asked questions
Does degradation matter much?
At 0.5% per year, a system averages about 94% of nameplate output over 25 years. It trims lifetime energy by roughly 6%.
When should I replace the inverter?
String inverters typically need replacement around year 10 to 15. Budget about $1,500 in the lifetime screen.
Sources and further verification
- Electricity Data Browser — U.S. Energy Information Administration
- Energy Saver — U.S. Department of Energy
Formulas
Simple payback
payback = net cost / year-one savingsSimple payback ignores financing and the time value of money. Use it to screen, not to approve.
Worked example
7 kW example
Inputs: 7 kW at $2.80/W; 30% credit; 9,800 kWh/yr at 17 cents.
Calculation: Net cost is $13,720. Year-one savings are $1,666 for an 8.2-year simple payback.
Lesson:
Frequently asked questions
Does degradation matter much?
At 0.5% per year, a system averages about 94% of nameplate output over 25 years. It trims lifetime energy by roughly 6%.
When should I replace the inverter?
String inverters typically need replacement around year 10 to 15. Budget about $1,500 in the lifetime screen.
Sources and further verification
- Electricity Data Browser U.S. Energy Information Administration
- Energy Saver U.S. Department of Energy
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