Home Solar Payback: How Long Does it Take?

Home solar payback is the million dollar question for solar energy systems. Unfortunately for solar installers, it’s not always an easy question to answer, as several variables affect the solution. It can be said that in general, it takes 10-20 years for an average-sized system to pay for itself in energy savings. In some cases, such as systems embedded into a mortgage, a system can be profitable from the get-go. In others, it can take more than 20 years.

Rebates and Incentives

Rebates and tax incentives are the number-one driver of shortened payback periods for home solar power panels. In fact, incentives are currently powering the entire solar industry as it works toward grid parity. Until 2016, the federal tax credit for home solar systems stands at 30 percent of up front costs. That’s available to every homeowner in the United States. Other incentives, including state tax credits and utility rebates, vary widely.

The more credit you can get toward your solar system, the lower the cost and the faster the payback. In states like Oregon and California, over 50-70 percent of an average system can be paid for within the first few years, including federal incentives. In other regions, states offer little or no help.

Solar Radiation

The amount of sunlight a home receives on an annual basis also affects rate of payback. Solar power panels cost roughly the same anywhere in the country, but panels in the super-sunny Southwest have more opportunity to produce electricity than the same panels on a roof in the cloudy Northwest. Therefore, average payback periods range from just a handful of years in southern California to more than a decade in northern Washington.

System Size

Size of system matters too, primarily because incentives have a maximum limit. For instance, while a state may offer a 30 percent tax credit on home solar power systems, it may cap that incentive at a given amount, like $5,000. So if your solar system costs more than $15,000, you won’t be getting the full 30 percent from the state. This leaves a larger percentage of the cost that must come out of your pocket.

Granted, larger solar systems produce more energy and thus offset a larger percentage of monthly energy costs. It is important to remember that nearly all factors affecting a solar system’s cost, performance and rate of payback are interrelated. Everything from which direction the home is facing to which type of light bulbs are used inside will have some effect.

Increase in Property Value

If you’re truly looking at solar power panels as an investment, then it’s hard to ignore the increase in assessed property value they bring with them. On average, the increase in property value is equal to $20 for every $1 in energy savings in the first year the system is operational. So, if your system saves you $500 in its first year, you can estimate an increase in property value of $10,000. These numbers, of course, vary widely and are just one reason why home energy efficiency is as important to the performance of a solar system as anything else.

Still, factor in the increase in property value, which by the way, is exempt from a property tax increase in many states, and the rate of payback grows quite short. In fact, between rebates, incentives, energy savings and property value, the rate of return on a solar system is often instantaneous. Although the property value variable is sometimes excluded from the equation because it represents money that you won’t see unless you decide to sell your house. On the bright side, solar power panels will outlast any recession in the housing market.

One thing is for certain. At some point, every quality solar panel will begin making money for its owner. The first solar panel ever built is still producing some electricity…at no cost to its owner.

Photo Credits: Competitive Futures & Boat Owner’s World

Posted on November 5th in Going Solar by Dan.