How Long Does It Take A Solar System to Pay For Itself?

Solar panels are an excellent investment, as they can help you significantly reduce the amount of energy you use, which translates to huge savings on your utility bill. However, a lot of homeowners question how long it will take them to break even on the investment they make on installing solar panels. That’s understandable, given the fact that solar panels do, after all, require a financial investment, and depending on the size of your home, the amount of energy your home needs, and how many solar panels you need to have installed to meet your energy demands, the investment can be system pay for itself

So, how long will it take for your solar system to pay for itself? – That really depends on several factors.

While figuring out exactly how long it will take for your investment to pay for itself, we can certainly help give you a ballpark estimate. Below, we’ll look at some of the factors that will affect the return on your investment.

The Cost

First and foremost, the cost of the solar system itself plays a big part in determining how long it will take for your investment to pay for itself. There are different types of solar panels, which will affect the cost of your system. Generally, higher quality panels will cost more to install. Additionally, the amount of solar panels your home requires will also impact the cost of the system.

The simplest way to determine the cost of your solar system is to assess the price in dollars compared to watts. Those numbers tend to be pretty consistent throughout the country.

On average, homeowners are paying anywhere between $2.80 and $3.80 per watt. That translates to roughly $10,000 to $13,000 for a solar panel system, based on an average 5,000 watt system.

Also, keep in mind that the government does offer tax credits for the installation of solar systems, which could help to reduce the total cost.

Breaking Even

Now that you have a general idea of how much a solar system will cost, let’s take a look at how long it will take for the system to pay for itself. There are three main factors that will affect how long it will take to break even on your system:

  • Current cost of electricity. The more expensive the price of electricity is in your area when you install your solar system, the more money you are going to save. This means that it will take less time for you to break even on your investment. For instance, if you live in California where the cost of electricity is far higher than it is in say, Oklahoma, you will save more on your electric bill each month, so you’ll definitely see the return on your investment at a much faster rate.
  • The incentives that are available. There are incentives for installing solar systems, and these incentives vary from state to state. Some of the most common incentives include rebates, exemptions on taxes, credits on taxes, and payments for performance. The more incentives available, the faster your solar system will start to pay for itself. For example, one incentive is a 30 percent credit on federal taxes. With this credit, you can recover 30 percent of the total amount you spent on the installation of the system, which translates to a pretty hefty chunk of change and means you’ll start seeing your system pay for itself rather quickly.
  • How you purchase the system. There are a few ways that you can purchase your solar system. Options include buying them outright, lease them, or get them via a power purchase agreement (PPA), which is a financial agreement that enables the developer to handle the design, installation, and financing of the system that lasts anywhere from 10 to 25 years. The type of payment method that will lend to a faster break-even time will vary from location to location and is dependent on the two above-mentioned factors – the cost of electricity in your area and the incentives that are available to you. If you live in an area where the cost of electricity is higher and there are several incentives available, you’ll likely break even faster if you opt for a loan because the amount you will save on your energy bills will be greater than your loan payment will be. On the other hand, if you live in an area where the price of electricity is low and there aren’t as many incentives available, your system will probably start paying for itself quicker if you purchase it outright.

Is a Solar System a Wise Investment?

No matter how long it takes you to break even, a solar system is absolutely a wise investment! Even if it takes you longer to break even, in the end, you will definitely see a return on your investment.

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  1. Bruce King says:

    You never said what the payback period is; you completely side-stepped it and then blanketly state regardless of the period it’s a good investment. I call B.S. The panels/system won’t last long enough before the payback period, and you completely ignore maintenance.

    Solar for residential is not financially advantageous, a good investment means return on investment in 3-5 yrs, this will never happen with solar. This industry has lied to the American public to this viability of this technology.

    1. Darin says:

      Exactly! I just had a sales rep stop by my new house and actually argue with me. I explained I only planned on being in the house 3-5 yrs so it wasn’t worth it to me. I used the financing numbers she provided and the average utility bill to show it would take 8.3yrs for me to break even. She couldn’t understand the concept (or more likely just thought she could pressure me into changing my mind) that if after 4 yrs I sold the house I either 1) would have to convince new buyer to take over the payment of the panels, or 2) pay it off myself thus eating the remainder of the cost. Material costs still need to go way down before this can be considered a viable investment.