A critical factor in deciding to move towards a solar system is its payback period. Solar installations require hefty upfront costs, so calculating the payback period is crucial to making a smart financial decision.
But how to calculate your solar payback period?
The payback period of any solar installation depends on its size, your location, electricity rates in your area, and your power consumption patterns. Read the article to know how you can calculate your solar payback period.
What is the Payback Period For Solar Panels?
The payback period of solar panels is simply the equation of your investment in solar panels with your utility bill savings. You can rely completely on solar panels to fulfil your home's power requirements. Or, in another case, you can opt for a grid-tied solar system. In both cases, you save some amount on your monthly energy bills.
You can calculate the payback period of your solar panels by subtracting your monthly energy bills from your total investment. The time it will take to balance your monthly bills with your total investment will be your solar panel's payback period. However, it's important to note that many solar installations, like BLUETTI, qualify for tax rebates. So, your total investment would be considered after subtracting these rebates.
To understand it better, here is an example. Let's say the total cost of your solar installation is $1000, and you are eligible for a 30% federal tax credit, which will be $3000. So your total investment is $7000. Now, if your average monthly bill is $100, the payback period for your solar panels will be around 5.8 years.
What Is Good Payback Period For Solar Panels?
Solar panels have a good payback period of around half of their lifespan. However, the average payback period for solar panels is between 8 to 12 years. This gap is due to many factors that dictate your savings with solar panels and ultimately your payback period.
For example, if you have a pretty big solar setup, you cannot only save on your monthly bills but can also earn money by selling the extra power to the conventional grid through net metering. But with the bigger solar installation you will also have to pay more for upfront costs. Additionally, if there is a spike in market power rates, that will also influence your overall savings whether you are practising net metering or not.
Overall, solar panel’s lifespan is around 20 to 25 years. This can even extend more if your panels are from a good brand like BLUETTI. So, if you recover your total investment in 10 years, you will still have a lot of time to get returns on your investment.
What Is The Average Payback Period Of Solar Panels In The US In 2024?
An average US household gets its solar investment paid back within 9 to 12 years, depending on its state. For example, in the state of Hawaii, homes can get their upfront costs back within only 5 years. Conversely, for states like North Dakota, this period can extend to more than 15 years.
This difference is mainly due to two factors. Firstly the availability of solar peak hours and second is the costs of electricity.
The more solar peak hours there are, the more electricity your panels can produce, which eventually translates into more savings. In the second case scenario, if a state has high electricity prices, then your monthly bill will also be high, so the more savings you will have on your energy bill, the shorter the payback period will be for your solar panels.
The table below lists the top 10 US states based on their average monthly electricity bills and peak sun hours.
|
State |
Average Monthly Bill |
Average Peak Sun Hours |
|
Alabama |
$147.75 |
4.4 - 5 |
|
Alaska |
$133.89 |
1.2 - 3 |
|
Arizona |
$131.35 |
7 - 8 |
|
Arkansas |
$123.69 |
4.5 - 5.4 |
|
California |
$123.67 |
5 - 7.5 |
|
Colorado |
$91.96 |
5 - 7 |
|
Connecticut |
$156.21 |
4.5 - 4.9 |
|
Delaware |
$118.85 |
4.5 - 4.9 |
|
Florida |
$130.40 |
5 - 5.9 |
|
Georgia |
$134.11 |
4.5 - 5.4 |
How Can I Calculate My Solar Payback Period? Step By Step Guide
Whether it's solar panels or any other investments, understanding when you can start to reap the benefits of your investment is crucial. For solar panels, their payback period calculation is dependent on various factors and is discussed step by step below.
Understanding your solar system requirements
The most fundamental step in calculating your solar payback period is determining the size of your solar installation, which depends on your monthly power needs. So, for example, your total electricity usage for the last 12 months is 9000 kWh. Now, as per some estimates, a 1kWh solar system produces around 1600 kWh of electricity power. Based on these stats, you will need a 6kWh solar system.
Calculating the total costs of your system before the incentive
Once you have estimates for the size of your solar system, you can determine its cost. The average cost of a solar system in the US is $3 per watt. So, for a 6kWh installation, your total cost will be
Size of solar system X Cost per watt
6000W X $3 = $18000
Include incentives and tax rebates
Sustainable Development Goal 13 aims to achieve net zero carbon emissions by the end of 2050. To fulfil this goal, governments offer various incentives for solar system installation, one of which is a 30% Federal Tax Rebate. This means you will get 30% off on your upfront costs.
This is only one incentive offered by the federal government. Many states also offer rebates that can significantly lower your initial investment.
Now, for the total cost of a 6kWh installation, which is $18000, your federal tax rebate will be $ 5,400. Subtract this from the total cost to get your net investment, which will be
$18000 - $5400 = $12600
Calculate the total energy production of your system
In this step, simply multiply the annual power production capacity of your one panel, which is around 1500 kWh for a 1000W panel under standard conditions, with the total capacity of your system. As earlier mentioned, if the total capacity is 6kWh then our total annual energy production will be 9000kWh.
Figure out total savings and payback period
Now, here is where things get real. We have the number for our total production capacity and the net cost of our solar installations. To find our payback period, let's first calculate our annual savings.
The average electricity cost in the US is $0.16 per kWh, and your solar system's annual production capacity is 9000kWh, so depending on this, your annual savings will be
Your annual savings = Total production capacity X The cost of electricity per kWh
9000kWh X $0.16 = $1440
Now if you are annual savings are $1440 and your total net cost is $12600, you can easily calculate the payback time period by dividing total costs by annual savings
Total net cost of the solar system / Annual Savings = Payback period
$12600/$1440 = 8.75 Years
Important Considerations While Calculating The Payback Period Of Solar Panels
Calculating your solar panel's payback period is simple. You only have to subtract your annual energy bill savings from your net upfront costs. However, a couple of factors can impact your overall calculations.
Firstly, the higher the electricity rates, the shorter your payback period will be. Your savings are directly proportional to energy rates, which are becoming quite unpredictable. For example, electricity prices have increased 2.5% per year since the 1990s, while 2022 witnessed a sudden increase of 12.5% owing to ongoing global conflicts and climate change.
Further, some states do not allow for net metering, or their net metering rates are quite low, which can ultimately impact your savings. Taking these factors into account is necessary while calculating your solar payback period.
How Do You Pick Backup Power to Use with Solar?
The power produced by solar panels is sustainable, free, and reliable. However, one important concern that hindered the widespread growth of solar power is its ability to operate only during the day. With the advancement in battery technology, things are not the same. A reliable solar backup can effortlessly fulfil the power needs of your home at night and at times of low sun availability.
But before you opt for any backup power, the following are some important factors to consider.
- Understand your aim for going solar. This means whether you want to go completely off-grid or want to partially rely on solar power.
- Check the backup capacity, which is measured in kWh. The more capacity it has, the more power it can store. Also, the type of battery, which could be lead-acid, flow battery, or lithium-ion, should be determined. However, LiFePO4 is the most recommended battery type.
- Look at the power output capacity and surge power, as they are crucial to running multiple devices simultaneously.
- Next comes the compatibility of your system. Ensure that it does not only rely on solar panels for charging but also has different charging streams. Also, it should have multiple output ports to run multiple appliances.
- Some batteries are prone to explosions in high-temperature ranges, so backup systems with modern technologies could be safer and more recommended.
Finding the right backup system ensures an uninterruptible power supply and could give you peace of mind with smooth and secure operations. However, the upfront cost of such systems could be an issue.
The variable below from BLUETTI effectively fulfills all the prerequisites of an exceptional backup, and most importantly, their Price Match guarantee ensures the lowest prices.
BLUETTI AC300 + B300
This 3kW output capacity and 6kW surge power pure sine wave inverter could run all your home appliances, whether it's an AC, fridge, dryer, or even multiple appliances simultaneously.
Its LiFePO4 battery ensures safety, and with a 3072Wh capacity, it supplies continuous power for hours. Still, if you find this capacity low, you can add B300 batteries to increase it to 12288 Wh.
The backup system supports 7 different charging streams, including AC, Solar, AC+Solar, generator, and lead-acid battery.
But why choose this? The answer is simple. It has the best price and a 30-day money-back guarantee. That means if you are not satisfied with the product quality, you can return the unused system within 30 days of your purchase.
BLUETTI AC500 + B300/B300S
For those with more appliances and big homes, this unit with a 5kW output capacity and 10kW surge could be the answer.
Its built-in LiFePO4 battery capacity is 3072Wh, which can be expanded to 18432Wh. But that’s not all. This battery offers 3500+ life cycles, which means a lifespan of around 10+ years with one charge cycle each day.
Its 16 output ports make it compatible with all your appliances. To ensure you never run out of power, you can charge the system with 6 different charging streams.
AC500 also qualifies for a 30% Federal Tax Credit, which means you can save around $1139 in upfront costs. But that’s not all. With its Price Match Guarantee, if you find any other unit of the same capacity lower priced than this, you can claim the extra amount within 30 days of your purchase.
Final Words
Calculating the payback period of your solar panels can give you an exact idea of the time frame in which you will get your initial investment back and how many years you will have to harness the benefit of free energy.
While panels can produce power only during the daytime, with the help of BLUETTI power backups, you can store the extra energy produced by your panels to be utilized later at night. In this way, you can go off-grid and can further boost your savings significantly.
