Solar Payback Calculator Formula
Understand the math behind the solar payback calculator. Each variable explained with a worked example.
Formulas Used
Simple Payback Period
payback = payback_yearsNet System Cost
net_cost_out = net_cost25-Year Savings
savings_25yr = annual_savings * 25 - net_costTax Credit Amount
tax_credit_amt = system_cost * tax_credit_pct / 100Variables
| Variable | Description | Default |
|---|---|---|
system_cost | Total System Cost(USD) | 20000 |
tax_credit_pct | Federal Tax Credit(%) | 30 |
annual_savings | Annual Electricity Savings(USD) | 1800 |
electricity_increase | Annual Electricity Rate Increase(%) | 3 |
net_cost | Derived value= system_cost * (1 - tax_credit_pct / 100) | calculated |
payback_years | Derived value= net_cost / annual_savings | calculated |
How It Works
How to Calculate Solar Payback Period
The solar payback period tells you how many years until your solar investment pays for itself.
Formula
Net Cost = System Cost * (1 - Tax Credit %)
Payback Period = Net Cost / Annual Savings
The US federal Investment Tax Credit (ITC) is currently 30% through 2032, significantly reducing the effective cost.
Worked Example
A $20,000 solar system with 30% tax credit saving $1,800/year on electricity.
- 01Tax credit: $20,000 * 30% = $6,000
- 02Net cost: $20,000 - $6,000 = $14,000
- 03Simple payback: $14,000 / $1,800 = 7.8 years
- 0425-year savings: $1,800 * 25 - $14,000 = $31,000
Frequently Asked Questions
What is a good solar payback period?
A payback period of 6-10 years is typical and considered good. With high electricity rates and strong incentives, some systems pay back in 4-6 years.
Does the payback account for panel degradation?
This simple calculation does not. Panels typically degrade about 0.5% per year, but rising electricity rates usually more than compensate for this.
What incentives are available besides the federal tax credit?
Many states offer additional tax credits, rebates, property tax exemptions, and net metering. SRECs (Solar Renewable Energy Credits) also provide income in some states.
Ready to run the numbers?
Open Solar Payback Calculator