Solar Panel ROI: How to Calculate the Solar Payback Period

If you are considering solar for your home or business, you already know that solar power can help you save money on your residential or business energy bill. But how do you know exactly when your new solar panels will pay for themselves? We are always happy to help you with a free estimate from Solar Bear Tampa, but we also like our clients to feel empowered — we’re here to share our knowledge with you. 

To determine how soon you’ll start to see dollar signs from your solar panels, you’ll want to consider two things: payback period, and yearly ROI. The payback period refers to how long it will take for you to earn back your initial down payment on your solar panels. The annual ROI, or return on investment, calculates your additional profit from your solar panels every single year.

Here’s how to get accurate numbers for each of these calculations so that you can determine how soon your solar panels will start making money for themselves. 

First, you’ll need to know how much you currently spend on your monthly energy bill. You can find this information for the last twelve months by contacting your current utility provider. Use these statements to calculate your average monthly energy spending and write that number down. We’ll use it in a moment. 

Next, you should determine the total cost of your solar energy system. That number will take into account the price of solar panels, installation, hardware needed for installation, permits, and so forth. The best way to get this number is by asking your friends at Solar Bear Tampa for a personalized estimate. Your estimate will also provide the rough amount of electricity in kilowatt hours your solar panels generate. You’ll want to multiply the number of kilowatt hours generated by your solar panels by the cost per kilowatt hour and compare that number to your average monthly energy spending. This will give you the monthly amount saved by using solar. 

Once you have these numbers, you can calculate your payback period for your solar panels, as well as your yearly ROI number. Take the total cost of your solar energy system and divide it by the monthly amount saved by using solar, and that will give you your payback period, as well as your yearly ROI percentage. For instance, if your installed solar panel costs were $20,000 and your yearly benefit was $4,000, your payback period would be 5 years. A typical 5 kW solar PV system can easily see an ROI of 20% in the first year.