How Long Until Solar Panels Pay For Themselves?

Wondering if a Solar Panel would make sense for your home financially? Here’s how long it will take for it to pay for itself

The duration of time that a solar panel will take to pay for itself is dependent upon several key factors: the climate of the area, the electricity usage on your own, the cost of installation, federal tax incentives, net energy production, and the cost of electricity in the given area.

How long will it take for your own personal situation? Read on for more information.

How to calculate your Payback Period

The duration of your payback period can be calculated by subtracting the monthly savings in addition to incentives from the cost of installing the solar panels. The amount of time it will take for the savings to catch up with the initial expenses is known as the payback period. Let’s say that I install some solar panels on my home, and the total cost of them is $10,000. Let’s say that my net savings are $5,000 from my tax breaks. This brings down my total cost to $5,000. Now let’s say that these solar panels will save me five hundred dollars a year on my electricity bill. We can divide five thousand by five hundred, and calculate that the payback period will be ten years.

Factors impacting Payback period duration

State of residence

An important but often overlooked factor is your state of residence. The reason this is relevant is because of each state’s specific and different tax incentives. Generally, most Americans can expect their solar panels to pay for themselves in around a decade, but your individual state will have a large impact on that duration. Certain states, such as Hawaii, offer payback periods as short as five to seven years. Other states on the opposite end of the spectrum, such as North Dakota, can have payback periods well over a decade in duration. The reason behind this variation is largely political, but another big factor is the climate of the state.

Clearly, there is a lot more sunlight in Hawaii than in North Dakota, making solar panels a much safer investment for the state to provide incentives for. Another factor affecting the incentives in each state is the relative cost of energy per state, as states with more expensive electricity costs will inevitably take longer to pay back. If you want to know the laws and tax incentives for your state, it can easily be found online. If you happen to reside in a state such as Hawaii or California with particularly generous green energy incentives, installing solar panels will be a much more cost-friendly and attractive option.

Climate of the area

As you would expect, a lot less electricity will be produced from Solar Panels located in Alaska compared to solar panels located in Arizona. Areas with more consistent sunlight will be much more effective at producing energy than places that have long winters with oftentimes blocked sunlight. The net effect of your climate will play a decisive role in whether or not purchasing solar panels is a cost effective decision. If you feel like your respective location has a climate that will produce a sufficient amount of solar energy, then move forward in your plans. If there is a high level of precipitation or winter, I will take into account the potential risks.

Average Electricity Usage

After taking into account your state of residence and your climate, it is now time to calculate your average electricity usage. Your first step is to figure out how much electricity you use on a monthly basis, and then use that information to figure out how large you would like your solar system to be. The process of calculating this is very simple. Your energy supplier should report your levels of electricity consumption. Let’s say that your home uses one thousand kilowatt-hours of electricity per month. Now let’s say that a set of solar panels can produce one hundred kilowatts per hour a month. Now simply divide the one thousand by the one hundred, and you will need a system size of 10 kW for your house.

Installation cost and expenses

Now that our average electricity usage has been calculated, we now need to determine the cost associated with installing a solar system. This cost will be dependant on the size of your home. To give a sense of perspective, installing solar panels on a 1500 square foot home will cost around seventeen thousand dollars. You can use this as a rule of thumb to estimate the cost for your home, depending on the number of square feet in your home. On a per-watt basis, expect to pay about three dollars per watt for the solar panels on your home.

Federal Tax credits

One of the biggest benefits of having solar panels installed at your home is the tax write-offs that you can get from them. The government is very generous when it comes to anything regarding green energy, and you can save some money on your taxes by investing in it. There are even incentives if you begin investing quickly. For example, if you have solar panels installed before the year two thousand and twenty-three, you are eligible for a tax credit that is equivalent to twenty-six percent of your total installation costs. This is a massive tax credit, one equal to several thousand dollars.

With these tax benefits in mind, you can calculate the net cost by subtracting the total worth of incentives from the total cost of installing the solar panels. In addition to these national tax incentives, do some additional research to see if there are any additional benefits or incentives that your local government will additionally provide. After taking all of these factors into account, you will have a clear idea of how much you can save from your write-offs, and have a clearer perspective of the net cost, and the duration it will take for your solar panels to pay themselves off. Be diligent in searching, the more tax write-offs you can find, the shorter you have to wait for your solar panels to pay themselves off.

The Net energy production from your solar panels

Of all the numbers that need to be crunched, this is perhaps the most significant. The net energy production from your solar panels is the most effective way to determine the duration of time it will take for them to pay for themselves. This rate can be calculated fairly simply. Simply multiply the number of Kilowatts produced by your solar panels by the number of Kilowatt hours that a Kilowatt will produce per year.

After this product is calculated, proceed to multiply it by the cost of what you currently pay for each Kilowatt per hour you pay for in your utility bill. Given that a solar panel in a warm climate produced roughly fifteen hundred kilowatts per hour, multiply that by an average-sized of six Kilowatt panels, your solar panel will produce roughly nine thousand Kilowatts per hour each year. You can follow this basic formula to calculate your panel’s given energy production rates, according to the size of your residence.

The cost of electricity in your area

We now need to calculate the cost of electricity in order to determine the net savings that will result from using solar energy. This can be easily calculated by finding the average cost of Kilowatts per hour. Once we know the cost of electricity, we can now compare it to the savings provided by a solar panel, and determine the payback and savings amounts. To provide an example for how to calculate this out, let’s pretend that in our example you are a resident of Florida, a fairly sunny state.

We will assume that using your solar panels save you fifty cents per Kilowatt hour. We will also assume that ten thousand kilowatts per hour are the total production used for the year. We can now calculate the net annual savings by multiplying .5 by ten thousand. This yields us a net savings of five thousand dollars a year. It is amazing to see how much a few cents, over a long period of time, add up.

Now that we know that we save five thousand dollars a year, we can calculate the payback period by simply dividing the total cost of installation, whenever this figure may be, by five thousand. The result of this will be the duration of our payback period. Obviously, the higher and more consistent the levels of sunlight, as well as the more expensive the cost of utility, the quicker your payback period will be.

Another relevant factor that also needs to be considered is that the cost of electricity is steadily increasing over time. It can be easy to be content with your relatively low electricity bill at the moment, but your monthly rate is not constant; it will inevitably increase over time. This naturally occurs because of population growth, as the demand begins to increase for a nonrenewable resource, the price will also increase as well. With this in mind, when you are deciding whether or not you should just stick with your current electricity bill, consider the fact that as electricity costs go up, which they will, the net savings from using solar energy will likewise increase.

Benefits of buying solars panels

Helps preserve the environment

Unlike traditional methods for producing energy, solar panels do it in a clean and natural way, receiving their energy from the sun. This is especially beneficial because no greenhouse gases are produced from this option, making it an increasingly attractive proposition for environmentalists. Additionally, sunlight is more or less an unlimited resource as opposed to fossil fuels, making it a much better option for the long term. This is especially promising financially, as this means that the supply and demand for these services will not experience as much fluctuation, meaning the prices will ultimately be more consistent.

For example, in places like California, because of regulation the supply of oil and natural gas is limited, but the demand is incredibly high because of the massive population. As a result, gas can often cost around four dollars per gallon. In other places, such as Texas, there is a large supply of oil and natural gas, and a moderate amount of demand and the gas can cost less than two dollars a gallon. By depending on Solar Panels, we can expect consistent payments, and not worry about unexpected price fluctuation.

Even outside of the aforementioned economic benefits, there are also some significant health benefits. An unfortunate consequence of the burning of fossil fuels is air pollution, which creates fogginess in the air and can even be harmful to humans when inhaled in high volumes. By replacing these with solar panels, these health risks are no longer an issue, as nothing is being burned to produce energy; it is all happening naturally from the sun. The last benefit is the lack of strain that using solar energy puts on other significant resources.

For example, fossil fuel production necessitates a lot of water usage to cool down and keep everything maintained, putting increased pressure on water and increasing the price for ordinary consumers. By switching from this to Solar Panels, a lot of water is saved, inevitably lowering the price for everyone else and allow us to conserve this valuable resource.

Saves you money on Taxes

This is one of the most attractive benefits that owning a solar panel provides: less money leaving your pocket for taxes. The government actually incentives using green energy, and your taxes will be reduced for you doing so. The benefits, despite the initially high cost, make it an attractive option. To start off, when you have your solar panels installed on your house, up to thirty percent of your total costs can be a tax write-off because of its association when green energy, meaning you more or less only have to pay seventy percent of the true cost. This is a significant amount of money being saved, but it is only just the beginning. Local and state governments have their own additional incentives to make the process even cheaper, and this is without taking into account the ultimate long-term savings that solar panels provide outside of tax benefits.

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