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How Long Do Solar Panels Take To Pay For Themselves?

If you're thinking about buying a home with solar panels or adding a solar power system later as an upgrade, learn how long they will take to pay off.
Solar Panels
7 minutes
Written by:
Joey Cheek
Updated on:
November 30, 2022

Whether you're thinking about buying a home with solar panels or adding a solar power system later as an upgrade, you will want to know how long they will take to pay off. This helps you determine if they are worth the upfront cost and whether or not they make financial sense in your situation.

How Much Do Solar Panels Cost?

One of the first considerations is determining how much they cost. The cost of solar panels and their installation varies significantly depending on location, panel quality, your roof type, and the company you select for installation.

The total system cost for a 5-kilowatt residential solar system is typically somewhere between $15,000 and $25,000. This will generate between 6,000 and 10,000-kilowatt hours (kWh) of electricity per year, which is approximately one-quarter of the electricity used in a typical household.

What is a Solar Panel Payback Period?

The payback period is how long it takes to recover the cost of your solar panel system through energy savings. You calculate this by adding up the cost of your solar panels, determining how much electricity you use, and then figuring out how much electricity the solar panel system produces. You then divide the total by the amount of time it takes for you to recoup your investment with savings on your electricity bill.

The payback period varies widely depending on your location, the efficiency of your solar panels, and the electricity rates in your region/state. It’s also hard to estimate because electricity rates are constantly in flux. However, one good way to determine your solar payback period is to use an online solar calculator.

How Long is the Typical Solar Panel Payback Period?

In general, how long solar panels take to pay for themselves depends on your electricity rates and the amount of electricity the panels produce. The higher your rates and the lower the amount of electricity the solar panels produce, the longer it will take to recoup your investment. 

Typically, you can expect a solar panel payback period of around 6 to 10 years. This is based on the assumption that you will be generating around 10,000 kilowatts hours of electricity each year. This is not the case for everybody, but rather it’s just an average that can give you a good ballpark idea of a typical payback period.

Solar Panel Efficiency and Repaying Your Investment

Another factor that impacts how long solar panels take to pay for themselves is their efficiency. There are two types of solar panels, mono-crystalline, and multi-crystalline. These panels vary in terms of efficiency, but monocrystalline solar panels are typically more efficient.

If you want to decrease your solar panel payback period, you should choose the most efficient solar panels possible. It might cost a bit more upfront, but you'll see a faster return on your investment.

You can also reduce your solar panel payback period by choosing a higher-voltage system with a larger solar array. This increases your electricity production and decreases the amount of time it takes to recoup your investment.

How to Reduce Your Solar Panel Payback Period

Nobody wants to wait many years before they see a return on their investment. Fortunately, there are a few different ways that you can reduce your solar panel payback period. It all starts with understanding the costs involved and then optimizing your energy consumption.

1. Understand the Basics of Solar Payback Period

The solar payback period is the amount of time it takes for solar energy production to equal the cost of installing and maintaining the panels. Although it is possible to break even on your investment much sooner, it’s important to remember that the amount of time it takes to recoup your costs depends on a lot of different factors.

For example, how much energy your panels produce, the cost of electricity in your area, and your home's energy use will all play a role in determining your solar panel payback period.

Most people choose to calculate their solar panel payback period using their net present value (NPV). This is the value that you get out of your solar panels now minus the cost of your solar panels now. The NPV of your solar power system will be higher than the payback period because it takes into account, not just the amount of money you've invested but also the money you will save in the long run.

2. Make Sure You Understand the Cost Involved

The way that you calculate the solar panel payback period is based on the cost of your solar panels. If you go with a smaller investment in solar panels, you will have to wait longer to break even on your investment. This doesn't necessarily mean that it's a bad investment. It just means that you'll have to be patient while the panels pay themselves off.

It’s important to note that the cost of solar panels doesn’t include the cost of installation. This is something that you’ll have to take into account when looking at the overall price. The upfront cost of solar panels is only part of the equation. You also have to consider maintenance costs.

For example, if you go with a rooftop solar panel system, you’ll have to check your panels for damage occasionally and perform any repairs that are necessary. Some solar panel systems also have to be replaced after about 25 years, which means that the amount you have to pay for solar panels is actually much higher than you might expect.

3. Research Your Options Carefully

As you’re doing your research, make sure that you compare apples to apples. Solar panels come in different sizes and have a wide range of efficiency ratings. Don’t just look at gross costs. Make sure you’re calculating the net return as well.

You might also want to consider an off-grid solar energy system. With an off-grid system, you can use solar energy to power your home without being connected to the grid at all. However, this will add significantly to your initial investment and might make you ineligible for solar incentives.

A grid-connected solar energy system is what most people think of when they think of solar panels. This type of system still requires you to pay the electric company for the energy you use, but you could lower your electricity bill even more if you go with a grid-connected solar system because you won’t be using as much energy and you’ll be able to sell energy back to the grid. 

4. Find The Best Installer for Your Needs

The company that you choose to install your solar panels will also have a big impact on your solar panel payback period. You want to make sure that you find a reputable installer that you can trust. You should also check to see if your state has any solar panel installation licensing or certification requirements.

Any reputable installer should be able to give you a rough idea of how long it will take to recoup the cost of your solar panels after having your solar panels installed. However, keep in mind that this is just an estimate. The actual payback period will depend on how much energy your panels produce, how often you’re home and how much energy you use.

5. Sell Excess Energy Back to the Grid

In many cases, you may be able to sell excess energy that you generate back to the grid. Most state governments have regulations in place to govern how much you can get paid for excess energy. However, rates vary significantly, and some states are even working to increase rates for surplus energy.

If you want to sell surplus energy back to the grid, you’ll have to get a special meter installed to monitor the amount of energy that you’re producing. That grid is an additional upfront cost, but the meter should pay for itself fairly quickly and it will allow you to start making money from your solar power system. 

Solar panels are a great investment. Not only are they a renewable energy source, which is good for the planet, but they’re good for your wallet too. 

If you go solar, you can expect to see an average return on your investment within 6-10 years. You’re also helping the environment while you’re at it.

Take the SmartSolar.org quiz and learn more about the benefits of installing solar panels.

Joey Cheek

Meet the author:

Joey Cheek

Joey Cheek spent 10 years on the US National Speedskating Team where he competed in two Olympic Games, winning gold, silver, and bronze medals. He attended Princeton before diving into the startup and tech world. In 2011 he launched a livestreaming platform for sports before leading a team of engineers building next-gen news and content apps for Fortune 100 companies. He is the CEO and co-founder of SmartSolar.org, whose mission is to move the earth to cheap, abundant, carbon-free energy.

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