What is a Solar Panel System Payback Period? How is it Calculated?

solar payback period

As homeowners in South Central Texas look for ways to save money on electricity costs and achieve greater energy independence, solar has emerged as a viable, reliable, and safe piece of the puzzle. As you research solar panels for your home, you’ll almost certainly encounter the term “payback periods”. This is essentially the amount of time that it takes to recoup your upfront investment in a home solar panel system and for the panels to begin paying you through monthly energy savings. Upon installing panels, you’ll experience an immediate reduction in monthly electric bills, but it will take these savings some time to build up enough to reach the payback point.

Factors Included in the Solar Payback Period

The solar solutions specialists at GVEC can help homeowners understand the payback period in greater depth, but here are some important cost and savings factors included in estimating it.

  •  Cost of the system itself
  • Installation cost
  • Cost reimbursement from the federal investment tax credit (ITC) (26% through the end of 2022)
  • Cost reimbursements through any potential rebates
  • Solar capacity and monthly electric bill savings
  • Any additional monthly reimbursements from selling excess solar power to GVEC or to your electricity provider

1. System and Installation Costs

When calculating a solar panel system payback period, start with the cost of the panels themselves and installation.

2. Financial Incentives

The ITC is a tax credit offered by the U.S. government on the purchase and installation of a home solar panel system. The credit currently stands at 26% and will remain at this level through the end of 2022, when it decreases to 22%. It’s important to note that GVEC doesn’t offer tax assistance or advice. For help with claiming the ITC, we strongly recommend seeking help from a licensed tax professional.

You may also be eligible for rebates on your solar purchase. GVEC will help you with claiming any of these for which you are entitled.

3. Solar Capacity and Average Monthly Electricity Savings

What percentage of your monthly electric bill would you like to be replaced by solar generation? To help estimate this, look back at your electricity use for the previous 12 months. This information will help you establish a rough goal for monthly solar generation and decide what size solar system is best suited to your budget. Determining these factors will help you more accurately estimate a payback period for the system. 

Of course, greater amounts of electricity generated from panels will help shorten the payback period; on the other hand, the more panels you add, the higher product and installation costs will be. Ultimately, you’ll want to balance these two considerations to determine an affordable middle ground that balances solar generation, overall energy consumption and upfront costs.

4. Selling Excess Power to Your Electricity Provider

How much excess solar electricity will you sell to your power provider each month? This amount will vary month-to-month for most owners.

5. The Battery Factor

It’s important to note that adding a home battery solution to your solar panel system changes the calculation. If you add battery storage, you would also need to include the costs of that system and its installation. However, with a battery system, selling excess power to your electricity provider is no longer necessary; instead, excess electricity would be stored in the batteries for use later, especially at night but also during a power outage, increasing your overall savings—quite dramatically in many cases.

6. The Bottom Line: The Average Payback Period.

GVEC Solar services customers experience an average payback period of 8 to 12 years. Please keep in mind, this number is an average. Your payback period could be less; it could be more.

The best way to understand what your individual payback period might look like is to talk with a GVEC solar solutions specialist, who can review your energy bill and give you an honest, straightforward assessment.

Learn More About Solar Panel Systems from the Experts at GVEC

GVEC specializes in solar panel systems for homes in South- Central Texas. We’ve helped thousands of satisfied customers throughout the region take greater control of their energy usage, and we’d be thrilled to help you get started on an alternative energy lifestyle, too. For more information on the solar payback period, battery storage solutions, or any other aspect of solar panel systems, call us at 855.898.8807.