What is an average solar panel payback period and what would it be for my home?
Written by Harvey Petersen
Updated August 13, 2021
5 minutes read
The average payback period for a residential solar power system in 2020 is 7.6 years. This data is based on the average solar payback period we see from approximately 200,000 homeowners who use the calculator on our site to generate a tailored cost and savings estimate for their homes.
Although the average stands at 7.6 years nationally (as of March 2020), there is a significant variance in average residential solar payback between states, regions and utility territories within states, and even sometimes between different homes on the same street.
This is why we provide the calculator above because it can calculate a very accurate payback period for your specific home based on your location, the rates charged for power by your utility, and the amount of power you use.
The calculator also shows you where the solar panels should go on your roof for maximum production and how many will fit.
The price of installing solar panels for your home has fallen drastically over the last few years and is now one of the most cost-competitive forms of energy production for both utility and residential use.
This article will explain the real cost of solar and how long the payback period is where you live. It will also provide an estimate of what your payback period might be.
However, payback periods ultimately depend on many variables that will be unique to you, including your location, your utility company, the amount of power you use, the time of day you use power the most, and your roof and building type.
In general, residential solar payback times, given current solar panels costs as of March 2020 will range between 5-10 years, depending on your unique characteristics. This means almost every solar system will pay for itself and save the owner money over the 25-year lifetime of the solar system.
The best way to get an accurate, personalized solar payback information is to use a solar calculator or talk to a solar installer in your area.
What factors affect the payback period for installing solar panels?
The price of electricity in your state
The price of electricity will depend on where you live and your electricity provider. For example, the average base price of power in California and New York is 18.3 and 18.5 cents per kilowatt-hour, respectively.
Power prices are a bit lower for states like Florida, Mississippi, Utah, and Idaho at around 10-12 cents per kilowatt-hour. Places like Hawaii, Connecticut and Alaska are expensive at 20 cents and above.
These prices are taken from US EIA and the price of electricity may vary for different utilities and cities - these are just averages.
Each year, customers pay more and more for the same amount of electricity. In 2001, the price of electricity was around 8.5 cents per kilowatt-hour, and in 2016 the price went up to about 12.5 cents per kilowatt-hour. This is a huge increase.
It is likely this same pattern will continue over the coming years. The best way to protect your savings from these increasing prices is to buy or lease a solar system. A solar system will lock in the price you pay for the next 25 years, and numerous available options mean you can own a system for $0 upfront.
Solar power system cost
The price of solar depends on how big the system is and the quality of the solar panels used for the installation. The average price of solar has fallen dramatically in recent years and you can now buy a high-quality system for $3.10 a watt.
This means a 7 kW (7000W) system will cost about $21,700 before the solar investment tax credit (ITC). After the ITC, it will cost $15,190 if no other incentives apply. $15,190 sounds like a lot of money, but in some cases this is enough to offset your total power usage, effectively bringing your power bill down to $0.
Over 25 years, you will most likely end up tens of thousands of dollars ahead.
Federal and state incentives
Incentives vary at the state, city, and even utility level. The incentive that applies to everyone is the Solar Investment Tax Credit (ITC). The ITC gives a tax credit for 26% of the total system cost, which is basically giving 26% of the system cost back to the customer. The ITC saves customers thousands of dollars.
In most states, net metering exists. Net metering is effectively an unlimited free battery because it allows you to economically store the value of power you produced during the day for use at night, even though you do not physically store the power. SRECs and the solar carve-out also exist in some states. For more information on what incentives apply to you, take a look at the solar incentives page.
Solar incentives in America right now are very generous. They are set to start winding down in the next few years, (net metering has already been diluted in some jurisdictions i.e. net metering 2.0 in California is slightly worse than NEM 1), and in 2022 the ITC will be gone.
Right now, solar incentives are as good as they will ever be and homeowners should take advantage of them in order to install solar on their homes.
The amount of sun
The amount of sun that falls on a house will affect how much energy a solar system can produce. If a house gets a lot of sun, it will produce lots of power. If trees or other objects shade the house or if it’s in an area that doesn’t get a lot of sun, a solar system will produce less power.
However, even if there is shading over the roof, solar can still work. Light will still make its way through clouds or past trees; it will just produce less power than an unobstructed solar system would.
What is the average residential solar payback period in each state?
Below is the average solar payback for several key solar states based on an assumption of a $200 per-month power bill and a cash-purchase of a solar power system.
Minimum period of free power from when a system is paid off until the expiration of warranty
*Panels will most likely still work after warranty period but this is a minimum
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What will your solar payback period be for your house?
The best way to calculate your real payback period is to use the solar calculator - it’s free and available to anyone. This section will run through the calculator to get a payback period for a typical house in California. The calculator asks for some information to calculate accurate results.
This estimate is for a house in Beverly Hills with a power bill of $150 and a cash purchase of the system. The information below shows the final results.
As you can see from the image above, the payback period for the 6kW system is 7 years 8 months. This falls within the 5-10 years outlined at the start of the article. The calculator is the best way to get accurate, personalized information regarding solar. Best of all, it only takes about 2 minutes to use.
When it comes to solar in America, it really depends on where you live and your personal situation. Incentives apply to different states, electricity prices vary widely, and the amount of sun a house gets is different everywhere. This makes it difficult to give an accurate, one-size-fits-all estimate of how much solar will cost.
That is why your solar calculator the best way to find out the cost and payback period of a solar system. The calculator takes in relevant information and calculates a report tailored to you.
Use our free solar calculator to see how much solar can save you.