Solar Panel Payback Calculator
Installer quotes tend to assume every kWh you generate replaces a kWh you'd have bought. That's rarely true, and it's the single biggest reason real payback runs longer than promised.
How payback is calculated
- Annual production. System size × peak sun hours × 365 × 0.86. The 0.86 derate covers inverter losses, wiring, soiling and heat — it is the NREL PVWatts default.
- Value of that power. Not all kWh are worth the same. Power you use as it is generated saves the full retail rate. Power you export earns whatever your utility pays, often far less.
- Year by year. Production falls 0.5% annually as panels degrade; electricity prices rise 2.5% annually. Payback is the year cumulative savings pass net installed cost.
The self-consumption trap
This is where most solar quotes quietly mislead — not by lying, but by assuming full retail net metering that many households no longer have.
Panels produce most at midday. If nobody is home, that power goes to the grid. Under old-style net metering you got full retail credit and it barely mattered. Many utilities have now moved to net billing, paying wholesale rates — often 4–6¢ against a 17.5¢ retail rate.
| Export arrangement | Export rate | Effective rate | Payback |
|---|---|---|---|
| Full net metering | $0.175 | $0.175 | ~8 yrs |
| Net billing (typical) | $0.05 | $0.125 | ~11 yrs |
| Minimal export credit | $0.02 | $0.082 | ~17 yrs |
8 kW system, $24,000 gross, 30% credit, 40% self-consumption, 4.5 peak sun hours.
Before signing anything, ring your utility and ask exactly what they pay for exported solar. Not what an installer told you — what the tariff document says. That single number can swing payback by nine years.
Location changes everything
| Area | Peak sun hours | 8 kW annual output |
|---|---|---|
| Phoenix, AZ | 6.5 | 16,300 kWh |
| Los Angeles, CA | 5.6 | 14,100 kWh |
| Austin, TX | 5.0 | 12,600 kWh |
| Chicago, IL | 4.1 | 10,300 kWh |
| Seattle, WA | 3.3 | 8,300 kWh |
Phoenix produces nearly double Seattle from identical hardware. But Seattle's cheaper electricity partly offsets that — payback depends on production and the rate you avoid paying, which is why both are inputs above.
What this model leaves out
- Inverter replacement. Typically needed at year 10–15, $1,500–3,000. Add it mentally to long paybacks.
- Roof condition. If your roof needs replacing within 10 years, do it before installing, or pay to remove and refit the array.
- Shading. Even partial shade on one panel can disproportionately cut a string's output. A site survey matters.
- Property value. Owned systems generally add value; leased systems can complicate a sale.
- Maintenance and insurance. Small but not zero.
When solar clearly does not pay
Being straight about this: solar is a poor financial decision if you have a heavily shaded roof, very cheap electricity (under 10¢/kWh), a minimal export rate combined with low daytime usage, plans to move within five years, or too little federal tax liability to use the credit.
It is an excellent decision with expensive electricity, good sun, full net metering, and high daytime use — a heat pump, an EV charging at home, or someone working from home all push self-consumption up and payback down.
Assumptions
- System derate 0.86 (NREL PVWatts default)
- Panel degradation 0.5% per year
- Utility rate escalation 2.5% per year
- Federal Residential Clean Energy Credit 30%
Full sourcing on the methodology page.
Common questions
Why is your payback longer than my installer's quote?
Usually one of three reasons. First, self-consumption: unless you have a battery, you use only 30–50% of what you generate, and the rest is exported for far less than retail. Second, degradation: panels lose about 0.5% output per year. Third, optimistic production estimates. We default to conservative figures because an unpleasant surprise in year eight is worse than a pleasant one.
What is the 30% federal tax credit and do I qualify?
The US Residential Clean Energy Credit returns 30% of the total system cost as a credit against your federal income tax. It is a credit, not a rebate, so you must owe enough federal tax to use it — though unused amounts can typically be carried forward. It applies to equipment, labour and permitting. If you lease the system rather than buy it, the leasing company claims the credit, not you.
How much does self-consumption really matter?
Enormously. Solar generates most at midday, when many households use least. Without a battery, typical self-consumption is 30–50%. Exported power earns retail rate under full net metering, but many utilities have moved to net billing that pays wholesale — often a quarter of retail. That difference can add five or more years to payback, which is why it is a separate input here rather than buried in an assumption.
Is a battery worth adding?
For payback alone, usually not yet. Batteries add $8,000–15,000 and push self-consumption to perhaps 80%, but the extra savings rarely repay that before the battery needs replacing. Buy one for backup power during outages, or if your utility has punishing time-of-use rates. Judge it as a resilience purchase, not an investment.
Do panels really last 25 years?
The panels themselves usually outlast their warranty, degrading around 0.5% a year — after 25 years most still produce 85–90% of new. The inverter is the weak point, typically lasting 10–15 years and costing $1,500–3,000 to replace. Budget for one inverter replacement within the payback window.