Investing in solar energy is often portrayed as an investment in your future. This has two meanings. The first is an acknowledgement of solar energy’s benefits on the environment.
When you go solar, you reduce your dependency on fossil fuels. As a result, you reduce your carbon footprint and protect the environment for the future. The second is a reminder of the financial benefits.
Installing a solar energy system carries a high initial investment, but advocates argue that they pay for themselves eventually. If you’re researching your options, you’d probably want to know specifics.
This means that you’re probably wondering how long does it take for solar panels to pay for themselves. In this guide we’ll elaborate on how you can make this calculation. This should help you make a financially sound decision.
What is a Payback Period?
The amount of time it takes for any investment to pay for itself is referred to as its payback period. In business terminology this is frequently referred to as the rate of return. You may even have heard the phrase “breakeven figure”.
All of these terms essentially mean the same thing. Whenever you purchase something, you receive value from it. This cannot always be measured. For instance, the payback period for your Netflix account. The value you gain from it is entertainment, so it’s hard to assign a figure to this.
However, when it comes to investing, there is always a clear monetary value that you can calculate. The same can be done with solar panels.
What is The Payback Period for Solar Panels?
The payback period for solar panels follows the same principle. Solar energy advocates claim that installing a solar system results in savings. So, you must wonder how long it will take for you to recover your investment.
By calculating the payback period, you’ll know exactly how long does it take for solar panels to pay for themselves. Doing so isn’t a straightforward task though. You must understand that there are always variables involved when it comes to solar energy.
There will be several factors that influence the payback period for you solar panels. You’ll want to factor them into your calculations. If you don’t do so, you may end up miscalculating. So, let’s take a look at these factors.
What Factors Affect The Payback Period for Solar Panels?
Five factors affect your payback period. They are:
- Residential Energy Consumption
- Initial Cost of System
- Government Incentives
- Output of Solar Energy System
- Electricity Tariffs and Increases
We’ll address each one categorically.
1. Residential Energy Consumption
Your energy consumption will determine the size of the system you have to install. The size of the system affects you initial cost. You should remember that your system should produce at least enough energy to sustain your needs.
If your system produces significantly lower energy than you need, you’ll be dependent on the grid. Reliance on the grid isn’t a bad thing but it reduces your energy savings. Lower savings means a higher payback period.
Ideally, your system should produce electricity in excess of your needs. This will allow you to utilize net metering. We’ll look at this further in a bit.
2. Initial Cost of System
The initial investment you make in the system represents the lion’s share of your cost. This doesn’t only include the panels, but also all other equipment, labor and maintenance costs. Having an accurate estimate of your outlay will help you calculate the payback period correctly.
Obviously, this depends on the previous point. If you have high energy needs, you’ll need a larger system. Conversely, if you don’t consume a lot of energy, a smaller system will suffice. Note that this doesn’t include any incentives and rebates you may receive.
3. Government Incentives
Wondering how long does it take for solar panels to pay for themselves? For starters, any incentives you receive are important. You can go through a list of incentives by state on the DSIRE website.
Incentives range from loans that cover the system’s cost, to tax rebates. There is also the question of net metering which can greatly affect your savings.
Net metering is the process by which you send any excess electricity into the grid. If your power company permits this, you will receive even greater savings on your energy bill.
The power company will be paying you for the electricity. They will do so in the form of a credit. Find out if your provider permits net metering.
4. Output of Solar Energy System
As already discussed, the output from your system determines your savings. If it’s more than you need, you can utilize net metering. If it’s less than you need, you’ll rely on the grid and reduce your savings.
As a general rule, the yearly output of your system should be greater than the annual consumption. For example, if your system produces 12,000 kW, your consumption should match or be lower than this figure.
5. Electricity Tariffs and Rate Increases
Knowing just how much money you pay for electricity will help you calculate your savings. Your savings are an important part of the final calculation. The calculation itself is simple.
However, electricity rates increase over time. You should factor these into your calculations to see their impact on your savings.
Calculation
To make the final calculation:
Then,
Our Final Thoughts
This brings our guide on how long does it take for solar panels to pay for themselves to a conclusion. We’ve seen that there are a variety of factors that affect the final figure. We hope that you’ll now be able to make more informed decision.
