How long does it take to pay off solar panels?

How long does it take to pay off solar panels?

Most solar panels pay for themselves in seven to 12 years, though this timeline varies based on your situation. JD Dillon, chief marketing and customer experience officer at Tigo Energy, saw a payback period of about 7.2 years for his California home before recent net metering policy changes. This timeframe serves as a useful benchmark for many homeowners. A few factors determine your payback period:

• Location: States with more sunshine and favorable incentives create faster payback times.
• Energy consumption: Higher electricity usage means greater savings potential each month.
• Local electricity rates: Higher utility rates lead to more dramatic monthly savings.
• Available incentives: Federal tax credits, state rebates and local programs reduce upfront costs.

A typical residential solar system costs between $14,210 and $28,241 before applying incentives. System size, panel quality, labor expenses and permit fees affect this price. Unexpected costs such as roof repairs or electrical panel upgrades often appear during installation and can extend your payback timeline.

Pro tip

“Some homeowners go for a solar-only installation to save money at first but plan to add battery storage later. “A system that’s pre-wired for energy storage makes the future upgrade much more cost-effective, so it’s something worth considering from the start,” Dillon suggested.

» MORE: How much do solar batteries cost?

Factors affecting solar panel payback time

Here’s a more detailed look at how your geographic location, government incentives and household’s electricity usage affect your solar panel payback time:

• Federal tax credits: The Inflation Reduction Act offers a 30% Investment Tax Credit nationwide, reducing your upfront costs.
• Net metering policies: The credit you receive for excess energy varies by state. Net metering could impact payback more than sunlight availability.
• State-specific programs: You may qualify for additional savings depending on your state of residence. For example, “New Jersey’s more lucrative Solar Renewable Energy Credits (SREC) program offers a higher fixed price for 15 years,” said Aaron Nichols, marketing and advocacy specialist at Exact Solar.
• Sunlight availability: “Different regions get varying amounts of sunlight throughout the year, which impacts energy production,” said Dillon. “A system installed in Arizona, for example, will generate more energy than one in a cloudier climate.”
• System design: Proper installation maximizes production. Your installer should consider roof pitch, orientation and shading patterns for optimal performance.
• Total consumption patterns: “Homes with higher electricity needs see faster savings and paybacks, since the generated solar energy offsets higher utility bills,” Nichols explained.

“Many [programs and government] policies have either rolled back or evolved over the years,” noted Dillon. The best way to take advantage of what’s currently available is by consulting a reputable solar installer. They’ll help you navigate these changes and the application process.

» EXPLORE: Where solar savings go the furthest

Tips to maximize solar panel savings

Experts say you can maximize solar panel savings by optimizing system design, performing regular maintenance and improving your home’s energy efficiency. They shared tips to help you do that:

• Choose the right installer: “The very first step is to find and interview a few reputable solar installers,” advised Dillon. Ask for references, verify their expertise and check their certifications and training.
• Consider battery storage: Phill Stevens, owner of Avail Solar, suggests adding battery storage to maximize solar usage and reduce reliance on the grid. This is especially wise if your utility doesn’t offer favorable net metering rates.
• Do some vetting: Get two to three quotes from solar companies and verify their financial assumptions. Compare system costs, estimated production and price-per-kilowatt.
• Improve home energy efficiency: “Install energy-saving appliances in your home and start using energy-saving methods,” Nichols recommended. This reduces your overall consumption, maximizing the impact of your solar production.
• Monitor system performance: Regularly check your solar portal or app to ensure all panels are working well. Early detection of performance issues prevents long-term energy loss.
• Optimize panel placement: “Position panels to capture the most sunlight throughout the day,” suggested Stevens.
• Stay on top of cleaning: “Routine cleaning helps maintain efficiency,” explained Nichols. You can clean panels once or twice a year using a light soap solution and water or hire a professional to help you.

Financing options for solar

How you choose to pay for your solar system will impact your upfront costs and long-term savings. “Paying upfront in cash for a system will always yield the fastest payback,” said Nichols. You’ll immediately qualify for all tax credits and incentives. Of course, that’s not an option for everyone. Below are the main solar financing routes to consider:

• Solar loans: These allow you to own your system while spreading payments over time. “The biggest advantage of a loan is you get the long-term benefits of solar ownership, including tax credits and increased home value,” Dillon pointed out. Once paid off, you enjoy free electricity for the system’s remaining life.
• Combo loans: These split your financing into two parts. “The first loan covers 30% of the project cost with a 12- to 18-month repayment schedule,” Nichols explained. You can use your tax credit to pay off this portion when you receive it. The second covers the remaining 70% with a 12 to 25-year term.
• Solar leases: With a lease, you don’t own the panels but pay a fixed monthly fee. This financing option requires minimal to no money down. But it doesn’t qualify you for tax credits or increase your home value.
• Power Purchase Agreements (PPAs): Going the PPA route means you’ll buy electricity the system generates at a predetermined rate. “While these can reduce or eliminate upfront costs, the long-term savings aren’t as lucrative because a company owns the system, not [you],” noted Nichols.

Which financing option is best for me?

When weighing your options, think about how the advantages and limitations of each align with your priorities.

Also, consider how long you plan to stay in your home. Dillon points out that leases and PPAs can complicate home sales. “Buyers have to qualify for a mortgage and the solar agreement, which can slow down or deter a sale,” he said.

System size also affects your financing strategy. Instead of aiming to cover 100% of your electricity needs, “install a system that covers most — but not all — of current energy needs, then expand later if necessary,” suggested Dillon.