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What is solar panel ROI?

Discover the potential financial benefits of switching to solar energy

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    If you’re deciding whether to install solar panels on your home, return on investment (ROI) is an important concept to be aware of. Simply put, your ROI is the amount of money you can expect to save over the lifetime of your solar panels compared with the initial cost of purchasing and installing the equipment.

    In this article, we’ll explore the concept of solar panel ROI in more detail, including the factors that can impact it and how to calculate it. Additionally, we’ll offer some advice on maximizing your solar panel ROI so you can make the most of this sustainable, cost-effective energy source.

    Key insights

    • In addition to reducing your carbon emissions, solar panels can save you money on energy bills, essentially paying for themselves over time and potentially even netting you extra money.
    • The return on investment of a solar panel installation depends on its location, performance, efficiency and size, but 10% is average.
    • To calculate the ROI for solar panels, divide your net profit over the lifetime of your panels by the cost of their initial purchase and installation. Then multiply by 100.
    • You can maximize your solar panel ROI by taking advantage of rebates and other incentives and participating in net metering through your local utility provider.

    What is the return on investment for solar panels?

    The average ROI for solar panels in the U.S. is about 10%, but results vary. Olivia Ellis of Solar SME explained to us that “a good ROI for solar panels is considered to be between 6% and 8%.” In some cases, ROI may be as high as 20% or more, though.

    ROI is usually given as a percentage, representing your profit relative to your investment.

    A positive ROI means that over the lifetime of your solar panels — usually between 25 and 35 years — the amount of money you save on energy bills or earn through your solar panels will be greater than the initial investment cost. It usually takes about 10 years to cross that threshold with the federal solar tax credit and about 13 years without it.

    However, results vary, depending on factors such as your location, system size, solar panel efficiency and local incentives. “Ultimately,” said Ellis, “the ROI of solar panels will depend on the specific circumstances of each installation.”

    For example, Marc, a ConsumerAffairs reviewer from Massachusetts, shared that “the return on investment wasn’t anywhere near what we thought it would be” — possibly due to their home’s roofline or the financial arrangement they made with their solar panel provider.

    On the other hand, Alfonso, a ConsumerAffairs reviewer from California, told us: “I had 23 years of previous utility bills that I added up and looked at the kilowatts used versus the increments of using more. … Mathematically, [solar panels will be] a return on investment down the road.”

    All investments have risks. Be alert to claims that you can make a lot of money in these or any investment with little risk. As with any investment, you can lose money, and past performance is not a guarantee of future performance results. Consumers should also obtain a clear understanding of the fees associated with any investment before agreeing to invest.

    » MORE: How much do solar panels cost?

    How solar panels pay for themselves

    Over time, solar panels can pay for themselves in various ways, including:

    • Reduced electricity bills: Solar panels reduce electricity bills by around $100 to $150 per month, on average. Depending on your energy production and utility provider, you might also be able to sell excess electricity back to the grid through a net metering program.
    • Tax credits or incentives: Federal tax credits of 30% are available for solar photovoltaic systems installed between 2022 and 2032. Depending on where you live, there may also be additional tax credits or incentives available.
    • Solar renewable energy certificate (SREC) payments: In some states, you may be eligible for SREC payments for generating your own electricity.
    • Increasing your home’s value: According to a study by Zillow, solar panels increase home values by an average of 4.1%.

    » LEARN: Solar energy pros and cons

    What affects solar panel ROI?

    According to Ellis, “The return on investment (ROI) for solar panels can vary greatly depending on several factors, including the cost of the panels, the amount of sunlight the system receives and the local net metering policies.”

    You can also maximize your solar ROI by researching and working with a reputable installer that can provide high-quality panels and ensure proper maintenance. Government incentives and tax credits can also help increase the ROI for your solar panels by reducing your out-of-pocket costs.

    » MORE: Are solar panels worth it?

    Solar ROI by state

    If you’re considering solar panels as an investment, check out our investigation into where your s solar savings go the furthest. If you don’t have time for that, though, here’s a quick summary of how different solar ROI factors vary by state:

    • Upfront solar panel costs: Homeowners in Kentucky, Kansas, Alaska and the Dakotas benefit from the country’s lowest upfront solar panel costs — all ranging between $13,100 and $13,600. Consumers encounter the highest costs in Hawaii ($19,600), Wisconsin ($17,600), New Hampshire ($17,500), Minnesota ($17,300) and Idaho ($17,100).
    • Payback periods: Solar panels take the least time to pay back their upfront costs in Connecticut (7.4 years with the federal tax credit and 9.5 without). Runners-up include Arizona, Florida and Alabama. New Mexico residents face the longest average payback period of any state, totaling 17.3 years with the federal tax credit and 22.2 years without. Other states with lengthy paybacks include Utah, Illinois, Colorado and Wisconsin.
    • Annual solar savings: While Hawaiians pay the most for solar panels, they can save the most on energy bills by switching to solar. Based on the state’s average yearly energy usage and energy costs, Hawaiians can save almost $44,000 after 25 years by switching to solar. On the other hand, New Mexico residents receive the smallest savings from switching to solar ($18,300 after 25 years).

    How to calculate your solar ROI

    Follow these steps to calculate your solar ROI.

    1. Total your upfront costs

    To get a clear idea of how much your solar energy system will cost you, add up the total cost of equipment and installation, including everything from solar panels, wiring, inverters and batteries to labor, permit fees, taxes and inspections.

    2. Factor in tax incentives or credits

    Many states offer tax credits or incentives for people who install solar panels at their homes — such as property tax abatements and cash rebates — that can significantly reduce your costs. Determine whether your state offers such programs, and factor them into your calculations accordingly.

    3. Estimate your future energy savings

    Your electricity rates will depend on variables like where you live, the size of your home and your energy usage, so research average rates in your area or review your recent utility bills to get an idea of how much you’re currently paying for electricity.

    You should also estimate what you’ll likely pay in future years by looking at trends from previous utility bills and factoring in expected rate increases from your electricity provider over time.

    Map out these total savings over the life of your solar panels and add up the results.

    4. Calculate your ROI using this formula

    ROI = ((Total savings minus total cost) / total cost) x 100

    Once you know the upfront cost of installing your solar energy system and your total estimated energy savings (including any ongoing incentives you may be eligible to receive), divide your net savings by your total upfront cost, then multiply the result by 100. The product represents the projected ROI of your home’s solar panel system expressed as a percentage.

    For example, if you spent $20,000 on your solar panel system, and it saves you $30,000 in energy bills over 25 years ($1,200 per year), your ROI would be 50%.


    How much do solar panels save you each month?

    Generally speaking, a homeowner can save between $100 and $150 on their electricity bill each month by switching to solar energy. However, the amount you save each month with solar panels really depends on the size of your system, the incentives available in your area and how much you’re currently spending on electricity.

    Are solar panels a good investment?

    Solar panels have the potential to be a great investment if you have high electricity costs, live on a lot with unobstructed sunlight and take advantage of available incentives. In addition to tax credits or financial programs that reduce the cost of installation, net metering can help you earn additional returns if you sell excess energy back to your electric company.

    Considering these factors, solar panel investments can theoretically have higher returns than traditional investments such as stocks and bonds. Just remember that all investments have risks.

    How long does it take for solar panels to pay for themselves?

    On average, it takes roughly 10 years for solar panels to pay for themselves if you take advantage of the federal solar tax credit. If you don’t utilize that tax credit, the average is about three years longer.

    That said, the payback period for solar panels varies greatly depending on the size of your system, energy production, the incentives available in your area and your electricity usage. Get quotes from local installers based on your specific needs and location to get a more accurate idea of your break-even point for your solar panels.

    Do solar panels add value to my house?

    A study by Zillow found that installing a solar energy system on your property can increase the value of your home 4.1%, and a separate study by Lawrence Berkeley National Laboratory found that solar panels increase the value of a home by $15,000, on average.

    However, the exact amount a solar panel system can increase the value of your home depends on your local real estate market, the age and appearance of your system, where the panels are located and other variables.

    Find a Solar Energy partner near you.

      Bottom line

      Installing solar panels in your home can result in significant savings over time, potentially turning a large upfront investment into profit long-term. Get quotes from multiple solar energy companies, research applicable incentives and calculate how much power your system will produce to get an idea of the ROI you can expect.

      ConsumerAffairs writers primarily rely on government data, industry experts and original research from other reputable publications to inform their work. Specific sources for this article include:
      1. EcoFlow, “How Much Do Solar Panels Save on Average Electricity Bills?” Accessed May 5, 2023.
      2. U.S. Department of Energy, “Homeowner’s Guide to the Federal Tax Credit for Solar Photovoltaics.” Accessed May 5, 2023.
      3. Zillow, “Homes With Solar Panels Sell for 4.1% More.” Accessed May 5, 2023.
      4. Maryland Energy Administration, “A Maryland Consumer’s Guide to Solar.” Accessed May 5, 2023.
      5. Center for Sustainable Energy, “How much does a typical residential solar electric system cost?” Accessed May 5, 2023.
      6. Scientific American, “Rooftop Solar Increases a Home’s Selling Price.” Accessed May 5, 2023.
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