What Is Solar Panel ROI?

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.”

ROI vs. payback period

ROI and payback period are related but measure different parts of your solar system’s financial performance. ROI is expressed as a percentage and reflects the profit you earn relative to your upfront cost.

On the other hand, the payback period tells you how long it takes for your solar savings to equal your initial investment, and it’s expressed as a number of years. To keep the difference simple:

• ROI shows long-term profit over the 25- to 35-year lifespan of your panels.
• Payback period shows how quickly you break even.

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 2025. 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%. More recent data from SolarInsure suggests homes with newer solar systems could sell for up to 10% more.

Real solar customer experiences

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.”

Consider the risks before investing

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. 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?

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 offers high-quality panels and ensures proper maintenance. Government incentives and tax credits can also help increase the ROI for your solar panels by reducing your out-of-pocket costs.

Note that the federal solar investment tax credit (ITC) expires at the end of 2025, but local and state programs are still available.

Roof type

Your roof directly affects how much energy your system can produce and how much you’ll pay to install it. A south-facing roof generally delivers the strongest ROI because it captures the most sunlight throughout the day. East- or west-facing roofs can still be cost-effective but may generate 10% to 20% less output.

Your roof’s age, material and condition matter as well. A roof that needs replacement before installation adds thousands of dollars to the project and pushes out your payback period. Asphalt shingles tend to be the easiest and least expensive to work with, while tile or metal roofs may require specialized mounting hardware and higher labor costs.

If your roof has heavy shading from trees, chimneys or nearby buildings, you’ll generate less power and see a slower return.

Maintenance, repairs and replacement

Solar panels require little maintenance, but the system’s supporting components do create long-term costs that affect ROI. Most homeowners can expect to replace their inverter once during the system’s lifespan, which may cost $1,000 to $3,000 depending on the size and type. Battery replacements can add several thousand more.

Routine cleaning or occasional repair work also adds minor but real expenses. Dirt buildup, weather damage, loose wiring or broken microinverters can reduce output and slow your payback if left unaddressed.

Batteries and off-grid systems

Adding a battery or going fully off-grid increases system costs and usually lowers ROI. Batteries provide clear benefits such as backup power and blackout protection, but they can add $7,000 or more to the project. That additional cost stretches the payback period and reduces your net return unless you live in an area with frequent outages, high electricity rates or strong battery incentives.

Off-grid systems require even more equipment, including larger battery banks and backup generators. These upgrades improve reliability, but they often make the system more expensive than staying tied to the grid.

If your goal is pure financial return, grid-tied systems without batteries tend to deliver the strongest ROI.

Financing options

How you pay for your system changes both your up-front cost and your long-term savings. A simple rule of thumb: The more ownership you retain and the fewer financing fees you pay, the higher your ROI.

• Cash purchase: Highest upfront cost, but you receive all incentives and achieve the fastest payback and strongest ROI.
• Solar loan: Low or no upfront cost. You still qualify for tax credits, but interest increases the total cost and lengthens the payback period.
• Lease/power purchase agreement (PPA): Little to no upfront cost, but you do not own the system and cannot claim incentives. Long-term savings are significantly lower.

Solar ROI by state

If you’re considering solar panels as an investment, check out our investigation into where your 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%.

» LEARN: Solar energy pros and cons