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.”

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 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%.

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.