How it’s calculated
- Net cost = kW × 1,000 × $/W × (1 − incentive %) − rebates
- Year-n savings = kW × yield × value × (1 + escalation)^(n−1) × (1 − degradation)^(n−1)
- Payback = year when cumulative savings reach net cost (interpolated within the year)
Worked example
8 kW at $3.00/W, no incentives, 1,300 kWh/kW, $0.17/kWh, 2.5% rate increase, 0.5% degradation.
Inputs
- System size
- 8 kW DC
- Installed cost per watt
- 3 $/W
- Percentage incentives or tax credits
- 0 %
- Fixed rebates
- 0 $
- Yearly production per kW
- 1300 kWh/kW
- Value of each solar kWh
- 0.17 $/kWh
- Yearly electricity price increase
- 2.5 %
- Yearly panel degradation
- 0.5 %
- Years to analyze
- 25
Results
- Payback period
- 12.1 years
- Net system cost
- $24,000.00
- First-year savings
- $1,768.00
- Total savings over the period
- $56,539.26
- Savings minus net cost
- $32,539.26
Assumptions and limits
- No financing costs or discounting (simple payback).
- Production and rates follow the stated yearly rates of change.
Verify the result against the applicable local code, adopted code edition, manufacturer instructions and project requirements. See our methodology.
Questions
What is a typical solar payback period?
It depends mostly on installed cost, local sun and what your utility pays for solar energy. Run your own quotes and rates through this tool rather than relying on national averages.
Does the federal tax credit apply?
Federal residential solar credit rules have changed recently. Confirm current eligibility with the IRS or a tax professional before entering a percentage.