Calculating Solar Return on Investment

For those who enjoy delving into the numbers or conducting thorough research, calculating the financial return on investment (ROI) for any purchase, including solar panels, can be quite intriguing.

However, understanding and calculating the ROI for solar panels differs from other investments like property, stocks, or even smaller ventures. The unique factors involved in solar investments can make this a challenging task, but don’t worry, this article will guide you through the process of understanding and calculating the ROI for your clean energy home upgrade.

Understanding Solar ROI
For many U.S. homeowners, solar panels are a sound investment, increasing property value and reducing long-term energy costs. The core value of residential solar systems is their ability to replace some of your existing utility expenses with an asset that generates electricity using the sun’s energy (which costs nothing).

Your solar ROI can be viewed as the amount you save on electricity bills. Eventually, your solar system’s cost will equal the total you’ve avoided in grid-supplied electricity costs. This break-even point, or your solar panel payback period, is when your system has “paid for itself.”

After this point, you will see monthly “returns” on your energy bills as your solar panels continue to generate electricity, reducing your ongoing expenses.

Calculating Your Solar ROI
While various online calculators can estimate solar ROI, remember that unique variables and different calculation methods can produce varying results. Here’s a simple way to get a rough estimate:

Total Investment Costs: Include all project and installation costs, finance costs, and any applicable solar incentives or rebates.

Annual Electricity Production: Estimate your system’s yearly electricity output.

Savings Calculation: Multiply your system’s production by local electricity rates to estimate annual savings on utility costs.

Long-Term Savings: Project these savings over 25 years.
Investment Comparison: Compare your long-term savings to your initial investment.

For instance, a 6 kW solar system in Boulder, Colorado, might cost $16,000 after federal tax credits. According to the National Renewable Energy Laboratory’s PVWatts Calculator, this system could produce around 9,600 kWh annually. At an average rate of $0.15 per kWh, you could avoid $1,440 in utility expenses yearly, amounting to $36,000 over 20 years. Compared to the $16,000 investment, this represents significant savings.

Using the standard ROI formula (net return / cost of investment x 100%), where net return is $20,000 ($36,000 – $16,000), the ROI would be 125%.

Factors Influencing Solar Panel ROI
While the above illustrates basic ROI calculation, many other factors can influence your actual solar ROI. For example:

Solar panels lose efficiency over time, meaning yearly electricity production decreases slightly.
Changes in electricity rates can affect your ROI, usually positively.
Your energy consumption habits post-installation also impact ROI; maintaining energy efficiency at home is key.
Solar ROI, Property Value, and Home Sales
Solar panels can increase home value without necessarily raising property taxes, as many states exempt solar systems from property tax assessments. If you sell your home, the presence of a solar system can increase your asking price and potentially speed up the sale process.

Conclusion: Is Investing in Solar Panels Worth It?
In many cases, investing in solar panels is worthwhile. Though calculating exact solar ROI can be complex, the potential savings on grid-supplied power make it a valuable investment for most homeowners. With the right circumstances, solar investments can yield substantial long-term energy savings, combat rising utility costs, protect against inflation, and keep more money in your pocket for various purposes.