Solar payback period: how to calculate
Last edited
Author
Andrew Blok
Electrification and Solar Writer and Editor
Editor
Ryan Barnett
SVP, Policy & New Market Development
Investing in home solar panels is a major decision, and naturally, you want to know when that investment will pay off. Your solar payback period tells you exactly when your solar savings will cover the initial cost of your system.
Here’s a simple way to estimate your payback timeline, outline the key factors that drive your long-term savings, and help you determine whether going solar makes financial sense for your home.
Note: If you’re considering a solar lease rather than purchasing, you’ll skip the upfront costs, meaning the concept of a payback period won’t apply to you. More on that below, too.
What is a solar panel payback period?
Your solar panel payback period is how long it takes for your solar savings to cover your solar costs.
If you finance the solar power system with a solar loan, your payback period should also include interest and loan fees as part of the total cost.
To calculate your payback period for solar panels, start with the total cost of installing the solar panels, minus any incentives or rebates you receive. Then divide the remaining cost by your monthly electric bill savings, until you reach the amount you originally spent.
For example:
$19,288 purchase and installation cost
$238 monthly savings
$2,856 annual savings
$19,288 Investment / $2,856 = payback period of 6.8 years
This calculation, using hypothetical values for a home solar panel system in California, is relatively short, thanks to the high cost of electricity there (and the high potential for savings).
What is a good solar payback period?
While they vary, estimates of the average solar payback period commonly land between 6 and 15 years. It’s a wide range because a lot of factors are at play.
For example, a larger solar installation is going to have a higher upfront cost, but potentially higher monthly savings. And if the electricity rate from your utility goes up significantly, that increases your savings, since you’ll be avoiding more expensive electricity.
Modern photovoltaic (PV) solar panels typically last at least 25 years and come with warranties that guarantee 80-90% efficiency at the 25-year mark. So, if your payback period is 10 years, you are still looking at about 15 years of savings after recouping your costs.
| State | Estimated average payback period | Avg. estimated 25-year savings |
|---|---|---|
| Arizona | 11.1 | $63,152 |
| California | 6.2 | $104,508 |
| Colorado | 10.7 | $57,602 |
| Connecticut | 7.3 | $126,542 |
| Florida | 10.6 | $84,120 |
| Georgia | 15.8 | $46,433 |
| Illinois | 14 | $59,764 |
| Indiana | 13.8 | $57,744 |
| Kansas | 12.9 | $55,540 |
| Kentucky | 16 | $48,012 |
| Maine | 9 | $97,675 |
| Maryland | 10 | $93,078 |
| Massachusetts | 6.6 | $126,679 |
| Michigan | 18.9 | $31,535 |
| New Hampshire | 11.9 | $74,732 |
| New Jersey | 9.9 | $83,522 |
| New Mexico | 9.7 | $57,611 |
| New York | 7.1 | $108,227 |
| North Carolina | 11.7 | $65,556 |
| Ohio | 12.5 | $58,434 |
| Oklahoma | 17.2 | $39,677 |
| Oregon | 15.1 | $44,913 |
| Pennsylvania | 10 | $83,109 |
| Rhode Island | 8 | $9,847 |
| South Carolina | 12.1 | $44,209 |
| Texas | 11 | $72,119 |
| Vermont | 10.5 | $81,302 |
| Virginia | 11.8 | $70,978 |
| Wisconsin | 11.4 | $92,972 |
(Average savings estimates and payback periods are based on real Palmetto installations purchased with cash and loans in the second half of 2025, but do not necessarily reflect the value you would see. Reach out for a personalized savings estimate. Visit individual state pages for methodology and assumptions.)
Calculating your solar power payback period
While several factors can change your ultimate payback period, this formula will give you a good idea of what to expect.
Payback period equals combined costs divided by annual benefits.
Combined costs are the total cost of your PV system, minus any solar tax credits and other incentives.
Annual benefits combine the savings on your electricity bills, including net metering or net billing credits and solar renewable energy certificates (SRECs) if they’re available to you.
Here’s another example, using hypothetical numbers from a system in Arizona and assuming you qualify for and receive the state solar tax credit.
Solar costs: $23,405
State tax credit: $1,000
Final cost (solar cost - incentives): $22,405
Monthly savings: $144
Annual savings: $1,728
Payback period: 12.97 years
Compared to our hypothetical California system above, the payback period is longer thanks to a larger solar system and Arizona’s lower cost electricity. Even with a payback period of 13 years, you would still have more than a decade of savings after recouping your cost, assuming normal solar panel wear.
Factors that impact your solar power payback period
Consider these when estimating your payback period.
- Total cost of your system: A higher cost (measured in price per watt) will extend your payback period. Adding a backup battery (except where it unlocks greater savings) can also extend your payback period, though it provides additional security in a power outage.
- Solar tax credits, rebates, or other incentives: Rebates, tax credits, and any other incentives that reduce your cost, can shorten your payback period.
- Energy production: A system that produces as much as it should will have a shorter payback period than one that frequently goes offline.
- Electricity usage: Homes that start with high bills stand to save more than homes with low electricity bills.
- Cost of electricity: If the cost of electricity from your utility increases, your payback period shrinks.
| Solar expenses | Potential solar savings |
|---|---|
| Installation costs | Lower energy bills |
| Maintenance costs | Tax credits or rebates |
| Solar renewable energy certificates |
Solar leases and the payback period
Solar leases and power purchase agreements vary from cash and loan purchases in that they typically have no upfront costs. Instead, you pay a monthly fee for those panels or the electricity they generate. When the panels save you more money than you pay for them, you save overall. Since there’s no initial payment on your part, the payback period concept doesn’t apply.
Several factors affect whether you save and how much. Leases typically include an annual escalator, which determines how much your lease increases in cost each year. If your lease increases in cost less than your electricity rate does, you’ll save more at the end of your lease than the beginning. In rarer cases, the opposite can also be true: Your lease costs increase faster than electricity rates. In this case you’ll save less. According to the US Energy Information Administration, the national average retail electricity price has increased in all but three years since 2000.
Installing a solar power system can save you money in the long run, but it can take some time for you to see the full extent of those savings when you buy solar panels. That’s the solar payback period.
Payback periods vary for each home that goes solar. To get a solar savings estimate tailored to your home, learn more about going solar with Palmetto or reach out for a free quote today.
See how much you can save by going solar with Palmetto
Frequently asked questions
What is the solar payback period?
A solar payback period is the time it takes for your savings from going solar to match your costs. Installing solar panels can cost you thousands of dollars, but can often save you more over their lifespan.
How do I calculate my solar payback period?
The simplest version of the payback period calculation is total costs divided by annual savings, which will give you the approximate time in years.
How long do solar panels take to pay for themselves?
It depends. Common estimates range from 6 years to 15 years, but actual results are highly dependent on your cost of solar, your electricity rate, how much electricity you use, your net metering policies and more. A detailed solar quote should give you a clearer idea of your own home’s potential to save.
Disclaimer: This content is for educational purposes only. Palmetto does not provide tax, legal, or accounting advice. Please consult your own tax, legal, and accounting advisors.
