Calculate Your Solar Panel Payback Period with These Simple Steps
Beyond contributing to increased sustainability and energy efficiency, solar power systems can create considerable savings for your household by reducing your energy bill. While the initial investment of installing solar can seem high, when you factor in the lifetime benefits of generating solar to help power your home, the costs are definitely worth the outlay.
When considering solar, it can be useful to understand when and how you will make your money back on your investment. Here we will discuss the components that contribute to the solar panel payback period and how to calculate your own return on investment.
What is a solar payback period?
Put simply, the solar payback period is the time in which it will take for you to save as much on your energy bill as you paid for your solar system.
Payback periods can range in length due to the many variables that come into play. On average, you can expect to wait anywhere between 3-6 years before your solar panels will have paid for themselves. This is a comparatively fast payback period when you consider the lifespan of your solar system is approximately 25-30 years.
What factors go into calculating my solar payback period?
There are a number of aspects to consider when you want to work out your solar payback period. Most will be dependent on your location and energy provider. That’s why it’s a good idea to consult with a reputable solar provider – they can guide you through the process, and provide an accurate picture of the costs involved and how they will impact your payback time frame.
However, as a general guide, here are the main factors that will affect your calculation:
- The cost of energy per kilowatt (kWh)
- The size of your intended solar system
- How much energy your solar system produces
- The cost of your system
- How much of the solar energy produced will your home consume (or more precisely, how much energy will be returned to the grid)
How do I calculate my solar payback period?
As mentioned, when calculating your payback period, it’s important to use figures specific to your location. In doing so, you will end up with a more precise outcome and a better understanding of how long it will take to recoup your initial investment.
Review a few of your latest energy bills to gather the data you need. Here we will be using average figures based on current New South Wales prices:
- Cost of energy: 20 cents per kWh
- System size: 5kW
- Energy produced: 20kWh per day
- Feed-in tariff: 7 cents per kWh
Scenario 1: Using all 20kWh of solar energy per day
This scenario assumes your home will use all 20kWh of energy your solar system can produce each day, with no unused energy returned to the grid.
The formula required to calculate your payback period will be:
- 20 cents per kWh X 20kWh per day
= $4.00 SAVING PER DAY
= $1,460 SAVING PER YEAR
Payback Period
= $1,460 / 365 days
= just over 3 YEARS
Scenario 2: Using 70% of the 20kWh of solar energy per day
This alternate scenario assumes your home will only use 70% of the maximum 20kWh of energy your solar system produces each day, with the excess 30% returned to the grid.
In this situation, energy retailers offer a feed-in tariff, crediting your account for every unit of energy you contribute back to the grid. Therefore, the calculation to work out your payback period will be:
- 20 cents per kWh X 20kWh per day
= $4.00
$4.00 X 70% energy used
= $2.80 SAVING PER DAY
PLUS
7 cents per kWh feed-in tariff X 20kWh per day
= $1.40
$1.40 X 30% energy returned to grid
= 30 cents CREDIT PER DAY
Payback Period
= $2.80 + 30 cents
= $3.10 SAVING PER DAY
= $1,131.50 SAVING PER YEAR
= $1,131.50 / 365 days
= just over 4 YEARS
Expert solar advice and support with SolarBright
For more information about how to calculate your solar panel payback period, the highly skilled team at SolarBright is here to help. With close to 15 years of industry experience, we have the expertise to guide you through the ins and outs of the solar installation process, including providing advice regarding your home’s potential for energy generation and helping you determine your return on investment.
SolarBright consultants use a specialised satellite-based solar mapping software to design each solar system. This software takes into account the location of the house, panel model, panel size, and the orientation of the panels, to calculate the estimated annual production of the system. They then use this data to calculate the pay-back time.
So, contact SolarBright today to arrange a free consultation and find out more about how solar energy can benefit your home and save you money on your power bills.
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