Solar panels have such a positive impact, not just on the planet, but on your bank account, as well — and that positive change happens from month one! What makes them a truly money-saving investment is that you’ll be able to earn your money back over time. But just how long does it take to earn back your investment in solar panels? While it takes some time, patience, and financial diligence, earning back your solar panel investment is not only possible, it would almost be impossible NOT to. Our residential and commercial customers in Northern CA are looking for ways not only to save money on utilities, but to mitigate risk of fire, power outages and even sometimes be off grid with battery backup systems. These solutions require more than the “cheapest cost” solar proposal. They require an intelligent approach to each customers’ needs, home, geography and budget.
Our Calaveras, Tuolumne, Alpine, Amador, El Dorado and Stanislas county customers are not typically in the highest income brackets. The 26% tax credit doesn’t always apply – especially in the first year. We help our customers find the solution that works best for them and inform them about how they can take their credit and spread it over 5 years – so that they can maximize the amount of savings they are able to get from their installation. We are also a certified SGIP developer – so we can help you apply for the grant to get free batteries if you meet a few qualifiers. This stuff can be tricky – but that is why we provide so much educational material and have a helpful approach for each customer.
How to Calculate
Determining how long it will take to earn back your solar investment varies from person to person. This will require a few different formulas to calculate. Here is a handy formula to help you calculate how many years you have until payback (in other words, until you earn back your investment):
Years to Payback = Investment cost/Annual Savings
Let’s say you currently spend $3500 a year on your energy costs with your utility.
$3500 = $291 per month (This is the average cost for a 4 person household in a 2000 square foot house in California.)
With the Utility Company:
Over 5 years, with an average increase of 5% per year that cost would be:
- $3500 – Year 1
- $3675 – Year 2
- $3858 – Year 3
- $4051 – Year 4
- $4254 – Year 5 5 year total: $19,338.00
- $4679 – Year 6 6 year total: $24,017.00
- $5147 – Year 7 7 year total: $29,164.00
VS.
With Solar:
Let’s say you are installing a 7kw system for $26,000, paying cash. (10-25 year financing is also available starting at 2.99 %.)
With a system of that size and cost, you will have “paid off” your system between years 6 and 7 when comparing it to the utility cost you would have been paying.
BONUS: If you take your 26% TAX CREDIT, $6760.00 in this case, and apply it towards your payment, you will earn your investment back in 5 years.
Once your system is paid off, your power is essentially FREE for the next 25 years.
Let’s look at the savings you would have gained over that time from NOT paying for traditional rising utility costs. 25 years of saving an average of $5000 + 5% increase = $131,000.00
Can you think of something more useful to do with your money than continue to pay rising utility costs?
If you’ve already bought your solar panels, and already know how much you’ve saved annually, you’ll be able to easily determine exactly how many years it will take to reach payback.
For those who haven’t invested in solar yet, you need to do a few more calculations to determine the potential investment cost and annual savings in your case.
Investment Cost
If you’d like to buy your solar panels, either with cash or a loan, we now need to determine your total investment cost. That can be calculated with the following formula:
Investment Cost = {System Size(kW) x Solar Panel Cost ($/kW)} – Tax Incentives
Our solar consultants can help you determine what size of a solar panel system you need, and how much it will cost per kilowatt.
Annual savings
Your potential annual savings can be determined using this formula:
Annual Savings = Cost of Electricity ($/kWh) x Daily Electricity Use (kWh) x Percentage of Electricity Covered by Solar x 365
Applying the Formulas
Okay, so since this is a bit complex, we’ll provide another example. Let’s go with the Smarts again. David Smart spoke to a helpful Aurora Energy consultant and learned that a 7.2-kilowatt solar energy system would be the best fit for his home. Their system costs about $3.56 per watt or $3,560 per kilowatt. This comes to a sum of $25,632. David and his wife Lynn decide to pay for their panels with a loan. With a 26% tax incentive, they’ll get $6,664 that they can roll back into their solar loan if they wish. If they decide to do that, their total investment cost comes out to:
(7.2 kW x $3,560/kW) – $6,664 = $18,968
Now that we know the total investment the Smarts made in their solar panels, let’s calculate their annual savings.
Before switching to solar, their electricity cost $0.13 per Kilowatt Hour (kWh). On a daily basis, the Smarts use about 28.9 kWh.
So, their annual savings will be:
$0.13/kWh x 28.9kWh x 365 = $1,371
And now, at last, the Smarts can calculate how long it could potentially take them to break even on their solar investment:
$18,968/$1,371 = 13
In this scenario, it will take approximately 13 years for the Smarts to reach their return on investment payback.
These are just a couple of examples of how long it takes to earn back a solar panel investment. Every case is unique, based on your individual energy usage and costs. The great thing is, at Aurora Energy, our Calaveras, CA-based expert solar consultants will help you calculate your expected payback date, and how long it will take you to earn back your solar panel investment. If you’re ready to start saving money with solar energy, contact Aurora Energy today! We can’t wait to work with you!
