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Solar Payback Calculator

By Benjamin Strusnik November 08, 2022

There are plenty of online solar panel calculators that are meant for specific solar system components.

Today we’re going to turn our attention towards a more financial approach with our solar payback calculator.

Let’s have a look at how it works and the benefits you reap from using it. 

Before we can begin using the solar payback calculator, we need to understand the concept of the payback period.

Payback Period

This period refers to the time it takes to recover from the cost of an investment, in this case, our solar system.

solar roi calculator

You will hear the term cash flow thrown around quite a bit when talking about payback periods, and there are two types of flow: an inward flow and an outward flow.

Inward flow refers to the generation of power from your solar system and can be achieved by multiplying the kWh by the tariff cost of the grid you use. In other words, how much you pay for a unit of electricity from the government.

The outward flow is the cost of your maintenance or initial installation when you bought your solar system.

Using these two values, we can determine our payback period. If you take the total investment of our solar system and divide it by the outward flow subtracted from the inward flow.

Knowing your payback period is important as it’s a variable in figuring out your solar calculator savings amount.

Average Cost of a Solar System

Before we dive headfirst into calculations, it’s important to understand which numbers we’re working with.

Knowing the price of a solar system means you already know the size. To get the size, you need to use a PV solar calculator or an off-grid one.

These calculators give you everything you need to proceed to the installation, from the size of the system to the number of solar panels needed in your array. 

But let’s work off ballpark figures here.

Once you have the readings from your solar calculator, opting for a complete solar kit would be your best bet.

However, if you don’t want every component and prefer purchasing individual parts, you can purchase an array of 200 W solar panels that will match your solar needs.

roi solar calculator

Anyway, back to the kits.

The best solar kits include an array of solar panels, usually around 3 x 200 W units as well as a battery, some extension cables, fuses, and a charge controller.

Equipment like an inverter needs to be purchased separately as they aren’t normally part of a kit, though they sometimes can be.

Chances are that if you want an average-sized solar system, a kit will run you anywhere between $6,000 to $10,000.

But let’s look more in-depth at how these calculators work.

Solar ROI Calculator

Now that we’re familiar with the payback or payoff period, we get introduced to another term. ROI, or “return on investment.”

Once the payoff period ends, you start profiting from your purchase and this is known as ROI.

The solar calculator of today’s discussion typically shows both periods up until the end of your solar lifespan.

A good start would be to break down the data we’re going to be working with.

Variables

Firstly, we need to know how much it costs to install and purchase the components needed in our solar system.

roi solar panels calculator

Chances are that you will have a rough idea or a receipt lying around the house that’ll give you an accurate amount.

The next amount we need is the total output capacity of our solar system in kilowatts as well as the annual generation for 1 year in kilowatt-hours. 

Finally, we’re going to need the electricity tariff or the rate per unit that your utility company charges. The average for this is around 11c per kWh, though this depends on where you are in the country, so make sure to check your utility bill.

Now that we have all the variables for the calculator, we need to bear in mind some factors that affect the calculations.

Factors

If you’ve purchased your solar equipment through a lease program, you need to consider the escalation rate. This becomes an integral part of your solar lease calculations.

And as part of our outward flow, we need to know our operation and maintenance costs every year.

Finally, the degradation of our solar system in a year. If you purchase and set up a new solar system after using your on-grid or off-grid solar calculator to size it, after a few months, the performance drops.

If you have a solar panel datasheet or an app for your battery, tracking this percentage is relatively simple.

The Calculations

solar panel roi calculator

The best way to understand how these calculators work is to do a practical example.

Let’s say after the first year, the solar panel generates 1,500 kWh. The operation and maintenance cost for this year will be around $1,000 to keep everything running at maximum efficiency.

The calculators work on the average solar panel lifespan which is between 25 to 30 years so you will receive a value at the end of each year.

This is typically represented in a table with each year being a column and the data falling under the rows.

As the savings increase every year, solar generation decreases. 

The solar payback calculator also increments and decrements the tariff respectively using tariff statistics based on your location.

In the states, installing solar awards you a 30% cashback as part of tax savings or subsidy. So, if we install a solar system costing $15,000, our net investment amount will be $10,500.

The payback calculators ask you for this value if the tax savings apply in your area.

If it does or doesn’t, the calculator will work out how many years it will take you to earn back that amount using the generation, maintenance, and savings values every year.

Results

The payback period is calculated by taking the net investment amount, divided by the cost of electricity, divided by your total power usage per year. The average house uses around 10,000 kWh per year.

solar panel payoff calculator

These calculators use estimated amounts as the exact payback period can’t be calculated. Certain factors, like the ones mentioned earlier, affect them from using constant values.

However, you are guaranteed at least a 90% accuracy in the value they return.

It’s important to note that if you have an off-grid system, you’d be paying less and having less to pay back.

If we work with the above values, these are the results we get.

Net Investment Amount: ~$10,500

Cost of Electricity: ~$0.11/kWh

Annual Electricity Usage: 10,000 kWh

Equation: (10,500/0.11)/10,000 = 9 Years

Bear in mind that these are rough estimates and you can expect the real value to change depending on the variables you use. 

On-grid

On-grid solar systems are cheaper at the end of the day as you won’t need to purchase a battery bank to store the energy.

The excess energy that’s generated gets sent back to the grid and is returned as power credits.

However, without the inclusion of a battery bank, when a power outage occurs in the area, you won’t be able to use or generate any electricity. 

In the event of a disaster, not having electricity can be problematic.

Finally, you’re still using the local grid, meaning you’ll still have some form of a fee popping up on your electric bill.

Yes, it will be more affordable than if you were to solely rely on the grid without any solar energy, but you’re still paying the government.

Off-grid

These systems aren’t grid tied meaning you don’t rely on the local power grid to send or retrieve power back to them.

solar panel payback calculator

The power that’s generated in these systems is used in homes, RVs, or wherever you please, with the excess power being sent into a battery bank.

This means that on rainy or cloudy days when the sun isn’t shining, you’ll still have power.

As much as the batteries are an additional cost, when looking at it in the long run, it serves as the more logical choice. 

Plus, being completely independent of the grid means you knock off a good amount from your power bill at the end of the month.

Plus, readings and power ratings every month are easier to track with a battery as there are apps as well as some batteries having a built-in LCD screen with readings.

The only downside to off-grid would be needing to buy spare batteries as well as regular maintenance on the banks.

Solar Panel Payoff Calculator

There’s a variety of solar panel payoff and ROI calculators online, each serving the same purpose.

Yes, some may require additional information like your location’s sun hours, but at the end of the day, they all return the same values.

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