Solar Panel Payback & ROI Calculator

Solar panel payback and ROI formula and worked example

Formula

net system cost = system cost − upfront incentives − (system cost × tax credit %); yearly savings = kWh produced × self-consumption % × grid rate + kWh exported × export rate − annual maintenance

where the grid rate grows each year by the electricity inflation rate while production decays by the panel degradation rate

Worked example

A homeowner installs a $25,000 solar system that produces 10,000 kWh per year, claims the 30% federal tax credit, pays $0.16/kWh from the grid, exports the surplus at $0.05/kWh, uses 80% of production on-site, and spends $150 per year on maintenance.

1. Federal tax credit: $25,000 × 30% = $7,500, so the net system cost is $17,500
2. Value of self-used energy: 10,000 kWh × 80% × $0.16/kWh = $1,280
3. Value of exported energy: 10,000 kWh × 20% × $0.05/kWh = $100
4. First-year savings: $1,280 + $100 − $150 maintenance = $1,230
5. Over 25 years (with 2.5% annual rate inflation and 0.5% panel degradation), lifetime savings reach $39,539, a 126% return on the net investment

Result

The $17,500 net system cost pays for itself in about 11.1 years, and 25 years of operation return $39,539 in savings — a 126% ROI.