How Long to Pay Off my Solar Panels?

The soaring cost of domestic energy, plus the widespread promotion of the benefits of solar power, is encouraging more homeowners to wonder whether solar is a worthwhile investment. This largely depends on the answer to the question: how long will it take me to pay off my solar panels? The answer is influenced by several factors, including the size of your house, how much power you use, and even where you live.

Investing in solar power is a big, and quite daunting, step, and it’s quite right to consider all the implications before taking the decision. You are contemplating a massive installation on your roof, which will totally change the appearance of your house, and could even put off potential buyers if you need to sell. What’s more, you are looking at a financial investment which is second only to your house purchase. How do you know if it’s worthwhile?

Basic Factors
In order to start working out the pay-off time, you first have to have an idea both of the price of the system, and the value of the energy that is being generated. Systems themselves can cost anything from $10,000 to $50,000, depending on the size, and the choice of panels. However, this is before the 30% Federal tax credits, plus the rebates that may be offered by your state.

For example, an average household would probably need a 5-kilowatt (5,000 watt) system. The basic cost of a system is worked out by multiplying the size in watts by the price per watt at which the package is being sold, so if the seller’s price was $3.95 per watt, the initial cost of the system would be $19,750. However, the Federal tax credit, plus a state tax credit of $1,000, could reduce the net price to around $12,000.

The other factor determining your pay-off time is the regular electricity rate in your region. For instance, if your installed rate was $3.95, and your average electricity cost is $0.20 per kilowatt hour, your pay-back time should be about 15 years. Generally, the less expensive your system, and the higher your regular electricity rate, the shorter the pay-back time on your system will be.

Additional Reductions
However, this simple calculation doesn’t take account of additional ways of reducing your pay-back period, which again largely depend on which state you live in. One of these is the SREC, or Solar Renewable Energy Certification, comparable to stock certificates for energy. One SREC is earned from one megawatt hour (Mwh, equal to 1,000 kilowatts used continuously for one hour) generated from solar panels.

Many states, including Massachusetts and New Jersey, have their own SREC programs, allowing homeowners to earn SRECs to sell back to electricity companies. This means a home with a 5kw system will generate 5Mwh per year, earning 5 SRECs, or between $1,000 and $5,000. So in NJ, you could reduce your pay-back time on a 5kw system to 6-9 years.

Many states also operate net metering policies, under which solar systems connected to the grid, when generating more power than required, return any excess electricity to the grid. The company has to pay the customer the full retail price, in the form of credit against future purchases. This could reduce your pay-back time even further.

Good Investment
It’s not possible to provide a definitive answer to the question: how long will it take me to pay off my solar panels because there are so many variables. However, for a 5kw system with a basic cost of $19,750 – $20,000, the pay-back time could be reduced from 15 years to as little as 6-9 years. This doesn’t take account of your considerable savings in energy costs, so that, provided you stay in your house for long enough, your solar panels could be a very good investment indeed.

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