Back to: How to Calculate Average Returns on Solar Panels
Now that you know how much money you save each year and how long it takes to recover your investment, it’s time to calculate the total return on investment (ROI) of your solar panels.
Your ROI tells you how much money you make in the long run after the system has paid for itself. A higher ROI means your solar panels were a great financial decision!
Understanding ROI (Return on Investment)
The return on investment (ROI) is a percentage that shows how much profit you make compared to what you spent.
The formula for ROI is:
ROI = (Total Savings Over System Lifespan − Total System Cost) : Total System Cost × 100
Finding Total Savings Over the Lifespan
Most solar panels last 25-30 years. This means you will keep saving money every year even after the payback period ends.
🔹 Example Calculation:
- Your solar panels save you $900 per year
- Your system lasts 25 years
900×25=22,500
✅ Total savings over 25 years = $22,500
Plugging the Numbers into the ROI Formula
Now, let’s calculate the ROI using the formula:
ROI = (Total Savings Over System Lifespan − Total System Cost) : Total System Cost × 100
🔹 Example Calculation:
- Total Savings: $22,500
- Initial System Cost (after incentives): $10,500
ROI = (22,500−10,50010,500) × 100 = 114.3%
✅ Final ROI = 114.3%
This means that your solar panels more than double your investment over their lifetime!
What Can Increase Your ROI?
Your ROI can be higher or lower based on a few key factors:
Higher Electricity Prices = Bigger Savings
- If electricity costs increase over time, your savings will be higher, and your ROI will improve.
- In some areas, electricity rates go up 3-5% per year, meaning your savings will grow every year!
More Sunlight = More Energy Production
- If you live in a sunny state like Arizona, California, or Florida, your panels will generate more power, saving you more money.
- If your home has minimal shading and a south-facing roof, you’ll get maximum efficiency.
Lower Installation Costs = Faster Payback
- If you find a good deal on solar panels or receive more incentives, your system will pay for itself sooner and increase your ROI.
- Always compare quotes from multiple solar installers to get the best price and warranty.
Net Metering Can Boost Savings
- If your utility company offers net metering, any extra electricity you produce can be sent back to the grid for bill credits.
- This can reduce or even eliminate your electricity bill, increasing your total savings!
What If You Sell Your Home?
Solar panels increase home value and make properties more attractive to buyers. According to studies, homes with solar panels sell for 3-5% more than those without.
🔹 Example:
- If your home is worth $300,000
- A 5% increase means an extra $15,000 in value
Even if you don’t stay in your home for 25+ years, you can still benefit financially from installing solar panels.
