When you are going to install a solar energy system, in order to ensure that you are financially viable, it is generally necessary for you to know the payback period of your solar energy system, which determines when you can get your money back. The payback period of a solar system determines when you can get your money back. There are different payback periods for different solar systems, and in this article, we will introduce you to the payback period of solar systems and related issues.

1. How to calculate the payback period of a solar system?

If you want to calculate the payback period of a solar system, you need to know the following series of information first.

The total cost of the solar system: You are not only calculating the cost of purchasing the components of the solar system, but also the cost of installation, labor costs, etc. If you purchased the solar system with a loan, the payback period will be calculated. If you are taking out a loan to purchase the solar system, you will also need to calculate the interest rate on the loan. From this point of view, both the direct and indirect costs that you spend on the solar system have to be accounted for in order to ensure that the hottest results are accurate.

Reduce all the rebates you get for your solar system: Generally, the government will give you a rebate for installing solar panels on your home, but the exact amount will depend on your local government. With these two figures, you will know the net cost of the solar system minus the incentive amount.

Estimating Electricity Savings: Generally, if you have a grid-tied or hybrid solar system, your solar system will prioritize the supply of electricity to your home, with the excess being sent to the grid, in addition to a discount when you pay your electricity bill. You can calculate your savings by multiplying the amount of electricity you use in a year without a solar system by the local price of electricity. The calculations are more accurate with an off-grid solar system. However, be aware that electricity rates may increase and you will need to call your utility company to find out.

Calculating Payback: Once you know all of the above, you can use the following formula to calculate the payback period.

Payback period = (total cost of solar system – rebates) / annual electricity savings

If the total cost of your solar system is $10,000 and you receive a $5,000 incentive, your net cost is now $9,500. You will save $900 in one year with your solar system, so that means your payback period is about 11 years or so.

2. Factors affecting the payback period of a solar system

Initial cost of the solar system: The initial cost of the solar system mainly consists of solar panels, inverter, solar batteries (solar batteries are not needed in a grid-connected solar system), etc. Among them, solar batteries are the most expensive, so if you want to minimize the payback period of the solar system, you can directly install a grid-connected solar system.

Payment Methods: If you use direct payment, you can invest a lot of money upfront, but the payback period of your solar system will be shorter, and you can get a greater financial benefit. If you choose to pay with a loan, you are lowering your upfront investment, but the interest on the loan will increase the total amount you have to pay.

Incentives for solar systems: In order to promote the use of clean energy, many governments have implemented incentives. Generally speaking, the government will give incentives based on the size of the solar system, and if the incentives are higher in your area, the payback period of your solar system will be shorter.

Electricity price increase: In some areas, the electricity price will have a period of increase every year. When the electricity price increases more, the more you save on electricity bill, the payback period of your solar system will naturally become shorter.

3. How long is a good payback period for a solar system?

Determining a good payback period for a solar system is to ensure that the test of installing a solar system pays for itself, and preferably pays for itself. Most solar systems last 30 years or more, so if your solar system has a payback period of 10 years, that means you’ll be making money for 15 years or more.

A large majority of investment experts believe that if the payback period for a solar system is less than half of the life of the solar system, then that is a good payback period for a solar system. However, there is also the case that if you are in an area where there is a significant increase or use of time-of-use tariffs, even if your payback period is a little more than the life of the solar system, this is still okay.

Conclusion:

Although there are many factors that affect the payback period of a solar system, there is still some value in calculating the payback period of your solar system so that you can determine which solar system is best for you, so that you can be more efficient and increase your financial returns.