Residential Solar Panels - Return On Investment | The Renewable Energy Hub

Residential Solar Panels - Return on investment.


Solar Panels Pay Back Period

One of the benefits of choosing a renewable energy source such as solar panels to power your home is the prospect of making a profit from it as well as reducing those all-important electricity bills. Not only is this seen in a reduction of your electricity bill because you are producing energy yourself, but you can benefit from incentives such as net metering and federal and state tax rebates and credits.

Deciding on what your return on investment will be for residential solar panels depends on a number of factors, not least in which state you are living. Other things to consider are what it costs to set up and the standard of system that is installed and how much you are going to benefit from incentives. Your roof size and the direction it faces will dictate the number of panels you can have placed there and the amount of energy you generate, as will the quality of photovoltaic cells used.

Most solar panel installations should last between 20 and 25 years with the right maintenance, and the initial cost can normally be off-set within the first 14 years in many states. There are many factors to conisder when looking at the payback period for solar panels.

The Cost of Residential Solar Panels

The initial cost of an installation will obviously vary depending on the size and quality of panels installed. A small 1 kW system will more than likely set you back between £4-5,000 whilst a bigger, more efficient 5 kW panel array will be in the region of $17-25,000.

Most people who decide to have solar panels will either fund it themselves from savings or take out a loan. There is the option to have panels installed for free through a leasing agreement in many states but you will have to hand over any incentives to the company which means you will not make any profit from generating excess electricity via net metering or where feed in tariffs are used, though you will benefit from cleaner energy and cheaper bills.

Return on Investment for a 5 kW Solar Panel Installation

Most solar panel installation across the US are going to achieve some kind of return on investment, but in some places it is better than others.

In Arizona a 5 kW array will provide the following return on investment:

  • Initial cost: $17,500
  • Federal tax credit: 30% making the price $12,250
  • Estimated energy savings in first year: $1,308
  • Net profit after 25 years: $29,244

As an indication of how things can look different in states where the electricity prices are slightly lower, here’s a look at the ROI for a 5 kW installation in Florida:

  • Initial cost: $17,500
  • Federal tax credit: 30% making the price $12,250
  • Estimated energy savings in first year: $796
  • Net profit after 25 years: $18,739

A variety of things can alter the return of investment that you get on your solar installation. There are states that have very low electricity prices which makes a good ROI less likely, though still possible, and those with higher prices which can boost net profits. Add into the mix the states that offer more incentives and greatly reduce the starting price of installation and you can see how difficult it is to find an average across the US.

For individual state costs for installing solar panels, visit our renewable energy incentives page.

Other Things to Consider

  • Generally, the larger your solar panel installation the greater the return on investment for residential properties.
  • You don’t normally need planning permission to install solar panels though you may want to check your local state or county rules.
  • Solar panels for domestic residences are available in number of different types, such as tiles or straight panels, which may affect the initial cost.
  • The cost of energy bills in many states is set to rise in the next few years so having your own supply may well provide a greater return on investment and save you more money than we have indicated here.
  • More and more energy companies in certain states are beginning to see independent suppliers as vitally important for maintaining the electricity supplied to the Grid.

When calculating the total potential savings and income offered by PV panels, it is necessary to consider a wide range of factors, including:

  • PV system size, lifespan and efficiency
  • geographical location of your property
  • roof orientation
  • roof inclination
  • the amount of shade over your roof
  • your property's eligibility for state and federal incentives

The two main ways to install solar panels:

  • Purchase outright either via savings or through a low cost state or federal loan. This gives you access to benefits such as tax and rebate incentives.
  • Lease from a solar panel installer where you benefit from clean energy and lower electricity prices but don’t make any profit on your array.

Solar panel system outputs

Depending on your energy consumption, a 4kWp solar panel system producing an estimated 3,600 kWh per annum could therefore in theory produce all of your annual energy needs. However, for an average household, it is unlikely that PV panels will produce all of the required energy; the exact proportion of the household’s energy use produced by solar panels is contingent upon energy consumption habits.

Optimise your usage of the electricity generated by your PV system

It is possible to use the excess electricity generated by your PV system to heat water and heat your property during the day, although once again the viability of this option depends on your energy consumption and efficiency. It is also possible to charge appliances that you use at night (laptops etc) during the day, at times when your PV system is generating the most energy.

Another way of storing electricity generated by solar PV systems is to use lead acid batteries. This option, although more popular with off-grid properties, is rare for grid-tied systems. What’s more, in economic and environmental terms it makes little sense: the batteries are very expensive and require the use of hazardous materials, thus making them difficult to dispose of.

Finding the Right Installer

If you want to benefit from the Feed in Tariff and turn your solar panels into an investment for the future, then you will need to employ an installer who has the right certification. You can source reputable installers through our data base and find someone who is right for the job in your area. 

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