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Return on Investment With Your Grid-Tied System

Return on Investment With Your Grid-Tied System

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Switching to Solar: It Just Makes Sense

One of the main reasons people switch to solar power is to save money. A grid-tied system can help offset monthly power bills or zero them out completely – utility companies may even afford a homeowner credits on their power bill for the surplus power produced. Getting the best return on investment is important for many people, so calculating that ahead of time, before you install your grid-tied solar power system, is essential.

It may seem a straightforward math equation — how long before my energy cost savings surpasses what I paid for the system? — but it’s not quite as simple as that. That’s why we’ve put together this guide to calculating the true return on investment (ROI) for solar, so you can be sure it’s the right choice for you.

How Does Solar Compare to Other Financial Investments?

First, let’s talk strictly in terms of financial investment. In a quarter of states, the solar energy return on investment surpasses the ROI for the S&P 500 stock index. In other words, your money gets a better average return on solar than the stock market. In two-thirds of all states, your solar ROI surpasses the average ROI on 30-year treasury bonds. And in 86 percent of states, your typical solar ROI beats that of 5-year certificates of deposit.

Solar Energy ROI surpasses that of the S&P 500 stock index.

These are all pretty good odds, just from a straight investment-risk perspective.

In fact, there’s only one state in the nation — Mississippi — where your investment in solar energy won’t earn you money right away, but even there you’ll eventually save money, because the average solar system produces energy for 10 to 40 years depending on what type of system you install. Your cost savings will ultimately surpass what you spend.

And how much will you spend on a solar energy system? It all depends on the following:

  • The size of your system
  • The equipment you’ll need
  • Your method of financing
  • Whether you’ll install it yourself

Much of this can be determined using our Solar Cost Calculator online, which can help you predict your wattage needs in order to power your home entirely, offset your power grid costs, or zero out your power bill entirely.

According to the Solar Energy Industry Association, the average U.S. home solar energy system cost $3.57 per watt in 2015. Using figures for the average home system, which is 5 kilowatts, that system would cost $17,850. But after federal investment tax credits, which reduce your total price by 30 percent, your final price would be $12,495.

Avg Price per watt

Keep in mind, this is just the cost of the system itself. There may be other costs associated with installation, though if you are willing to do the installation yourself, the cost of installation lowers considerably.

If you had nearly $18,000 to invest and you were assured of getting 30 percent back right off the bat, it already would seem appealing, right? And that doesn’t take into account your likelihood of making your money back quickly and ultimately making money off your investment, which research shows is quite high.

Based on those factors, a solar investment simply makes sense.

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Things to Factor Into Your ROI:

When it comes to determining your solar energy return on investment, here’s the simple formula we use:

Total cost of system ÷ Value of electricity generated ÷ Your annual electricity usage = Payback time

So let’s look at each part of this equation:

  1. Total cost of your system: Determining the cost of your system depends on your needs. We’ve provided a Solar Cost Calculator you can use to figure out what size system you need, but we roughly estimate it costs about $2/kW for a system before fees and incentives are figured in.
  2. Value of electricity generated: The average cost per kilowatt hour for solar in the U.S. is $.12.
  3. Annual electricity usage: The average number of kilowatt hours used in your household each year. The average U.S. home uses 10,812 kWh per year.

This means that a $10,000 solar energy system would pay back your investment in 7.62 years. This is about on par with the national average of 7.5 years. The average American solar user sees an ROI of 10 to 30 percent each year.

Solar Energy System Pay Back Period

Energy Returned on Energy Invested

In the early days of solar, it became popular to talk about how much more energy it took to actually make a solar panel than what it could generate in its lifetime. And in those early days decades ago, that may have been true. But make no mistake: Today, a solar panel will produce far more energy in its lifetime than it ever took to make that panel.

According to the U.S. Department of Energy, the production of solar panels and the production of fossil fuels, including mining and refining, are similar in terms of energy returned on invested energy — what’s expended to produce it versus what is generated from it. But solar power is cleaner and produces energy for a far longer period of time. The DOE says that the idea that solar systems cannot pay back their energy investment is “simply a myth.”

Bear in mind also that as technology advances, production methods improve in efficiency and lessen in cost.

Other Ways to Save Money on Solar Energy Systems

Purchasing a solar system outright is obviously the most expensive option for obtaining solar energy in your home, but it’s also the best way to take advantage of many benefits, including:

  • Tax breaks
  • Financial incentives
  • Solar renewable energy certificates

Homeowners can reduce their upfront costs by 30 or more through incentives, rebates and tax breaks. However, there are ways to mitigate that initial cost and still capitalize on the investment.

First, there are numerous ways to finance a solar power system. A solar loan may enable you to afford a solar energy system. You can begin reaping the rewards of energy savings right away, and though you will be paying the bank in installments for your loan, the interest is likely to be a tax deduction. You might even be able to find a grant to help cover your upfront solar costs. Consult the U.S. Department of Energy’s Office of Energy Efficiency and Renewable Energy to search its extensive list of grant programs and their requirements.

Getting the Best Return on Investment for Solar

At the end of the day, calculating your return on investment for a solar energy system isn’t an easy matter. It involves much more than the costs of building the system and installing it at your home. You also have to take into account the ongoing energy savings you’ll reap, the tax and other benefits you’ll have available, the improvement to your home resale value and the many benefits you’ll create for the planet and the economy.


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6 Replies to “Return on Investment With Your Grid-Tied System”

  1. Do not forget about depreciation. The IRS says to fully depreciate all expenses over 7 years.

    1. Great point Galen. Depreciation on your solar system can vary depending on your state, but MACRS gives an average depreciation payback rate of 6-7 years. However, different regions can have very different results: Oregon for example gives a depreciation estimate of 3-7 years for commercial projects. This deduction can provide a powerful tax incentive for your solar installation.

  2. Well I may be interested in upgrading my diy solar possible a grid tie inverter or even up grade my inverter to handle me 220 central unit but at the moment I’m still waiting on my first electric bill. Since we just bought a new place so once we get a few bills in hand. I will do the math and c if it’s worth investment since we live in a flood zone and have to or use to use a generator to power up the basics fridge freezer TV satelight oyeah and regular lighting but would like to c what your pricing is so if u can email a catalog if u can.


    1. Hey Richard,

      You can check out our grid-tied systems page for pricing information, and you can find pricing for some of our grid-tied inverters here. If you’d like some help choosing one, our team can help you pick which one is right for your system upgrade and help you decide if you need more panels – give us a call at 1-800-472-1142.

  3. You miss the user fees with electric companies. Our cost per Kwh is @10 cents, but there is a user fee of a month! so the total cost for a minimal user is over 20 cents a Kwh. Stretching the pay back time way out there!

    1. Hi Whit, thanks for your comment.

      Most utilities charge a monthly connection fee of around $25 although this can vary depending on the area. This fee does not significantly impact your price for power unless your power usage is very low, or if your utility charges a large monthly fee.

      It’s important to consider that you will still pay the utility’s monthly connection fee, however, for most of our customers the fee is very small compared to their total bill and doesn’t significantly impact their investment in solar.

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