What Is a Solar Payback Period? How to Work It Out
Payback periodAlso called simple payback
How many years it takes for what a solar system saves you to add up to what it cost. Simple payback ignores interest and future price changes.
- What the kit cost
- Savings so far, at $150 a year
At a glance
- Formula
- Cost after upfront incentives ÷ savings a year
- Simple vs discounted
- Discounted payback also counts the time value of money
- Rising rates
- Shorten payback: each kWh you don't buy is worth more
- Limit
- Doesn't show total savings after payback; net present value does
The payback period is the time in years it takes for cumulative savings to equal what you spent, as the DOE lab’s System Advisor Model defines it. The simple version, the one most calculators show, divides the system’s cost after any upfront incentives by what it saves you in a year, a method the Department of Energy walks through.
What makes payback shorter or longer?
What the system cost, how much it makes where you put it, and what each kilowatt-hour it replaces is worth. The DOE notes that the faster electricity prices rise, the shorter the payback. For plug-in solar, how much of the output you actually use at home matters too: power you send to the grid may earn nothing. Our plug-in solar calculator works it out for your state, with every assumption shown.
Is payback the right number to judge by?
It’s a quick check, not the whole picture. Simple payback ignores the time value of money; discounted payback adds it, and the SAM help says net present value is generally a better measure of whether a project pays. The DOE also suggests comparing your solar savings with other low-risk ways you could have used the money.
Published by the Plugged Sun editorial team
Related terms
Sources
- Payback Period (System Advisor Model help) (Official document, National Laboratory of the Rockies (US Department of Energy), 2026)
- Will I Save Money with Solar Energy? (Official document, US Department of Energy, 2024)