- The formula
- A worked example that is not a quote
- Why 11.5 years is not an investment study
- How to replace the example with your numbers
- Frequently asked questions
- Is simple payback the same as return on investment?
- Can I use the 11.5-year figure for my house?
- Should payback include a battery?
- Sources and references
A solar payback period is how long bill savings take to add up to what you paid. The year depends on the price at your address, how much the array produces there, how much of that energy you use while the sun is up, what your tariff pays for the rest, and what you spend to keep the system running. Two roofs with the same modules can land on different years. The worked example below is arithmetic, not a national payback.
The formula
Simple payback, in years, equals net upfront cost divided by net annual benefit.
Net upfront cost is the installed price minus only the incentives you actually qualify for this year, at this address. A credit from another country is not an input. Net annual benefit is self-consumption savings, plus export credits, minus annual operating costs. Self-consumption savings are the kilowatt-hours you use on site while generating, multiplied by the retail rate you would have paid. Export credits are the exported kilowatt-hours multiplied by the export treatment on your tariff: a kilowatt-hour credit at retail where the tariff banks them that way, or a cash sell rate where it does not. Operating costs are whatever you will actually pay to inspect, wash, or monitor. Extra fixed charges the schedule adds because you installed solar belong on that side too. If you do not have those lines, you do not have a payback.
Production should come from a site model. Pacific Northwest National Laboratory points to PVWatts when the installer did not leave monthly figures. The model already contains cloudy hours for that weather file. It is not a promise. How not to jump from a bill to a panel count is in how many solar panels a home needs.
A worked example that is not a quote
Every dollar and kilowatt-hour below is hypothetical. It is here so the division is visible. It is not a typical customer, not a US average price, and not an offer.
| Hypothetical input | Figure used only in this example |
|---|---|
| Installed cost | $15,000 |
| Incentive this buyer qualifies for | $3,000 |
| Net cost | $12,000 |
| Modeled annual production | 7,000 kWh |
| Used on site while generating | 4,500 kWh |
| Exported | 2,500 kWh |
| Retail rate in the example | $0.22 per kWh |
| Export sell rate in the example | $0.08 per kWh |
| Annual operating cost in the example | $150, for a hypothetical inspection or wash. Not a quote. |
On-site savings are 4,500 times $0.22, which is $990. Export credit is 2,500 times $0.08, which is $200. Energy benefit before operating cost is $1,190. Subtract the $150 operating cost and the net annual benefit is $1,040. Simple payback is $12,000 divided by $1,040, about 11.5 years.
Run the same production and the same $150 through a net-metering shape, where exported kilowatt-hours offset later use at the same retail rate. All 7,000 kWh are then worth $0.22, which is $1,540, and $1,540 minus $150 is $1,390. Payback becomes $12,000 divided by $1,390, about 8.6 years. The modules did not change. The tariff did. Which of those two shapes you are on is in what net metering means. Using the retail rate for exports you will actually be paid 8 cents for shortens the payback on paper only.
Why 11.5 years is not an investment study
Simple payback treats next year’s $1,040 as equal to this year’s. A discounted cash-flow analysis does not. A dollar of savings in year ten is worth less today, by a discount rate you have to choose. This article will not invent that rate. If someone hands you a single year and calls it the investment answer, ask whether they discounted anything, and whether operating costs were in the denominator.
Degradation makes the flat $1,040 optimistic if you hold it constant for a decade. Jordan and Kurtz’s review of nearly 2,000 published field rates found a median of about 0.5 percent per year and a mean of about 0.8 percent per year, with about 78 percent of reported rates under 1 percent per year. That is a literature survey, not a random sample, and not this example’s module. A payback that assumes zero loss is the cheerful version. A payback that inserts a warranty cap, such as 0.5 percent per year after year one in one buyer’s rules, is using a contract as if it were a measurement. The distinction is in how long solar panels last.
Inverter replacement is another blank in the simple division. Pacific Northwest National Laboratory describes typical inverter warranties as about 5 years, sometimes extended to 10 or 15, against panel warranties that are often 10 years and sometimes 25. Those are contract lengths in that guide, not a forecast that the inverter fails in year five. If the spreadsheet never sets money aside for a replacement, say so. Washing is similar: soiling is PNNL’s largest operations issue, and a dusty low roof can have a cost a rainy steep roof does not. There is no national wash price to drop into the formula.
A blackout is outside this formula entirely. Bill savings assume the grid is up and the tariff is paying. Outage capability is extra equipment and a separate reason to buy it.
How to replace the example with your numbers
Keep the division. Swap every row for a document: a written quote, a PVWatts run with your tilt and shade, and the tariff pages that state retail, export, and any fixed charge. If an incentive is “available in another state,” leave it out. If you cannot split self-consumption from export, do not pretend the whole 7,000 kWh of someone else’s example applies to you. The 11.5 and 8.6 figures exist to show that the tariff and the operating-cost line both move the year. They are not a target.
Frequently asked questions
Is simple payback the same as return on investment?
No. Simple payback is cost divided by annual savings. It ignores the declining value of later dollars, degradation, and a possible inverter replacement unless you add those by hand. A discounted analysis needs a discount rate you state.
Can I use the 11.5-year figure for my house?
No. The $15,000, the $0.22, the $150, and the 7,000 kWh are invented so the steps are visible. Replace each row with your quote, your weather file, your tariff, and the operating cost you will actually pay.
Should payback include a battery?
Only if you are buying one. Add its cost, and count only the bill change it actually creates under your export rules. Backup during an outage is a separate benefit and does not show up as a kilowatt-hour credit.
Sources and references
PVWatts as the estimator when monthly figures were not provided, and typical warranty lengths as contracts: Pacific Northwest National Laboratory. Median degradation near 0.5 percent per year in the surveyed literature: Jordan and Kurtz, 2012. Net metering versus net billing, which changes the export row: National Laboratory of the Rockies. All prices, rates, and kilowatt-hours in the worked example are hypothetical.
