These days, more and more people are going for Green energy. The primary component to generate such renewable energy are the solar panels. However, the upfront cost of solar panels can be high.
That is why many consumers question how long it takes for solar panels to pay for themselves?
If you too have the same question, today I will answer it for you. I will give your answer regarding the payback period of solar panels and what factors this depends on.
How long does it take for solar panels to pay for themselves?
The payback period for solar panels is usually between 8 years to 10 years. It also depends on the state in which you live.
For example, if you live in Massachusetts or Hawaii, the payback period is just 5 years. In Louisiana and North Dakota, it can be as high as 15 years as well.
The solar payback period varies according to the state because of the weather conditions in each state. States like Hawaii and Massachusetts get a lot of sunlight throughout the year. That is why solar panels can generate a significant amount of energy. On the other hand, states like Louisiana or North Dakota do not get so much sunlight.
There are a few other factors on which this depends as well.
Before I share with you these factors, it is time to understand whether this is a good payback period or not.
Is it a good payback period?
When you look at the durability of solar panels, you will realize that they can last for as long as 25 years.
Generally speaking, if you take the average payback period to be 12.5 years, it will mean that after that, the solar panels will last for that much time more.
The payback period of 12.5 years means that you get an internal rate of return of 8%. That is the same as a stock index fund.
In some states like Massachusetts and Hawaii, the internal rate of return on the solar panel can be as high as 16%.
Considering these factors, this is undoubtedly an excellent internal rate of return.
I will help you understand the factors on which the payback period of the solar panel varies.
Which factors impact the payback period of solar panels?
The parameters which determine the payback period of the solar panels include:
1. Electricity requirement:
If the electricity requirement is small and the batteries and the solar panels you are buying are expensive, it will take a long time to earn back the cost of the solar panels.
The cost of the solar panel system will determine the payback period. Many times, there are shortages of solar panels. During these periods, the cost of solar panels increases as well.
At other times, the raw materials of the solar panels might increase in cost. In that case, you might end up buying solar panels at an expensive price.
That is why the cost of the solar panel system will determine how much time you can earn it back.
3. Incentives and rebates:
Many states offer tax credits and incentives for buying solar panels. In that case, you can earn back a significant portion of the solar panel cost and tax credits in the first year itself.
According to some of the States, you can get a tax credit equal to 26% of the installation cost. It means that you will make one of the amount by tax credit within the 1st year itself.
The problem is that this tax credit can vary from country to country as well as from state to state. That is why you have to look at the local rules and regulations and then determine how much you can get in incentives and tax rebates.
Depending on this, the payback period for solar panels can vary as well.
4. Electricity produced:
The electricity produced by the solar panels depends on a lot of factors as well. The primary among them being the availability of sunlight.
Of course, monitoring the electricity produced daily is a cumbersome task. That is why you have to look at the electricity produced over the course of the year. Once you do so, you will realize how much you save by not buying electricity from the grid.
That will help you determine the payback period of the solar panels.
The problem is that the availability of sunlight is not in your hands and therefore this is a factor which you can just a keep a watch on. You cannot do anything to modify this factor.
Nevertheless, it is an essential factor that determines the payback period of solar panels.
5. Cost of electricity in your area:
When you’re using solar panels for generating electricity, you will not have to buy electricity from the grid. The payback period of the solar panel depends on the money you saved by not having to buy the electricity units from the grid.
This is where the cost of the electricity units from the grid comes into the picture as well.
The more expensive the grid electricity is, the lower will be the payback period of the solar panels.
Therefore, before buying the solar panels, consider the cost of electricity in your area.
6. Inflationary electricity cost increase:
When you’re opting for solar panels, of course, you will be using them for 20 years to 25 years. That is why, when calculating the payback period of the solar panels, you have to look at the inflationary increase in the cost of electricity as well.
On average, the electricity cost can increase by 3% every year.
Once you take that into account, it will become easier for you to understand how much time the solar panels can payback for themselves.
Thus, these are the 6 factors on which the payback period of the solar panel depends.
Generally speaking, solar panels can pay back for themselves in around 12.5 years. After that, they can help you make a lot of money. The internal rate of return which they offer is around 8%. In some states where you get incentives and rebates, this internal rate of return can be even higher.
I often blog about various lights, including solar barn light, LED barn lights, hue outdoor light strip on my site. You can go through these posts as well to buy the best lights across these categories.