One of the biggest questions people have about installing solar panels is ‘how long will my solar panels take to pay for themselves?’ In technical terms, this can be called system payback time.
As the cost of electricity rises and solar panel prices fall, it may take less time than you think to recoup the cost of a solar system. Some solar panel installation experts estimate it can take as little as six to 10 years to recoup the initial investment.
Thanks to federal rebates, and net metering, there are many ways that solar panels can save you money, especially over a long period of time.
The best way to calculate how long it takes to achieve system payback is to consider three variables:
- Up-front cost of the solar panel system
- Incentives that reduce that initial cost (such as state or federal rebates)
- Ongoing savings from net metering
What rebate incentives are available for solar panel installation?
Without considering net metering, there are also other incentives that can greatly affect the cost of the solar panels.
In California, the cost of solar has dropped over the last 5 years, so SCE and SDG&E no longer offer upfront rebates to install solar panels on your home (other than some specific low-income and multi-family programs).
But there is still good news. In late 2015, Congress approved the 2016 federal spending bill and extended the solar panel tax credit. The bill contained a 5-year solar tax credit extension, which makes solar more affordable for all Americans. The tax credit is now available to homeowners in some form through 2021.
Here is the breakdown:
- 2016 – 2019: Tax credits remains at 30 percent of the cost of the system. This means that in 2018, you can still get a major discounted price for your solar panel system.
- 2020: Owners of new residential and commercial solar panel systems can deduct 26 percent of the cost of the system from their taxes.
- 2021: Owners of new residential and commercial solar panel systems can deduct 22 percent of the cost of the system from their taxes.
- 2022 onwards: Owners of new commercial solar energy systems can deduct 10 percent of the cost of the system from their taxes. After 2022, there is (currently) no federal credit for residential solar energy systems.
How does net metering for solar panels work?
Electricity is sold and measured in kilowatt hours (kwh). A kilowatt-hour is the equivalent of 1,000 watts of electricity used continuously for an hour. In 2016, the average annual electricity consumption for a U.S. residential utility customer was 10,766 kilowatt-hours (kWh), an average of 897 kWh per month, or approximately 29 kWh per day.
When a solar panel system produces more power than what is being used in the home, the excess power is sent back to the grid. This is then credited by your utility provider at the retail power rate per hour. This is known as net metering.
Each kWh of power your solar system exports offsets the cost of another kWh drawn from the grid at a time your solar system couldn’t produce power (at night or on cloudy days).
Net Metering 2.0 makes a few minor changes to California’s original net metering policy, but it preserves the key element that makes solar economical for California residents: retail rate bill credits. Homeowners and businesses that enroll in NEM 2.0 will still receive per-kWh credits for their solar electricity that are equal to the value of a kWh of utility electricity. This means that the economics of solar are still very favorable under NEM 2.0.
Net metering can prove to be a very valuable incentive since a lot of homeowners use less power during the day. Therefore quite a lot of the solar power generated can be exported back to the grid.
Net metering essentially gives you the financial benefit of storing solar power in a virtual battery without the cost of needing to install a battery.
In summary, the sooner a homeowner decides to install solar panels, the more ability they have to save via rebates.
This is just one more reason, above and beyond the environmental factors that encourage many people to choose solar panels for their home.