How to Calculate the ROI of Solar Panel Installations


Want to calculate Solar ROI (Return On Investment)? Read this blog to figure out how to calculate the payback of solar energy. 

The solar energy industry is growing rapidly due to the large drop in prices for solar panel installations. When you install solar panels, the power generated by your solar panels eliminates the bills paid to the utility company.

Though the solar panel installation process may entail an extensive upfront cost, the investment quickly pays off in the energy savings over its lifespan. Adding solar panels to your home or business usually comes with a lot of benefits, but the one that you really want to know about is the Return on Investment (ROI).  Here is what you should know about calculating the ROI of solar panel installations.  

 

What are the Up-front Costs for Installing Solar Panels?

Getting a 5-kilowatt photovoltaic (PV) investment system up and running may cost between $12,000 and $20,000. This usually covers the supply as well as installation of the four components of the solar panel system. These components include solar panels for capturing the sunlight and transforming it into electricity, batteries for energy storage in case you’re not connected to the grid, an inverter for converting the generated energy from direct current (DC) to alternating current (AC). Alternating current is the form of energy your electrical equipment uses for operation. To know the start-up cost for your desired home or business solar panel installations, kindly get in touch with Solar by CIR and get support and guidance on each step.

 

What Solar Panels Incentives are there?

Here are some of the main incentive programs that make solar energy a good option in New York: 

New York net metering

Net metering is a critical policy that ensures you’re paid a fair price for the solar energy you send to the grid. The credits gained from excess power produced by your system are usually stored and recorded. This means you can use the credit in the future days or months when your energy system fails to generate enough power to meet your loads. 

The Megawatt Block Incentive Structure

This is a direct, generous incentive program for solar energy available under New York’s ambitious NY-Sun Initiative. The program offers an upfront dollars-per-watt ($/W) rebate for both residential and commercial solar panel energy systems. The size of the expected subsidy usually depends on the amount of solar energy that’s already being produced in your respective area and can possibly be as high as $1/W. 

New York State Solar Equipment Tax Credit

The tax credit can potentially reduce your state tax payments by up to 25% or a maximum of $5,000 state tax reduction. You should note that you don’t have to purchase your system to claim the credit but it also applies to you in case you already went solar with a lease or through a Power Purchase Agreement (PPA). If your tax liability is not enough to claim the whole credit within the first year, you can roll the gains to the following year. Learn more about this tax credit here

 

How do I Calculate the Return on Investment?

The ROI of your solar panels can be calculated by taking the net installation costs after one-time incentives and subtracting the cost from the projected electric bill savings and the ongoing incentives over time. This is a calculation of the cost of ownership over the life of your panel warranty (approximately 25 years) and comparing it to the cost of buying electricity from the utility company over the same period.

 

You should also note that inverters have shorter lifespans and would therefore require replacement after some years. The ROI formula is as follows: 

 

Solar ROI = Lifetime savings from the Solar Panel System – Lifetime cost of Solar Panel System

Or 

Solar ROI = Lifetime cost of electricity from a utility company- lifetime cost of Solar Panel  System           

 

If you utilize the available incentives, you should expect your solar panel system to pay off in about 7 years. This depends on the size and start-up costs of the installed system.

A great solar installer should be able to tell you about your system’s ROI. At Solar by CIR, we’re here to help you install a solar panel system that suits your needs. Kindly contact us today to learn more about how you can get started.