First of all, switching to solar is a wise decision. It reduces your home’s carbon footprint and saves you money on your electric bill. But a solar system is also a costly investment which is likely why you’re asking: How long does it take to pay off solar panels?
The short answer is that, on average, most solar panels will pay for themselves within 3-6 years. Although, this range can be shorter or longer depending on a few factors. I’m discussing them as well as a couple of other topics listed below. Ready? Let’s go!
- What exactly is the solar payback period for solar panels?
- How long is the average solar panel payback period?
- How to calculate your solar payback period?
- Factors that may affect the solar payback period
What exactly is a solar payback period?
The solar payback period is the time it takes for solar systems to recoup the cost of the installation. In other words, it’s when your savings have equaled the amount it took to have your solar system installed.
Once this payback period has passed, you can enjoy free electricity from your solar panels while saving even more money for the long term.
That being said, the cost of installation is going to be lower if you had rebates from the government, also known as STCs. The more STCs you have, the more rebates you get – which potentially shortens your payback period.
There are several eligibility requirements to get STCs, though. One of the most important ones is that your installer is CEC-accredited. So, if you need help, we have a network of pre-vetted installers you can use. We can get you 3 FREE quotes right now.
What is the average payback period in Australia?
To be honest, it’s difficult to quantify the exact average because there are so many factors involved (more on this later). From our observation, though, it can be anywhere from 3-6 years.
But, really, we’d go so far as to say that 6-10 years is still a good solar payback period. After all, today’s modules will give you 25 good years of renewable energy.
If you want to do the math, you could calculate your own solar payback time, too.
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Here’s how you can calculate your solar payback period:
To calculate your solar payback period, divide your solar panel installation’s total cost by the annual savings you expect to make on your energy bill.
That being said, we have a sample savings profile where you can get a glimpse of how much money you can save per kilowatt (kW) of your system.
For today’s example, though, let’s say you’re installing a 6 kW solar system that cost you $6000, and you’re saving $1215 per year. That’s going to give you a solar payback period of just under 5 years. Here’s how I computed that:
- Total system cost ÷ Annual savings = Payback period
- $6000 ÷ $1215 = 4.938 years
- 4.938 years = Payback period
Granted, this is oversimplified. In the real world, numerous factors can affect your solar panel payback period.
5 factors that affect solar payback periods
The Australian government offers multiple incentives for installing solar panels such as rebates, tax credits, and feed-in tariffs. Of them all, what affects your payback period the most is rebates (or STCs).
As I mentioned earlier, eligible households will receive varying numbers of STCs. The government has an STC calculator that you can use but, all in all, how many STCs you can get depends on:
- Where your home is. Every state has its policies on STCs, so where you install your system matters.
- When your solar system will be installed. The deeming period for solar panels lasts until 2030. The sooner you have your solar system installed, the more STCs you get.
- How big your solar system will be. Larger solar panels will receive more STCs. Although, the limit is 100 kW (which is HUGE, by the way).
The value of STCs also fluctuates. You can check its current value through the Green Energy Markets but, as of right now, it’s at $39.90.
2. Your solar system’s components
In general, higher-quality components will last longer and will result in a more efficient system. This, in turn, gets you a shorter solar panel payback period as well as a higher return on your investment (ROI).
Here’s a list of key components you will need for your solar system, as well as how they can affect your solar panel payback period:
- Solar panels: The 2 most common types used in residential applications are monocrystalline and polycrystalline. Monocrystalline is more efficient and more durable but also more expensive.
- Inverters: There are 4 different types but string inverters are the most commonly used because they’re affordable and easy to install. If you have shade issues, though, you’ll have a better payback time with microinverters or power optimizers.
- Mounting: Durable mounting systems will also amplify the strength of your solar array – which is crucial for Australia’s extreme weather. Some mounts also adjust the angle of your array for more efficient power production. The less you have to worry about maintenance and the more energy you produce, the shorter your payback time.
- Battery: Solar batteries are optional but having them to store your excess energy also makes you capable of maximizing your usage. It’s a powerful way to save money despite the added cost.
3. System size
Another significant factor that affects the payback period for your solar panel system is the size of your system. In other words, how many kilowatts (kW) your system is rated for.
A larger system will generate more solar energy. Consequently, this lowers your electricity bill and potentially shortens your payback period.
I say potentially because oversizing your system, especially without a battery, will unnecessarily increase your total system cost.
4. The amount of solar power you produce
The more power your solar system can produce, the lower your electricity bills. This means you save more money and get a shorter solar panel payback period.
The size and quality of your solar system can affect this but so will other factors, including:
- The angle and direction of your solar array
- Shade, dirt, and other things that block your modules from getting sunlight
For further reading:
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5. Your energy usage and the cost of electricity
Your energy usage and the overall cost of electricity are two key factors to consider when evaluating the financial benefits of a solar panel system.
Based on your current energy usage, you can estimate how much electricity your solar panel system will need to generate to offset your utility bills. On that note, you also need to know how much the electricity rates and prices are in your area.
This will help you better gauge your potential savings and how long it’s going to take for your solar system to pay for itself.
How Long Is The Average Payback Period?
The average payback period for a solar panel system is 3-6 years but 6-10 years is still considered a good range.
What Happens After You Pay Off Solar Panels?
After the payoff period for a solar loan has ended, you can savor free electricity from your solar panels and carry on with even more solar savings.
Is It Better To Pay Cash Or Finance Solar Panels?
Paying cash for a solar panel system can offer short- and long-term savings. In the short-term, installation costs are cheaper when paid for in cash. In the long run, paying in cash lets you avoid any additional charges that come with financing.
For more information on solar financing, check out our Solar Panels 101 guide.
In conclusion, the payback period for solar panels is 3-6 years on average. But, it also depends on various factors, including system size, location, and installation cost.
Calculating the estimated solar payback period for your solar system is easy, too. Just use the example and equation I gave above for reference.