Short answer: simple payback is net system cost ÷ first-year bill savings. For a realistic number, adjust for three things: panels lose about 0.5% of output a year, electricity prices tend to rise, and exported power may earn less than the retail rate. For a 7 kW, $23,520 system in an 18¢ state, that gives a payback of about 13-15 years and 25-year savings of roughly $39,000-$56,000 before any export-credit discount.
Step 1: Net cost
Start with the installed price, then subtract any state or utility incentives. The federal homeowner credit no longer applies to systems installed after 2025 (IRS). The national average is about $3.36 per watt (Solar.com, Q3 2026), so a 7 kW system is about $23,520.
Step 2: First-year production
Use the installer’s estimate and check it with NREL’s free PVWatts calculator. Our example assumes 9,100 kWh a year.
Step 3: Value of each kWh
- Power you use yourself is worth your per-kWh retail rate (not counting fixed charges). See how to read your bill.
- Power you export is worth whatever your utility credits. Under full net metering that’s close to retail; under California’s net billing, average export values fell about 75%, from roughly 30¢ to 8¢ (Solar.com).
Blended value = (self-used share × retail rate) + (exported share × export credit).
Step 4: Adjust over time
- Degradation: NREL measured a median loss of about 0.5% a year (NREL).
- Rate increases: the EIA forecasts the U.S. average residential price rising from 17.3¢ (2025) to 18.7¢ (2027), about 4% a year over those two years (EIA). Long-term, 2-3% a year is a common planning assumption; past results don’t guarantee future prices.
- Maintenance: budget for an inverter replacement if yours is a string inverter, whose warranty often runs about 12 years versus about 25 for microinverters (Solar.com).
Worked example: 7 kW, $23,520, 18¢ per kWh, full net metering
| Rate increase per year | Payback year | 25-year savings (gross) |
|---|---|---|
| 0% | year 15 | about $38,600 |
| 2% | year 14 | about $49,200 |
| 3% | year 13 | about $55,800 |
Includes 0.5% yearly degradation. Not included: financing interest, inverter replacement (roughly a few thousand dollars, once), insurance changes, or lower export credits. At a 30¢ retail rate, payback drops to around 8-9 years.
Step 5: Financing changes everything
With a loan, compare your monthly payment with your monthly savings. A 7% loan can push the break-even point out by years. Cash typically yields the best return; see buy, loan or lease.
Quick sanity checks
- Payback under 7 years usually means high rates or generous incentives; double-check the production estimate.
- Payback over 15 years in a sunny state usually means an overpriced quote. Compare price per watt.
- Ask the installer for the assumptions behind their payback number (rate escalator, degradation, export rate).
FAQ
Does solar raise my home’s value? Owned systems often help, but it varies by market.
What’s a good payback? Anything comfortably shorter than the panel warranty (25 years) leaves years of savings.
General information, not financial advice.