How To Calculate ROI On Your Solar Panel Investment

how to calculate roi in your solar panel investment

With growing concerns about climate change, solar panels are becoming a more and more popular energy solution. However, let’s not kid ourselves into thinking that we install solar panels for purely altruistic reasons. While solar panels are better for the environment, not having to pay an electric bill is an enticing quality. So, what steps should you take to figure out your return on investment for your new solar panels?


To calculate your ROI and how long it will take for your ROI, you’ll need:


  • How much your electric company charges you per kilowatt
  • How many kilowatts you use in a year
  • How much sunlight your area gets per month
  • How much the solar panels and installation will cost you

Calculate what you pay per kilowatt yearly


The average price per kilowatt in Massachusetts is around 22.57 cents, which is the third-highest rate in the county. While that is no fun at all normally, this makes your ROI much higher in the long run. Furthermore, the average electric usage per month is in the neighborhood of 580. So, first, we need to figure out what you pay per year. Again, your electric company could just give you this information, but let’s say you use an average of 600 kilowatts of electricity every month.


600 x 12 = 7200 kilowatts a year


Now, if we multiply that by .2257 that gives us a yearly cost of $1625.04. This is the number that you could potentially be saving yearly.


Calculate the hours of sunlight to figure out what kind of solar panel you need


In Massachusetts, solar panel installation, on average, will run you somewhere between $13,000 and $17,500, or in the neighborhood of $3.10 per watt. To figure out what solar panel you need, and thus figure out the price range, you’ll need:


  • Your monthly wattage
  • How many hours of sunlight you’ll get on average

Though this changes per year, Massachusetts averages 219.5 hours of sunlight per month (as high as 300 in the summer months, as low as 140 in winter months, specifically November and December). So, using our numbers earlier, you are going to take your monthly wattage and divide that by your daylight hours. I’d recommend rounding down on peak sunlight hours to account for the winter months.


600/180 = 3.33333*


So, you’ll probably want a solar panel that can draw about 4000 watts of power. Now, taking that per watt cost into account:


4000 x 3.10 = 12400


So, the cost of installation of your solar panels would be in the range of $12,000 to $13,000 for a 4K system. Higher wattage systems will cost more.


Calculate Your ROI


Now comes the good part: how long will it take you to begin profiting from your solar system? We know that our electric bill is roughly $1625.04, and it is going to cost us roughly $12400 to install our 4K system. So, we simply need to do some division.


12400/1625.04 = 7.63 rounded up


It’ll take you a little over 7 and a half years to pay off the solar system. Once you have, though, that $1625 you saved will be all profit, and considering that most professionally installed solar panels last for up to 25 years, you’ll have 18 years of savings totaling $29,250!


Tax Breaks


There are also federal and state tax breaks that can help you profit even further. The current federal tax credit is around 26%, so the 4K solar panel above would give you a tax credit of around $3224, which would knock two years off the time it takes to see a return, upping your total return to $32,500! Massachusetts offers a state credit of 15%, capping at $1,000. The above example would meet that cap, saving you an additional $1,000. There are more tax exemptions and incentives in the state of Massachusetts, so just do your research on that as well.


A professionally installed solar system may seem to have a daunting price, but the ROI can lead to some pretty significant numbers!


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