Calculate your solar payback period with ITC, rate escalation, panel degradation, SREC income, and IRR. Free solar payback period calculator with 25-year ROI projection for solar professionals.
Our calculator uses industry-standard financial formulas with year-by-year modeling of rate escalation, panel degradation, SREC income, and the time value of money.
Net System Cost
Net Cost = Gross Cost - ITC Amount - State Rebate - Other Incentives
Simple Payback
Simple Payback = Net System Cost / Year 1 Annual Savings
Year Y Savings (with escalation & degradation)
Savings(Y) = Year1Savings × (1 + RateEscalation)^(Y-1)
× (1 - Degradation)^(Y-1)
+ SREC Income - O&M Cost
Adjusted & Discounted Payback
Adjusted Payback = Year when Cumulative Savings ≥ Net Cost
Discounted Payback = Year when Σ [Savings(Y) / (1+r)^Y] ≥ Net Cost
25-Year ROI & IRR
25-Year ROI = (Total Savings - Net Cost) / Net Cost × 100%
IRR = rate r where NPV = -Net Cost + Σ Savings(Y)/(1+r)^Y = 0
Adjusted payback with rate escalation is typically 0.5–2 years shorter than simple payback. Discounted payback is 1–3 years longer due to opportunity cost of capital. Panel degradation of 0.5%/year (NREL median, monocrystalline) means year 25 output is ~88% of year 1.
Worked example: A $28,000 system in Florida (5.0 PSH, $0.13/kWh). After 30% federal ITC: net cost = $19,600. 10 kW system generates 14,600 kWh/year. Annual savings: 14,600 × $0.13 = $1,898. With 3% annual utility rate escalation, cumulative savings pass $19,600 in year 9.2. Simple payback without escalation: $19,600 / $1,898 = 10.3 years.
Calculations sourced from SurgePV’s Payback Period Calculator — surgepv.com/tools/payback-period-calculator/
Typical payback periods for a residential solar system by state. Without the federal ITC, payback ranges from ~6 years in high-rate states to 14+ years in low-rate states.
| State | Avg Rate | Payback (No ITC) | Payback (Pre-2026 w/ ITC) | Key Driver |
|---|---|---|---|---|
| Hawaii | $0.38/kWh | ~5.8 yrs | ~4.1 yrs | Highest rates in US |
| California | $0.32/kWh | ~7.2 yrs | ~5.1 yrs | High rates + excellent sun |
| Massachusetts | $0.23/kWh | ~8.0 yrs | ~5.6 yrs | SREC income + high rates |
| New Jersey | $0.17/kWh | ~8.5 yrs | ~6.0 yrs | SREC income supplements savings |
| New York | $0.20/kWh | ~9.0 yrs | ~6.3 yrs | NY-Sun incentives |
| Florida | $0.13/kWh | ~9.5 yrs | ~6.7 yrs | Excellent sun, lower rates |
| Arizona | $0.14/kWh | ~9.8 yrs | ~6.9 yrs | Excellent sun |
| Texas | $0.12/kWh | ~10.5 yrs | ~7.4 yrs | No state income tax benefit |
| Nevada | $0.11/kWh | ~11.0 yrs | ~7.7 yrs | Good sun but reduced NEM |
| Utah | $0.11/kWh | ~13.0 yrs | ~9.1 yrs | Low rates, poor NEM |
| Louisiana | $0.10/kWh | ~14.5 yrs | ~10.2 yrs | Lowest rates in US |
| US Average | $0.16/kWh | ~10.5 yrs | ~7.4 yrs | — |
"With ITC" data is for historical reference (pre-Dec 31, 2025 residential installs). New residential installs in 2026 do not qualify for the 30% federal ITC.
ITC Is Gone for 2026 Residential
The residential 30% ITC expired December 31, 2025. Sales professionals still quoting 30% ITC are providing inaccurate proposals. For 2026 installs, payback extends by ~43%. State incentives and SRECs matter more than ever.
Simple Payback Understates Solar
Dividing net cost by Year 1 savings ignores electricity rate escalation. With 3% annual rate increases, solar savings grow every year. Including escalation shortens payback by 0.5–2 years — a meaningful difference.
Financed Solar Can Be Cash-Flow Positive Day One
For homeowners with bills above $150/month, financed solar often saves more per month than the loan payment. Model monthly cash flow explicitly rather than just showing payback years in the abstract.
Don't Forget SREC Income
In NJ, MA, MD, IL, and DC, SREC income can add $500–$3,000+/year. A NJ 10 kW system earns ~10 SRECs/year at ~$220 = $2,200/year on top of energy savings. Missing SRECs understates ROI by up to 50%.
The solar payback period (also called break-even point) is the number of years it takes for your accumulated utility savings to equal your total upfront investment. After the payback year, every dollar your system saves is pure profit. A typical US residential solar system pays back in 8–13 years without the ITC (2026+). After payback, a 25-year system still has 12–17 years of essentially free electricity.
The 30% federal residential solar ITC expired December 31, 2025, under the One Big Beautiful Bill Act. For residential homeowners who did not have their system installed and operational by December 31, 2025, the credit is no longer available. Without the ITC, residential solar payback periods extend by approximately 43%. Commercial solar projects may still qualify if construction began before July 4, 2026 — consult a tax professional.
Simple payback divides your net system cost by Year 1 annual savings — fast to calculate but it ignores two things: (1) electricity rate escalation, which means your savings grow each year (shortening actual payback), and (2) the time value of money. Discounted payback accounts for time value of money using a discount rate (typically 5–8%). Discounted payback is typically 1–3 years longer than simple payback and is the more financially rigorous metric.
Electricity rates have risen an average of 2.5–3% per year in the US over the past 20 years. Since your solar savings are tied to the retail rate, every rate increase makes your solar system more valuable and shortens your effective payback period. A system saving $2,000/year at today's rate will save $2,620/year in 10 years at 3% annual escalation — accelerating your break-even.
For a financed system, the payback concept shifts. Instead of asking "when do I recoup my investment?", you ask "is my monthly loan payment less than my monthly savings?" When yes, you're immediately cash-flow positive. The longer-term question: total savings over 25 years vs. total loan cost (principal + interest). Solar almost always wins in states with rates above $0.12/kWh.
SRECs (Solar Renewable Energy Credits) are certificates representing 1,000 kWh of solar generation. In states with active SREC markets (NJ, MA, MD, IL, DC, PA, OH), utilities buy SRECs to meet sourcing requirements. An 8 kW system producing ~9,600 kWh/year earns ~9.6 SRECs/year. In New Jersey at ~$220/SREC, that's $2,112/year in additional income — potentially halving your payback period.
To maximize payback speed, size for your current usage only (90–100% offset). To maximize 25-year savings, size for future usage including EV charging and heat pumps. If you plan to add an EV within 3 years, size for that future usage now. If optimizing purely for speed of payback, stay at 90% of current usage.
Solar panels lose about 0.5% of generating capacity each year (NREL median for monocrystalline). By year 25, a system produces ~88% of year 1 output. However, rate escalation (3%/year) outpaces degradation (0.5%/year), so year 25 dollar savings are still much higher than year 1. Net effect: degradation adds approximately 0.2–0.5 years to the payback calculation.
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