# Solar Power ROI — How to Calculate the Payback on a PV System

Most Washington homeowners have heard that solar power offers a good return on investment. But how long will it actually take to reach the break-even point on a PV system?

While the payback period for photovoltaic installation can vary, the typical timeframe isn’t well over a decade – that’s a myth. People who invest in solar power often start earning a profit in much less time. But rather than take our word on the matter, why not do a little simple math? Here’s how to calculate the ROI of a PV system.

## Determine the Total Cost of the PV System

To begin, you need the total cost of the photovoltaic installation. This includes not only the solar panels, inverter, mounting racks, wiring and other components, but also the labor expenses, permit fees and financing charges. As an easy example, let’s say that adds up to \$15,000.

Washington homeowners can take advantage of several financial incentives for adopting solar power, and these need to be figure in. To make the math simple, let’s say the federal solar tax credit, the state sales tax exemption and other incentives add up to \$7,000.

Next, take the total cost of photovoltaic installation and subtract the total amount of the solar incentives:

\$15,000 – \$7,000 = \$8,000

In our example, the actual cost of the PV system would be \$8,000. Remember this figure, as it’ll come into play later.

## Consider the Amount of Annual Energy Savings

Now you need to think about energy consumption and how much the homeowner spends on electricity each year. According to the U.S. Energy Information Administration, the average household monthly bill is \$117.46 – which makes the yearly total \$1,409.52.

However, a PV system may not provide all of a home’s electricity. So, you need to factor in the generation capacity when calculating energy savings. For instance, if the solar panels cover 75 percent of the household energy needs, the savings would be 75 percent of the total yearly electricity costs.

Using the yearly total above, here’s how the math works out:

\$1,409 x 0.75 = \$1,057.14

So, the actual energy savings here would be \$1,057.14 – and that’s the last number we need to calculate the ROI of a PV system.

## Divide to Estimate the Solar Power Payback Time

To figure out how long it will take to reach the point of payback on solar power, you need to take the total cost of photovoltaic installation and divide by the amount of yearly energy savings – the result is the number of years it will be before the PV system earns a profit.

Using our numbers from above, let’s look at the math. First, if the solar panels are generating all of the household electricity:

\$8,000 ÷ \$1,409.52 = 5.68 years

For Washington homeowners with solar panels that provide 75 percent of the energy they need:

\$8,000 ÷ \$1,057.14 = 7.58 years

Keep in mind, though, that we’ve simplified the calculations here. Other factors can affect the solar power payback period, so for a more accurate estimate, homeowners need to consult with a local expert.

## Let Nationwide Solar Be Your Solar Power Guide

Rather not do any math? The friendly and knowledgeable team at Nationwide Solar, a leading local solar company, would be happy to calculate the payback period for a PV system at your Washington home.

Let us put our extensive experience in photovoltaic installation to work for you – contact our office and schedule a free residential solar power consultation today.

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