In finance an investment’s payback period is the time it takes to recover the initial investment through the cash flows it produces. You can use this financial measure when considering an investment in solar energy. The non-monetary benefits of owning a renewable energy system (independence, environmental impact, etc.) are enough for some people but others will be financially motivated. Solar panels have an expected lifetime of 30-40 years meaning that the PV system will continue to deliver benefits long after it has paid for itself.
The following variables have an impact on the payback period of a PV system.
– System Type (Off Grid vs. Grid Tied)
– Cost of Alternative Power (utility power, generator)
– Installed Cost per watt of your PV system
– System Efficiency
– Peak Sun Hours
– Rebates and Incentives
Here are some examples of PV system Payback Periods
Example 1 – 10,000w Grid Tied system in Florida.
10,000w Grid Tied System | ||
Cost of Electricity | 0.117 | /Kwh |
System Size | 10000 | Watts |
Peak Sun Hours | 5 | Hours |
System Efficiency | 83% | |
Installed Cost Per Watt | $2.75 | |
Rebate and Incentive % | 30% | |
Initial Investment | $13,750 | |
Rebates and Incentives | -$4,125 | |
Actual System Cost | $9,625 | |
Estimated Annual Electricity Savings | $1,772 | |
Payback Period | 5.43 | Years |
Example 2 – 5000w Grid Tied system in Kaui, Hawaii
5000w Grid Tied System | ||
Cost of Electricity | 0.55 | /Kwh |
System Size | 5000 | Watts |
Peak Sun Hours | 5 | Hours |
System Efficiency | 83% | |
Installed Cost Per Watt | $2.75 | |
Rebate and Incentive % | 30% | |
Initial Investment | $13,750 | |
Rebates and Incentives | $4,125 | |
Actual System Cost | $9,625 | |
Estimated Annual Electricity Savings | $4,166 | |
Payback Period | 2.31 | Years |
Example 3 – 5000w Grid Tied system in Arizona.
5000w Grid Tied System | ||
Cost of Electricity | 0.111 | /Kwh |
System Size | 5000 | Watts |
Peak Sun Hours | 6.5 | Hours |
System Efficiency | 83% | |
Installed Cost Per Watt | $2.75 | |
Rebate and Incentive % | 30% | |
Initial Investment | $13,750 | |
Rebates and Incentives | -$4,125 | |
Actual System Cost | $9,625 | |
Estimated Annual Electricity Savings | $1,093 | |
Payback Period | 8.81 | Years |
Example 4 – 8000w Off Grid System in Jamaica.
8000w Off Grid System | ||
Cost of Electricity | 0.39 | /Kwh |
System Size | 8000 | Watts |
Peak Sun Hours | 5 | Hours |
System Efficiency | 75% | |
Installed Cost Per Watt | $4.00 | |
Rebate and Incentive % | 0% | |
Initial Investment | $20,000 | |
Rebates and Incentives | $0 | |
Actual System Cost | $20,000 | |
Estimated Annual Electricity Savings | $4,271 | |
Payback Period | 4.68 | Years |
Example 5 – 8000w Off Grid System in Roatan, Honduras.
8000w Off Grid System | ||
Cost of Electricity | 0.52 | /Kwh |
System Size | 8000 | Watts |
Peak Sun Hours | 5 | Hours |
System Efficiency | 75% | |
Installed Cost Per Watt | $4.00 | |
Rebate and Incentive % | 0% | |
Initial Investment | $20,000 | |
Rebates and Incentives | $0 | |
Actual System Cost | $20,000 | |
Estimated Annual Electricity Savings | $5,694 | |
Payback Period | 3.51 | Years |