What Is the Solar Payoff Period?

What Is the Solar Payoff Period?

Solar could be a tremendous investment in your home and your future. Saving money by generating most, or even all of the electricity you need by simply harvesting solar energy, is an outstanding prospect for many people and it’s more affordable than ever to bring this technology into your home. However, its’ still a pretty sizable investment and that can scare some people away. However, one of the advantages of solar is that it’s a self-funding investment, which means it pays for itself over time.

This is where an important solar measurement comes into play: the “payoff period.” Essentially, the payoff period is the amount of time it takes for your solar panels to essentially pay for themselves in the amount of energy they generate. Depending on where you live, how large your system is and how much you paid to have the system installed, your payoff period can fluctuate. The smaller the amount of time it takes to complete your payoff period, the more free energy you’ll be able to enjoy over the life of your solar panel system.

How the Payoff Period Works

Calculating your payoff period depends on a few key factors. They include:

  • The price you’re currently paying for energy
  • How much energy you currently use every month
  • How large of a solar energy system you purchase
  • How much your solar energy system costs to install

Let’s look at an extremely simple example case. Say you spend exactly $100 per month on your current energy bill. You’re considering purchasing a solar panel system which is going to cost you $10,000, but will eliminate a total of 90% of your total energy costs. When your system goes online, your $100 energy bill drops to $10 per month, giving you a savings of $90. At a savings of $90 per month, it will take around 111 months for the savings to equal the total cost of your solar panel installation. Broken down more simply, that’s a payoff period of nine years and three months.

Why California Has Short Payoff Periods

California residents also enjoy even further good news: most solar payoff periods in the Golden State are actually significantly shorter than this nine-year mark. The average California resident usually pays well in excess of $100 per month and in fact, bills upwards of $200 to $250 and higher are pretty normal. At $250 per month, a system that cuts down 90% of your energy costs would bump your savings to $225 per month. For that same $10,000 system, your payoff period falls to just under four and a half years.

California residents enjoy two pretty significant added benefits which even further reduce payoff period times. First, our climate is ideal for solar. With well in excess of 300 days of clear skies and bright sunlight every year, you’d be hard-pressed to find a different place in the country where solar would be more practical as an energy source. Second, California law dictates that all energy utilities must pay solar panel owners retail rates for the energy they generate. While other states allow utilities to pay wholesale rates or even smaller percentages for the energy solar customers put back to the grid, California makes sure you get paid the same amount that your energy utility would have otherwise charged you. That’s great news for offsetting night-time or peak-time energy costs and keeping your energy bills even lower.

Between both of these factors, most California residents easily have 90% of their energy costs covered by solar and a good number even have all of their monthly energy costs covered. Even during winter, the excess generated during daytimes can cover your entire energy grid energy consumption and bill credits from previous months can help cover any additional overages. You may never have to pay an energy bill again. If that’s the case and your $250 per month energy bill disappears completely, a $20,000 solar energy system could pay for itself in under seven years. That means your system will have completely paid for itself before the industry-best 25-year warranty is even halfway over!

Surging Energy Costs and Your Payoff Period

There’s one more factor we need to bring up that will also impact your solar payoff period: rising energy costs. All of these examples have ignored one important factor: energy costs are not stagnant. In fact, energy costs in California have surged at one of the highest rates in the country and are showing no signs of slowing down. If we consider an extremely conservative estimate of an increase in energy costs at one percent per year, your monthly energy bill will increase from $250 today to just under $321 per month by the time your 25-year warranty expires - an increase of $71 per month. On an annual basis, that’s $852 more per year that you’ll pay just in your electric bills.

And remember, this is an extremely conservative estimate;  many expect the actual increase to be significantly higher. When you factor in the rising cost of electricity, you could see your payoff period shrink to as little as four or five years! What would you do with all of that extra money in your pocket every month?

To learn more about switching to solar, give the experts at Valley Heating, Cooling, Electrical and Solar a call at (408) 868-5500 today.