Solar PV Systems: How to Differentiate Between the Payback Period and the ROI

What is the Payback Period for Solar PV?

The payback period is the amount of time it takes to recover your initial investment for the solar photovoltaic (PV) system. The payback period is expressed in units of time (typically years).

The solar PV system has a payback period because it will reduce or eliminate your electric bill. Plus, many times the utility will pay you for extra electricity you produce (this is called net metering). So, over time, the savings you earn from having solar will cover the cost of the initial investment.

The shorter the payback period, the better the investment, because the sooner you will start seeing a net savings.

Return on Investment for PV: What is My Solar ROI?

The return on investment (ROI) for a solar PV system is the amount of money that you earn from the savings from your electricity bill compared to the money you invested in the system. The ROI is expressed as a percentage or as a ratio (fraction).

So, in summary, the payback period just tells you how long it will take for your investment to pay for itself. The return on investment tells you how much money you will make on top of recovering your investment, over the lifetime of the solar PV system. Once you have recovered your investment, your payback period is over and you begin to experience a net gain on your investment - which is what the ROI measures.

Solar Installer: Free Estimate for Cost of Solar PV

Your best bet for determining your payback period and/or ROI is to schedule an appointment with a solar contractor. Most will provide a free assessment of your home that will not only determine whether your house’s orientation and location make it a good candidate for solar, but also how much the system will cost based on the size that you would need to fulfill your energy needs and the tax incentives available in your area. (You can even have multiple contractors assess your home, just to make sure you are getting the best information).

If you compare the estimated cost of installation (with tax incentives) with your annual utility cost savings, you can determine the payback period and ROI for both the solar photovoltaic and solar thermal systems – which should help you determine whether PVs or solar thermal is right for you.