Solar ROI Calculator

Is solar worth it? Get IRR, NPV, payback period, and 25-year return on investment.

Investment details

Net system cost?

Year 1 annual savings?

Growth & discount assumptions

Electricity rate escalation?

%/yr

Panel degradation?

%/yr

Discount rate?

Solar return on investment (25 years)

11.2% IRR · 241% total ROI

Simple payback10.0 years

Actual paybackYear 10

25-year savings$61,365

NPV at 5%$14,531

A solar IRR of 11.2% compares favorably to stock market returns (historically 7-10%). Positive NPV confirms this is a value-adding investment.

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How to Use This Calculator

Enter your investment numbers

The two most important inputs are your net system cost (after all incentives) and your year 1 annual savings. Year 1 savings = your annual solar production in kWh × your electricity rate. Use the Solar Panel Calculator and Solar Cost Calculator to derive these numbers accurately.

Set your assumptions

Three assumptions drive the long-term projections: electricity rate escalation (how fast rates rise), panel degradation (how much output declines per year), and the discount rate (your cost of capital for the NPV calculation). Sensitivity to these assumptions is large — changing escalation from 2% to 4% can increase 25-year IRR by 3-5 percentage points.

Understand IRR vs. ROI vs. NPV

IRR (Internal Rate of Return) is the annualized return on your investment, comparable to a stock or bond yield. A solar IRR of 8-12% is typical in moderate-to-high electricity rate areas. ROI is the simple total percentage return over 25 years. NPV (Net Present Value) shows the value of all future savings discounted to today's dollars — positive means the investment adds value at your discount rate.

The Formula

Simple Payback = Net Cost ÷ Year 1 Savings Year N Cash Flow = Year 1 Savings × (1 + Escalation)^(N-1) × (1 - Degradation)^(N-1) NPV = -Net Cost + Sum[Year N Cash Flow ÷ (1 + Discount Rate)^N] for N=1 to 25 IRR = Rate r where NPV = 0 (solved numerically) Total ROI = (Sum of all 25-year savings - Net Cost) ÷ Net Cost × 100%

The IRR calculation uses Newton-Raphson iteration to find the discount rate that makes the NPV equal to zero — this is the true annualized return. A solar project with a positive NPV at your discount rate is financially justified. IRR above 8% is generally considered an excellent risk-adjusted return for a 25-year guaranteed investment.

Example

ROI comparison — Boston, MA

Tom has a $18,000 net cost system (after ITC) generating $2,200 in year 1 savings (Massachusetts electricity at $0.25/kWh). He assumes 3.5% rate escalation and uses a 5% discount rate.

Net system cost$18,000

Year 1 savings$2,200

Simple payback8.2 years

Actual paybackYear 7 (w/ escalation)

25-year IRR11.8%

NPV at 5%+$22,400

An 11.8% IRR significantly outperforms bonds (4-5%) and approaches stock market returns (7-10%) but with far less volatility — solar savings are guaranteed by physics, not market sentiment. The positive NPV of $22,400 means this investment adds over $22,000 in present-value terms above Tom's 5% hurdle rate.

FAQ

Is solar a good investment compared to stocks? ▼

Solar typically delivers 7-14% IRR depending on location and electricity rates — comparable to historical stock market returns but with much lower risk. Solar's returns are quasi-guaranteed by physics (the sun shines), while stock returns are volatile and uncertain. Solar is also a hedge against electricity rate inflation, which stocks don't provide. For homeowners with high electricity costs, solar is often the highest-returning investment they can make.

What is NPV and why does it matter for solar? ▼

Net Present Value (NPV) adjusts future savings to today's dollars using a discount rate. A dollar saved in year 25 is worth less than a dollar saved today (because you could have invested that dollar). NPV tells you whether the total present value of future savings exceeds the upfront cost. A positive NPV at your chosen discount rate (typically 5-7%) means solar is mathematically a good use of your money versus the alternative investment.

What's a good solar IRR? ▼

A solar IRR above 7% is generally considered excellent — it beats bonds and matches long-term stock market averages with much less risk. IRR of 8-12% is common in moderate-to-high electricity rate states. Below 5% suggests the economics are marginal; consider if there are better state incentives available. Above 15% indicates exceptional value — common in Hawaii, California, and Massachusetts with high utility rates.

Does solar ROI change if I sell my house? ▼

When you sell, the remaining value of the solar system is typically reflected in a higher sale price (studies show $4/W premium). You don't lose the savings you've already accumulated — they're in your pocket. The new owner benefits from the remaining system life. If you have a solar loan, it may need to be paid off at closing or transferred to the buyer. Owned systems are far easier to transfer than leases.

What are the risks to solar ROI? ▼

Key risks: (1) Net metering policy changes — utilities can reduce export compensation; (2) Lower-than-projected electricity rate increases; (3) Shading or soiling reducing production; (4) Inverter failure (typical 10-15yr lifespan, $2,000-5,000 replacement); (5) Moving before payback. Mitigations: battery storage hedges against net metering changes; monitoring systems catch production drops; inverter warranty coverage is included in most quotes.