Click your state to auto-fill sun hours, electricity rate, and state rebates. Or enter custom values for precise results.
2
Enter System Size & Cost
Enter your system size in kW and total installed cost. Get quotes from 3 installers — prices vary 20–30% by region and company.
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Compare Cash vs Loan
Toggle the Financing switch to model a solar loan. See how monthly payments affect your IRR and NPV versus buying outright.
Formula & Methodology
Annual Energy Production & Savings
Annual kWh = System kW × Sun Hours/Day × 365 × 0.80 (efficiency factor)
The 0.80 factor accounts for real-world losses: inverter efficiency (~97%), temperature derating (~95%), wiring losses (~98%), and soiling (~97%). A 6 kW system in California (5.5 sun hrs): 6 × 5.5 × 365 × 0.80 = 9,636 kWh/year. At $0.24/kWh: $2,313/year in savings.
Net Present Value (NPV)
NPV = −Net Cost + Σ (Savings_N / (1+r)^N) for N = 1 to lifespan
NPV converts all future savings to today's dollars using the discount rate r. Each year's savings are discounted by (1+r)^N. A positive NPV means the investment beats your opportunity cost (the discount rate). A negative NPV doesn't mean solar is "bad" — it may mean your discount rate is too high or savings estimate is conservative.
Kilowatt-peak — the rated power output of solar panels under Standard Test Conditions (1,000 W/m² irradiance, 25°C). Real output is typically 75–85% of kWp.
Peak Sun Hours
Hours per day when solar irradiance equals 1,000 W/m². Arizona gets ~6.0 hrs, New England ~4.0 hrs. Not the same as daylight hours — a 10-hour day may only have 5 peak sun hours.
Net Metering
A utility billing mechanism where excess solar energy exported to the grid is credited at the retail rate, effectively running your meter backward. Policies vary significantly by state and utility.
ITC (Investment Tax Credit)
The 30% federal tax credit on full solar system cost (including labor and inverter), available through 2032. Steps down to 26% in 2033, 22% in 2034. A direct credit, not a deduction.
IRR (Internal Rate of Return)
The annualized return rate of the investment — the discount rate that makes NPV = 0. IRR > 10%: excellent. 7–10%: strong. 4–7%: moderate. < 4%: marginal.
Degradation Rate
Solar panels lose ~0.5% output per year. After 25 years, panels typically produce ~87.5% of original rated output — factored into year-by-year projections.
Real-World Examples
Example 1
6 kW Residential System — Phoenix, Arizona
System cost: $18,000 · After 30% ITC: $12,600 net · 6.0 sun hrs/day · Annual production: 10,512 kWh · At $0.13/kWh: $1,367/year savings
System cost: $24,000 · After ITC + $1,000 state rebate: $15,800 net · 4.0 sun hrs/day · Annual production: 9,344 kWh · At $0.23/kWh: $2,149/year
Result: Simple payback 7.4 yrs · IRR 11.2% · 25-yr NPV: +$18,400 · High electricity rates make New England excellent for solar despite fewer sun hours.
The Investment Tax Credit (ITC) dramatically improves solar economics. On a $20,000 system, you receive a $6,000 federal tax credit — not a deduction, but a direct dollar-for-dollar reduction in your tax bill. This single factor reduces payback periods by 3–4 years and can turn a marginal investment into an excellent one. The 30% rate is available through 2032, making the next several years the optimal window for installation before the step-down to 26% in 2033.
Net Metering: Why Electricity Rate Matters More Than Sun Hours
Counter-intuitively, the highest-return solar markets are often not the sunniest. California, Massachusetts, and New York — with electricity rates of $0.22–$0.30/kWh — deliver better NPV than sunny Arizona ($0.13/kWh), even with fewer annual sun hours. Every kWh your solar panels produce is worth your retail electricity rate. States with strong net metering policies (like New Jersey, Maryland) and high rates are where solar ROI is most compelling. Always verify your utility's specific net metering policy and buyback rate before calculating your ROI.
The Real Math: Why Most "Payback Calculators" Are Wrong
Simple payback (net cost ÷ Year 1 savings) ignores three critical factors: (1) electricity inflation — utility rates have risen 3.5% annually on average since 2000, compounding savings in later years; (2) the time value of money — a dollar saved in Year 15 is worth less than a dollar saved in Year 1; (3) panel degradation — production declines slightly each year. NPV and IRR correct for all three. A system showing a 9-year simple payback might have an IRR of 10%+ because electricity savings compound dramatically over 25 years while the initial cost is fixed. Use this calculator's Scenario Analysis tab to see how sensitive your returns are to different assumptions.
Frequently Asked Questions
What is NPV and why does it matter for solar?
Net Present Value (NPV) converts all future solar savings into today's dollars using a discount rate. A positive NPV means the investment creates real value above your opportunity cost; negative NPV means you'd do better putting the money elsewhere at your discount rate. NPV is superior to simple payback because it accounts for the time value of money and electricity escalation. Two investments with the same payback period can have very different NPVs if their cash flows differ in later years.
What discount rate should I use?
The discount rate represents your opportunity cost — what you could earn elsewhere with the same money. Common choices: 3–4% if comparing to a savings account or bonds; 5–7% for a general balanced portfolio; 8–10% if you'd otherwise invest in the stock market. A lower discount rate makes solar look better (future savings are worth more today); a higher rate makes it look worse. Most solar analysts use 5–6% as a reasonable benchmark.
Is cash purchase or a solar loan better?
Cash purchase always delivers the highest lifetime return — you capture the full 30% ITC, own the system outright, and keep all energy savings. Solar loans (typically 2.99–5.99% fixed for 12–25 years) let you own the system while spreading payments; you still get the tax credit and long-term savings. The key question is whether your solar ROI (IRR) exceeds your loan APR — if IRR > APR, the loan is financially beneficial. Leases and PPAs have no upfront cost but you miss the tax credit entirely.
How does panel degradation affect my returns?
Solar panels lose roughly 0.5% of output efficiency per year. A 6 kW system rated at full capacity today produces ~5.25 kW equivalent output after 25 years (87.5% of original). Most tier-1 manufacturers warranty at least 80% output after 25 years. This degradation compounds with electricity inflation in opposite directions — making the net cash flow curve less steep in later years than a naive calculation would suggest. This calculator applies both effects in each year.
What is the Federal Investment Tax Credit (ITC) and when does it expire?
The ITC provides a 30% federal income tax credit on the full installed cost of a residential solar system (panels, inverter, labor, racking, wiring). It's a direct credit — it reduces your tax bill dollar-for-dollar, not just your taxable income. The 30% rate applies to systems installed through 2032. In 2033 it steps down to 26%, in 2034 to 22%, and is currently set to expire for residential systems in 2035. If you owe less in taxes than the credit amount, the unused portion carries forward to future years.
Why is my calculated annual savings different from installer quotes?
Installer quotes use actual satellite irradiance data and precise shading analysis for your specific roof. This calculator uses average peak sun hours for your region — actual results can vary ±15% based on roof orientation, tilt angle, shading from trees or neighboring structures, and local microclimate. South-facing roofs at 25–35° tilt typically achieve near-peak output; east/west-facing roofs produce 15–20% less. Always compare your calculator estimate to installer quotes using tools like PVWatts (NREL's free online tool).