Solar ROI & Payback Calculator — NPV, IRR, LCOE & 25-Year Cash Flow

How It Works

1. Enter System Cost and Incentives

   Input the total gross system cost before incentives, including equipment, labor, permitting, and interconnection fees. Then enter the federal ITC percentage (currently 30% for residential through 2032), any state tax credit or rebate, utility rebate, and SREC value if applicable. The calculator computes the net cost after all incentives, which is the actual investment amount for ROI calculation.

2. Set Annual Production and Degradation

   Enter the estimated first-year production in kWh from your array sizing calculation or installer proposal. Set the annual degradation rate, typically 0.5% per year for modern panels (manufacturers guarantee 80% output at year 25). The calculator reduces production each year to model real-world output decline over the 25-year analysis period.

3. Enter Current Electricity Rate and Escalation

   Input your current utility rate in dollars per kWh. Set the annual rate escalation percentage. The US average residential rate has increased approximately 3-5% per year over the last two decades. The calculator compounds this increase annually to project future avoided costs. For TOU (time-of-use) rate structures, enter the blended average rate weighted by when your system produces.

4. Configure Financing (If Applicable)

   For financed systems, enter the loan amount, interest rate, and term. Solar loans typically range from 10-25 years at 3-8% APR. The calculator subtracts annual loan payments from savings to show true cash flow. For cash purchases, leave financing fields empty. Leases and PPAs have different economics and are modeled separately.

5. Review Financial Analysis

   The calculator outputs simple payback period (years and months), net present value at your discount rate, internal rate of return, levelized cost of energy in cents per kWh, 25-year net savings, and a year-by-year cash flow table. The cash flow table shows annual production, avoided cost, incentive income, loan payments, maintenance costs, and cumulative net savings.

Built For

• Solar sales professionals generating accurate financial proposals that withstand customer scrutiny and competitor comparison
• Homeowners evaluating solar proposals from multiple installers using consistent financial assumptions and metrics
• Financial analysts assessing commercial solar investments using NPV and IRR against corporate hurdle rates
• Real estate agents quantifying the property value increase from an existing or proposed solar installation
• Accountants advising clients on the tax implications of the ITC, MACRS depreciation, and state incentives for commercial solar
• Utility regulators comparing the LCOE of distributed solar against utility-scale generation and grid supply costs

Features & Capabilities

Multi-Metric Financial Analysis

Calculates simple payback period, discounted payback period, net present value (NPV), internal rate of return (IRR), levelized cost of energy (LCOE), and return on investment (ROI) percentage. Each metric tells a different part of the financial story: payback answers when you break even, IRR answers what effective return rate you earn, NPV answers how much total wealth the investment creates, and LCOE answers how your solar cost compares to grid electricity.

Federal ITC and MACRS Depreciation

Models the federal Investment Tax Credit at the applicable rate (30% for residential 2022-2032, stepping down to 26% in 2033 and 22% in 2034). For commercial systems, includes the Modified Accelerated Cost Recovery System (MACRS) 5-year depreciation schedule, which provides additional tax savings of 20-25% of system cost depending on the taxpayer's marginal rate. The combination of ITC plus MACRS can reduce effective commercial system cost by 45-55%.

Rate Escalation Sensitivity

Models utility rate increases compounded annually over the 25-year analysis period. Includes a sensitivity analysis showing payback and NPV at low (2%), medium (3.5%), and high (5%) escalation scenarios. This transparency is essential because the escalation assumption has a larger impact on lifetime ROI than any other single variable, including system cost.

Panel Degradation Curve

Reduces annual production by the degradation rate each year. Modern panels degrade at approximately 0.5%/year, producing roughly 87.5% of original output at year 25. The calculator compounds degradation against the increasing avoided cost from rate escalation. In early years, degradation slightly outpaces savings growth, but as rates escalate, the net effect turns strongly positive.

25-Year Cash Flow Table

Generates a year-by-year table showing annual kWh production, avoided electricity cost, SREC income, loan payments, maintenance/insurance costs, inverter replacement reserve, and cumulative net savings. The table identifies the exact year and month when cumulative savings exceed total investment, marking the payback crossover point.

Inverter Replacement Modeling

Includes a configurable inverter replacement event at year 12-15 (typical string inverter lifespan) with user-entered replacement cost. Microinverters and optimizers typically last 25 years and may not require replacement. This mid-life capital expense is frequently omitted from installer proposals but materially affects NPV and total cost of ownership.

Frequently Asked Questions