Long since past are the days when the altruistic environmentalist installed solar panels to save the world. You might be surprised to find out that solar photovoltaics (PV), commonly referred to as solar panels, may be a good investment for you. Displayed above is the Return on Investment (ROI) of solar PV for various loan types that won’t result in a higher monthly payment than your current electricity bill, typical for the median US conditions. This means that average conditions in 25 states will do better, and in 25 states, they will do worse. You will recover your investment once each line traverses from negative to positive, which is commonly referred to as the “payback period.” You can see your investment potential from a solar contractor quote, from your own estimates, or from Consumer Ecology’s average state values in the Solar Investment Calculator at the end of this article.

If you are in a position to pay for a solar PV system entirely with cash, you won’t have a payback period, because the residual value of the solar PV system, combined with your electricity savings, offsets the cost of the solar PV system at any time you wish to sell your home. For those who can’t make any down payment, the line shown in red shows a payback at 15 years for an 18 year loan. Once each loan is paid off, you’ll notice that the slope of each line is the same. The difference between the loans is how much interest you will pay over the lifecycle of the loan, which decreases your net ROI. If you can only get a loan with an interest rate, or Annual Percentage Rate (APR), above 5%, you would need a larger down payment to achieve the same ROI as shown above.

Investing in solar PV is different: Your money goes back in your pocket

Once your loan is paid off, you get to keep all the avoided electricity costs. For median US conditions, a 50% down payment of $5,920 on a 6 kW system could have you pocketing your savings in as little as 5 years (green line above). Unlike with other investments, your savings go right back in your pocket. That means you can take advantage of earning savings on your savings. In fact, if you live in the top 25% of states, you could net more money over 25 years (with no loan) by investing your avoided utility bills back into the stock market, compared to putting that money in the stock market alone! See the Data and Assumptions Section for more details.

How Much Money You Can Make Depends on Where You Live and How Long You Own Your Solar PV System

The average US household will stay in their home for approximately 9 years (Based on US Census, 2020: See Data and Assumptions Section), which makes a 10 year loan close to ideal for many homeowners. At year 10, 90% of states will see a positive payback (see the figure above), typical of the state average electricity costs, solar PV installation costs, and solar generation in the state’s largest city. If you get more or less sun than your state’s largest city, your numbers could change considerably, so the above figure is just an estimate. Every additional year you spend in your home, after your loan is paid off, will result in a higher and higher return on your investment.

The ROI can also be shown as an annual return, or Annual Percentage Yield (APY). This allows us to compare how well investing in solar does compared to other investments, like stocks or bonds. At year 10, the median US household will only yield a 1.6% APY (see figure above), which will not likely keep up with the Federal Reserve’s goal for 2% inflation (US Federal Reserve, 2020). However, if you live in the the top 10% or top 25% of states, you will see an APY of 5.0% and 3.0%, respectively, which will outpace inflation. In just 5 more years, you will see those yields move up to 5.6%, 4.1%, and 3.0% for the top 10%, 25%, and US median, respectively. Even the bottom 10% of states will see an APY of 2.8% after 25 years. Given the investment potential, solar PV may be a great way to diversify your portfolio and lower your carbon emissions at the same time!

Well, that sounds nice, but what about my state?

Return on Investment (ROI) at the End of a 10 Year Loan at 5% APR and 20% Down

While we all expect solar to do well in the desert, you might find some surprises on this map. The east coast of the US fares particularly well because of the high energy costs in many states. Even Alaska ranks in the top 25% of states because of its high energy costs!

The ROI is the result of a combination of your state’s average electricity costs, solar PV installation costs, and solar generation in the state’s largest city. In most states, the solar generation in the largest city will be a good estimate of around what you could expect in the state, but in the example of Seattle compared to Yakima, Washington, the numbers will look much better in the desert of Yakima than this map shows, as Washington ranks dead last in the US.

Ready to See if Solar PV is Right for You?

All of the results shown are outputs of Consumer Ecology’s Solar PV Investment Calculator. This calculator is a powerful tool that can help you decide if solar is a good investment for you. You can explore default values for your state, or you can get a quote and plug in your numbers here. The calculator will show you your ROI and APY for each year, so you can decide how much money you and the next owner will make when you’re ready to sell your home. You can also play around with loan terms to see how your monthly payments will be impacted. Finally, please consider this additional information to help you decide if solar is right for you:

Solar panels are designed to be operated for 25 or more years. Over this time, it is likely that you will need to replace your home’s roof, and that is not without cost. Energy Sage (2020) estimates that removing and reinstalling solar PV could cost between $1,500 – $6,000 to reinstall your solar panels. Assuming this is for an average 6 kW system, this could raise your installation cost by $0.25 – $1.00 per watt (10-41%), and could dramatically reduce your lifetime savings potential. For this reason, the best time to invest in a solar PV system is right after you install a new roof.

Be sure to consult with a solar professional to estimate your reinstallation costs if you have a roof replacement due in the next 25 – 30 years. These professionals may be able to design your solar system to be more easily removed during a roof replacement.

The US Department of Energy provides a free PVWatts Calculator that will estimate solar generation where you live.

Be sure to match the system size to the Investment Calculator size, otherwise your numbers will not be accurate! The default system size used by Consumer Ecology is 6 kW, but the default size used be the PVWatts Calculator is 4 kW; therefore you will need to change the system size on page 3 of the calculator in the top field, entitled “DC System Size (kW),” or change the system size in the Investment Calculator. The output at the top of page 4, entitled “kWh / Year” can be entered directly into the Investment Calculator.

Solar panels perform best on south facing roofs, but they can be installed on the east or west face of a roof as well. An east- or west-facing system will produce around 15% less energy, depending on your local conditions. The azimuth angle can be adjusted from 180 degrees (South) to 90 degrees (East) or 270 degrees (West), or any other angle on the NREL PVWatts Calculator to estimate solar production that is not south facing.

If the potential site of your solar PV system is blocked by buildings or trees, your house may not be an ideal location for solar PV. Be sure to check with a solar professional if you are not sure if your home is right for solar.

Net metering is an arrangement where your local utility company agrees to purchase excess energy that you don’t use (SEIA, 2020). The excess energy is then credited to your power bill at times when you draw from the grid, including when you have to use grid energy after the sun goes down. Net metering can allow a home to achieve net zero carbon emissions from electricity, without reducing solar profitability.

The Database of State Incentives for Renewables and Efficiency (DSIRE, 2020) lists 35 states and Washington, DC that have mandatory net metering agreements. Ten additional states are transitioning to an alternative compensation structure, which includes Alabama, Arizona, Illinois, Indiana, Kentucky, Louisiana, Michigan, Mississippi, South Dakota, and Utah. The states of Idaho and Texas do not have statewide rules on net metering, but some utilities allow it. If you live in any of the states without net metering, you should check your state’s policies to determine if the alternative compensation mechanisms would result in reduced profitability for your system.

The size of your solar PV system depends on your home’s electricity usage. The best way to determine how big your solar PV system should be is to total your home’s kilo-watt hours (kWh) for 1 – 3 years to determine an annual average electricity usage. This information should be easily available on your power bill.

Next, you can go to the NREL PVWatts Calculator and find a system size that can generate as much energy as you use. If you live in a state with net metering, then you won’t have to worry about generating extra electricity in the summer, because it can be credited in the winter without any additional cost to you.

There are many ways to get quotes for a solar PV system. You can check for local solar PV companies near you, or you can get multiple quotes on marketplaces, which could save you money. Here are a few sites to consider:

Most quotes should include state incentives, as well as the 22% Federal Tax Credit. You can check to see if your state or local utility offers additional incentives on the Database of State Incentives for Renewables and Efficiency.


Data and Assumptions

Data Inputs Last Updated: December 15, 2020

General Model Assumptions:

  • Nominal residential electricity inflation rate of 2.3% assumed, based on the US Energy Information Administration (EIA) 2020 Annual Energy Outlook projection to 2050 (EIA, 2020A).
  • Solar degredation rate of 0.5% assumed, in line with the US Department of Energy – Lawrence Berkeley National Laboratory (Hoen et al., 2015) report – Selling Into the Sun: Price Premium Analysis of a Multistate Dataset of Solar Homes.
  • Degredation rate and residential electricity inflation rate begin at 50% for year 1, reflecting the midpoint between 0 and 1 years.
  • State average electricity costs based on the EIA Detailed State Data Average Price (Cents/kilowatthour) by State by Provider, 1990-2019 (EIA, 2020B).
  • Solar PV generation data based on the US Department of Energy – National Renewable Energy Laboratory (NREL) PVWatts Calculator (NREL, 2020) for the largest city in each state.
  • Solar PV installation costs based on Solar Reviews (2020) for each state, last updated on December, 15, 2020. Solar Reviews (2020) reported a national average of $2.43 / Watt before incentives, which is consistent with the $2.73 / Watt reported by NREL (Fu et al., 2018) two years prior. Note, these data are constantly evolving and prices are subject to change, with a general trend towards decreased costs each year.
  • Residual value model created by Consumer Ecology is based on data reported in Hoen et al. (2015), which analyzed home sale prices of 3,951 homes sold with a solar PV system.
    •  Consumer Ecology uses a 2-step, linear model to smooth out the 4 solar PV age categories published in Hoen et al. (2015). The model assumes the slope of a 6.83% reduction per year in residual value between 0 – 8 years, with a y-intercept of 94.23%.
    • From 8 – 25 years, the model uses a slope of a 2.33% reduction per year in residual value, starting at 39.59% to reach 0% at year 25.
    • Original datapoints used to calculate slopes include a residual value of 83.33% at a mean age of 1.6 years, and a residual value of 41.01% at 7.8 years.
    • By adjusting the residual value of the solar PV system to the original system cost on a percentage basis, the residual value model will adjust to decreasing solar PV prices. A rational market should value the remaining generation of a solar PV system at a discounted rate, however the majority of solar PV system prices used in Hoen et al. (2015) were 2x or more higher than current prices, and thus the residual value of the solar PV systems at the time may not accurately reflect the remaining generation on a percentage basis. This model will be revised with updated residual value data, and likely under-represents the residual value of a solar PV system sold today.
  • Loan investment value is approximated by an annual, rather than monthly payment schedule. This results in an overestimation of interest paid, particularly for shorter-term loans, however the model caps total interest paid from a monthly installment loan, and thus does not overestimate total interest paid over the loan. The calculator program did not support the complexity required to amoritze all model inputs on a monthly basis.
Average Time Spent in a US House:
  • Based on the US Census (2020) 2019 American Community Service 5-year Estimate Data Profile.
  • 49.9% of respondents had moved between 2010 – 2019, while 50.1% of respondents had moved on 2009 or later.
  • A median time at the end of 2009, or the start of 2010 can be assumed, which results in 9 years of occupancy.
Solar PV vs the Stock Market:
  •  Using the general assumptions for Phoenix, AZ, a 6 kW solar PV system will generate 10,242 kWh per year in its first year.
  • The electricity cost is $0.124 / kWh.
  • The system cost is $12,496 after a 22% federal incentive, which is the investment of comparison.
  • The stock market is assumed to generate a 10% APY (Royal and O’Shea, 2020), as compared to a 4.8% APY from the solar PV system.
  • Model assumes that solar savings are invested into the stock market on an annual basis, and that the full value of savings is invested into the stock market, accounting for the compound inflation of future energy prices. This also accounts for the 0.5% degredation rate, and 2.3% residential electricity inflation rate.
  • The solar PV system will surpass the stock market-only investment at year 21. By year 25, the solar PV + stock market investment will be worth $145,280, as compared to $135,390 for the stock market-only investment, which is a 7.3% greater ROI.


DSIRE: Database of State Incentives for Renewables and Efficiency. (2020). Net Metering – June, 2020. See Link to Source

EIA. US Energy Information Administration. (2020A). 2020 Annual Energy Outlook: Table A3 – Energy Prices by Sector and Source. See Link to Source

EIA. US Energy Information Administration. (2020B). Average Price (Cents/kilowatthour) by State by Provider, 1990-2019. See Link to Source

Energy Sage. (2020). How do you replace a roof with solar panels? Solar panel roof replacement logistics. See Link to Source

Fu, Ran, David Feldman, and Robert Margolis. 2018. U.S. Solar Photovoltaic System Cost Benchmark: Q1 2018. Golden, CO: National Renewable Energy Laboratory. NREL/TP-6A20-72399. https://www.nrel.gov/docs/fy19osti/72399.pdf.

Hoen, B., Wiser, R., Klise, G., Thayer, M., Graff-Zivin, J., Jackson, T., Adomatis, S. (2015). Selling Into the Sun: Price Premium Analysis of a Multi-State Dataset of Solar Homes (No. LBNL-6942E). Lawrence Berkeley National Lab.(LBNL), Berkeley, CA (United States).

NREL: National Renewable Energy Laboratory. (2020). PVWatts Calculator. See Link to Source

Royal, J., and O’Shea, A. (October, 2020). What is the Average Stock Market Return? Nerd Wallet. See Link to Source

SEIA: Solar Energy Industries Association. (2020). Net Metering. See Link to Source

Solar Reviews. (December, 2020). Solar panel cost: Market update winter 2020/2021. See Link to Source

US Census. (2020). Selected Housing Characteristics – 2019 ACS 5-Year Estimates Data Profiles. Year Householder Moved. See Link to Source

US Federal Reserve. (August, 2020). Why does the Federal Reserve aim for inflation of 2 percent over the longer run? See Link to Source