How the calculation works
Payback is the year in which accumulated savings equal what you spent. The complication is that savings are not constant: electricity gets more expensive over time, so each year of self-generated power is worth more than the last.
This calculator accumulates savings year by year with compounding price rises rather than dividing cost by a flat annual figure. The difference is significant: at 5% annual inflation a system that looks like an eleven year payback on flat prices can cross the line closer to nine.
Worked example
A 12,000 system producing 7,000 kWh a year, displacing electricity at 0.18 per kWh, with prices rising 3%:
After payback, the remaining panel life is effectively free energy. Panels commonly carry 25 year performance warranties, so the second half of that period is where the real return sits.
What the simple number leaves out
- Battery replacement. Panels last decades; batteries do not. A lithium bank may need replacing once in 25 years, lead-acid several times. For off-grid systems, add that replacement into total cost before drawing conclusions.
- Panel degradation. Output falls roughly 0.5% a year. Over 25 years that is meaningful but small compared with price inflation moving the other way.
- Self-consumption versus export. Grid-connected systems only save the full retail rate on energy you use yourself. Exported surplus usually earns far less, so a system sized well beyond daytime consumption pays back more slowly.
- The off-grid case is different. If the alternative is a grid connection costing tens of thousands to run to a remote site, or a generator burning fuel daily, payback can be immediate. Compare against the real alternative, not against a grid tariff you could never access.
Frequently asked questions
How do I estimate annual production?
Multiply array size in kW by your daily peak sun hours by 365, then take about 80% for system losses. A 5 kW array at 4.5 sun hours gives roughly 5 x 4.5 x 365 x 0.8, or about 6,570 kWh a year. Local solar irradiance data gives a better sun hours figure than a guess.
Is solar worth it if payback is ten years?
That depends on what you compare it to. A ten year payback on a 25 year asset is roughly a 7 to 9% annual return, better than most low-risk investments and paid in a currency that inflates: electricity. It looks worse if you expect to move house soon, though solar generally raises property value.
Should batteries be included in the payback sum?
For grid-tied systems, batteries usually lengthen payback because they add cost without adding generation; they buy resilience rather than savings. For off-grid systems they are not optional, so they belong in the cost from the start.