FREE Consultation!
modern new built house, rooftop with solar cells, blue front wit

Calculating the Return on Investment for Solar Systems: A Step-by-Step Guide

Investing in solar systems can be a game-changer for businesses looking to reduce their energy costs and enhance their sustainability efforts. However, understanding the return on investment (ROI) for such systems is crucial to make an informed decision. 

This article provides a comprehensive guide on calculating the ROI for solar systems, considering various factors such as current electricity costs, installation expenses, and potential savings.

Whether you’re a small business owner or a large corporation, this guide will help you navigate the financial implications of going solar.

Understanding Solar Systems and Return on Investment

Solar power systems are gaining popularity as sustainable solutions for homeowners. It’s essential to understand the return on investment (ROI) they offer. This article breaks down the basics of solar systems and how to evaluate their ROI, equipping homeowners with the information needed to gauge solar energy’s benefits. 

Solar systems, comprising solar panels, an inverter, and a meter, convert sunlight to electricity, reducing grid reliance. Surplus energy might be sold back to the grid, depending on regional policies. ROI measures the financial benefits versus installation costs. 

A positive ROI signifies long-term savings. Numerous factors, including electricity costs, installation expenses, tax incentives, and energy savings, influence ROI. Our guide offers a comprehensive roadmap for calculating the ROI of home solar systems.

The Basics of a Solar System

A solar photovoltaic system captures the sun’s energy to produce electricity. It comprises solar panels, an inverter, optional battery storage, and a metering system. Panels, made of photovoltaic cells with semiconductors like silicon, convert sunlight into direct current (DC). 

The inverter transforms DC into alternating current (AC) for household use. Surplus power can be stored in batteries during nighttime or cloudy days, enhancing energy self-sufficiency. The meter monitors energy production, consumption, and any excess sent to the grid. 

Some areas offer financial benefits for this excess through “net metering,” reducing overall energy costs. Solar systems convert sunlight into electricity, store extra energy, and potentially benefit from selling surplus to the grid. This foundation aids in evaluating a solar system’s ROI.

Step-by-Step Guide to Calculating the Return on Investment

Navigating the financial viability of an investment is pivotal. Our “Step-by-Step Guide to Calculating the Return on Investment” offers a comprehensive approach to help you assess the potential rewards of your endeavors. Dive to demystify ROI and ensure your investments align with your financial objectives.

  • Analyze Electricity Costs: Review bills for average monthly usage (kWh) and total costs to understand what solar aims to offset.
  • Compute Installation Costs: Include solar system price, installation, home upgrades, financing interest, and optional battery storage.
  • Account for Incentives: Factor in local or national incentives like tax credits or rebates to determine net solar system cost.
  • Determine Yearly Savings: Compare solar power generated to household consumption. If excess power is generated, it may be sold back to the grid. Find your annual savings by comparing solar rates to utility rates.
  • Evaluate ROI: Divide annual savings by total installation cost to estimate the payback period.

This framework assists homeowners in assessing the financial viability of solar, estimating its savings onset, and making informed investment decisions.

Understanding the Financial Aspects of Solar Systems

When considering a solar system, it’s crucial to understand the financial implications. This involves calculating the return on investment (ROI), which can be done by following a few key steps. Let’s start with the first two: determining your current electricity costs and the cost of solar installation.

Identifying Your Current Electricity Expenses and Solar Installation Costs

Before calculating the ROI for a solar system, you need to understand your current electricity costs and the total cost of installing a solar system. Let’s break down these steps.

Assessing Your Current Electricity Costs

Examine a year’s electricity bills to determine monthly kWh usage and costs, setting the baseline for solar savings goals.

Calculating the Total Cost of Solar Installation

To calculate solar installation costs:

  • Include system price (panels, mounting, inverter).
  • Add installation fees and necessary home upgrades (wiring, electrical panel).
  • Factor in solar loan interest, if applicable.
  • Account for the cost of an optional battery backup.
  • Though initial costs might be higher for larger systems, they often yield higher long-term savings.

Factoring in Solar Tax Credits and Incentives

Solar installations’ ROI improves significantly with tax credits and incentives:

  • The U.S. Federal Investment Tax Credit (ITC) lets homeowners deduct part of their solar expenses from taxes.
  • State and local incentives, such as Solar Renewable Energy Credits (SRECs) and utility cash rebates, can further reduce costs.
  • Some states’ net metering policies allow homeowners to sell surplus electricity to the grid.
  • Stay updated on local incentives, as they differ by region and can change annually, directly impacting the solar system’s ROI.

Estimating Energy Savings and Calculating the Return on Investment

Estimating Energy Savings

To estimate solar savings, know your current electricity costs, solar installation expenses, and potential incentives. Predict your solar system’s annual power generation using online calculators or consultation.

Subtract this from your yearly electricity usage to find grid reliance. Excess solar power might be sold to utilities, offering income to offset initial costs. Include these savings in your ROI calculation.

Calculating the Return on Investment

The final step in determining ROI is straightforward: divide your yearly energy savings by the total expense of your solar installation and then multiply by 100 to convert it into a percentage.

This figure represents your annual return on investment. The higher the percentage, the faster you’ll recover your initial investment.

To forecast the long-term ROI, simply multiply your annual ROI by the expected lifespan of your solar system, typically 25-30 years. Your solar system will likely yield significant savings even after fully recovering your initial investment, making solar energy a prudent financial decision.

By thoroughly understanding and calculating your electricity costs and solar installation expenses, considering solar tax incentives, and assessing projected annual energy savings and ROI, you can make a well-informed decision about the financial viability of solar power for your home.


1. What process involves calculating the Return on Investment (ROI) for solar systems?

Calculating ROI for solar systems involves examining the cost of installation, maintenance expenses, the amount saved on electricity bills monthly, and any potential earnings from selling surplus energy back to the grid.

2. Does the location of the solar system impact the Return on Investment?

Yes, the location significantly influences the ROI. Sunnier areas enable solar systems to produce more electricity, increasing savings and decreasing the payback period.

3. How does the size of the solar system affect the Return on Investment?

The size of the solar system directly impacts the ROI. Larger systems generate more electricity, offering greater energy cost savings. However, they also require larger installation investments.

4. Can government incentives influence the Return on Investment for solar systems?

Government incentives such as tax credits or feed-in-tariffs can decrease the initial investment cost and thus increase the Return on Investment.

5. How does the cost of electricity affect the Return on Investment for solar systems?

Higher electricity costs lead to greater savings with a solar system, which in turn, improves the Return on Investment, making the technology a more viable alternative to traditional sources.


Transitioning to solar power offers not only environmental benefits but also substantial savings. By understanding current expenses and potential solar output, homeowners can gauge their ROI effectively. Embracing solar can reduce grid dependence and, in many cases, provide an additional income stream, making it a prudent and sustainable investment for the future.

Learn more about how solar panels are energy efficient from our blogs at Strive Solar.

Related Posts