Quick answer
Solar Return on Investment (ROI) is the total a solar system saves over its working life, minus what it cost, expressed as a percentage of that cost. A system that costs $10,000 net and saves $25,000 over its life has a 150% simple ROI.
Payback tells you when you get your money back; ROI, lifetime value and internal rate of return tell you how much more you get, and how that compares with other uses of the money.
Quick facts
The key facts about solar return on investment, with sources:
- Simple ROI
- (Lifetime savings − net cost) ÷ net cost
- Lifetime value
- Lifetime savings − net cost, in dollars
- NPV
- Lifetime savings discounted to today − net cost
- IRR
- The discount rate at which NPV equals zero
- Federal homeowner credit (25D)
- Ended for property placed in service after 31 Dec 2025 2
Key takeaways
- ROI is what solar saves over its life, minus what it cost, as a share of that cost.
- IRR is the yearly return you can compare with a savings rate or a loan APR.
- The same system can show a 150% ROI and an 8.8% IRR. Both describe the same cash.
- Rate forecasts, export credits and repairs swing the result the most.
- The federal 25D credit ended for owned systems placed in service after 31 December 2025.
- This is a way to check numbers, not financial advice.
What solar ROI means in plain words
Return on investment asks: for each dollar I put in, how much do I get back over time? For solar, the "getting back" is mostly lower electric bills.
Payback tells you when you get your money back. ROI tells you how far ahead you end up. A third measure, the levelized cost of energy, tells you what each kWh costs you over the life.
People use ROI loosely. A quote might call 25 years of gross savings "your return". That is not a return until costs come out.
How to work out ROI, step by step
- Find the net cost: contract price, plus any required upgrades, minus upfront incentives you can use.
- Estimate yearly savings from your production, your retail rate and your export credit.
- Lower each year's production a little for panel aging. A review of nearly 2,000 measurements found a median loss of 0.5% a year 4.
- Subtract expected costs during the life, such as an inverter replacement.
- Add up the savings. Subtract net cost. Divide by net cost for simple ROI.
- For IRR, put net cost as a negative number in year 0 and each year's saving after it. A spreadsheet IRR function finds the rate.
Four ways to measure the return
| Measure | Question it answers | Weakness |
|---|---|---|
| Payback period | When do I get my money back? DOE's formula is net cost ÷ yearly benefit 1 | Ignores everything after break-even |
| Simple ROI | How much do I get back in total, per dollar spent? | Treats a dollar in year 20 the same as a dollar today |
| Lifetime value (net savings) | How many dollars ahead am I at the end? | Same timing problem; says nothing about risk |
| NPV and IRR | Is this better than putting the money elsewhere? | Sensitive to the discount rate and rate forecasts |
Worked example: one set of assumptions, four answers
An illustration only. It reuses the hypothetical Duke Energy Carolinas (SC) home from our payback example: 10,000 kWh a year, $1,092.58 of annual benefit at published SC tariff rates 8 9, and a net cost set at the level that breaks even in 10 years. It is not a price.
| Measure | Math | Result |
|---|---|---|
| Net cost (assumed) | 10 × $1,092.58 | $10,926 |
| Lifetime savings, 25 years, flat rates | 25 × $1,092.58 | $27,314 |
| Lifetime value | $27,314 − $10,926 | $16,388 |
| Simple ROI | $16,388 ÷ $10,926 | 150% |
| NPV at a 5% discount rate | Present value of 25 payments of $1,092.58 − $10,926 | about $4,473 |
| IRR | Rate where NPV = 0 | about 8.8% a year |
Same system, four different-looking numbers.
The 150% ROI sounds far larger than an 8.8% IRR, but they describe the same cash flows; IRR is the one you can compare with a savings rate or a loan APR. The example holds rates and output flat and leaves out inverter replacement and repairs, which would lower every figure.
The same example with panel aging
Now lower output by 0.5% each year, the median rate in the review cited above. Over 25 years, savings fall from about $27,314 to about $25,737 at flat rates.
That trims lifetime value by roughly $1,600. It is not huge, but it is real. Any quote that ignores aging overstates the return a little.
Inverter replacement and repairs would lower it again. We leave those out because we do not print prices we cannot source. Use your installer's quote for them.
Sources: [4]
Where ROI figures show up
- Sales proposals, often as "25-year savings" or "return on investment".
- Loan offers that compare a payment with a forecast saving.
- Lease and PPA offers, where the return goes mostly to the owner, not you. See our lease vs buy tool.
- Your own records, once you have a year of real bills to compare.
Assumptions that raise or lower ROI
Raise the return
- Utility rates rising faster than inflation
- Exports credited at or near retail
- Using most solar on site
- A state credit you can fully use, such as South Carolina's 25% credit 7
Lower the return
- Panel output dropping each year (degradation)
- Inverter replacement and repairs during the system's life
- Loan interest and dealer fees on a solar loan
- Selling the house before the return is earned
What ROI cannot tell you
ROI depends on a guess about future rates. The EIA lists fuel costs, power plant costs, grid costs, weather and state rules as price drivers. None of them can be forecast for 25 years.
ROI also leaves out things that matter to many owners: backup power with a battery, comfort with price changes, and the chance you move.
And ROI is not risk-free. A dollar in a bank account is safer than a forecast saving in year 20. That is why IRR, compared with safe rates, is the fairer test.
Sources: [5]
Costs that belong in the calculation
We do not print system prices. Use your own contract. But make sure the cost side is complete.
Count the full installed price, any panel upgrade or roof work, permit and utility fees, financing charges, and expected repairs. Subtract only incentives you will actually receive.
Warranty terms matter here. A long workmanship warranty lowers the risk of repair costs. Check it in writing. See cost per watt to compare prices across quotes of different size.
How to test a quote's ROI claim
- Ask for the cash price and the financed price side by side.
- Ask for the yearly production estimate and the tool used, such as NLR's PVWatts 6.
- Ask what yearly rate increase was assumed, and why.
- Ask what share of output is exported and what credit was used.
- Check whether a federal credit was subtracted. For owned systems placed in service after 2025, it should not be.
- Rerun the numbers in our proposal analyzer.
Protecting your return over the years
A system earns only while it runs. Check your monitoring monthly. Fix outages fast.
Keep the paperwork: warranties, the production estimate and your utility agreement. You will need them for claims and if you sell.
Recheck the return every few years. Rates and export rules change, and so does the value of each saved kWh.
Warning signs in a return claim
- Gross savings presented as profit.
- A steep yearly rate increase with no source.
- A 30% federal credit counted on a 2026 owned system.
- A dealer fee buried in the loan amount. The CFPB found such markups often run 10% to 30% of the cash price 3.
- A loan that re-amortizes, meaning the payment jumps, unless you pay down a large share early 3.
- Pressure to sign the same day.
Rules that change the return
Federal tax: the IRS says the Residential Clean Energy Credit (25D) is not available for property placed in service after 31 December 2025. For leases and PPAs, a business credit such as 48E may apply to the owner; ask a tax professional.
Utility rules: export credits and fixed charges are set in tariffs approved by a state commission or utility board. They can change, which changes your return.
Consumer finance: the Consumer Financial Protection Bureau's August 2024 report warned about dealer fees, tax-credit-based "net cost" figures and overstated savings. Read our 48E explainer for the lease and PPA side.
ROI vs related terms
| Term | Answers | Best for |
|---|---|---|
| Solar ROI | Total gain per dollar spent | A quick sense of size |
| IRR | Yearly rate of return | Comparing with savings rates or loan APR |
| Payback period | Years to get money back | People who may move |
| Levelized cost of energy | Cost per kWh over the life | Comparing with your utility rate |
| Export compensation | What exported kWh earn | Testing the savings input |
Return claims to check on a proposal
- Myth "25-year savings" equals my return.
- Reality Gross savings are not a return until cost, financing charges and maintenance come out.
- Myth A high rate-escalator assumption is conservative.
- Reality Escalation compounds. Steep yearly increases can double a lifetime-savings figure. Ask what rate was used and why.
- Myth The return includes the 30% federal credit.
- Reality For homeowners, §25D is not available for property placed in service after 31 December 2025 2.
- Myth A higher ROI percentage always means a better deal.
- Reality ROI ignores timing. Compare IRR instead.
In South Carolina, Georgia and Virginia
South Carolina's 25% state credit (capped at $3,500 a year and half of state tax liability, 10-year carry-forward) lowers the net cost every return measure divides by 7.
Export credits on Duke, Dominion and Santee Cooper are well below retail, so returns depend heavily on how much solar a home uses itself.
In Georgia and Virginia, use your own utility's current export terms; do not borrow another state's.
When ROI matters to you, and what to do next
If you are paying cash, compare the IRR with what that cash earns today. If you are borrowing, the IRR must beat your loan APR for solar to pay its way.
If you may sell within a few years, payback and home value matter more. See solar and home value.
Next step: run your own bills and quotes through the calculators below.
Calculators
- Solar savings calculatorLifetime savings from your own bill
- Rate escalator calculatorSee how the escalation assumption moves the total
- How solar financing works
Questions about solar return on investment
What is a good ROI for solar panels?
A good return is one whose IRR beats what the money could earn elsewhere at similar risk. If you finance, it should also beat your loan APR. A simple ROI percentage on its own is hard to compare because it ignores time. Work out the IRR from your own quote.
How do you calculate solar IRR?
List the net cost as a negative number in year zero and each year's savings after it. Then find the rate that makes the total present value zero. A spreadsheet IRR function does this for you. Include panel aging and repair costs for a fair result.
Is solar a good investment without the federal tax credit?
It can be, depending on your rates, export credit, price and state incentives. Run the numbers with no federal credit, since homeowners cannot claim §25D for systems placed in service after 2025. A state credit, like South Carolina's, can still lower the net cost.
What is solar lifetime value?
Lifetime value is total savings over the system's working life minus its net cost, in dollars. It is the same math as simple ROI before dividing by cost. It does not account for timing, so compare it with IRR too.
Does solar ROI include home value?
Usually not; most calculations count only bill savings. Any effect on resale price is uncertain. It depends on the market and on whether the system is owned outright, financed or leased, since a buyer may need to take over a loan or lease.
How does panel degradation affect ROI?
It lowers savings a little each year. A review of nearly 2,000 field measurements found a median output loss of 0.5% a year. In our example, that cuts 25-year savings by about $1,600 at flat rates. Ask whether a quote included it.
Do leases and PPAs have an ROI for the homeowner?
They can, but most of the return goes to the owner of the system. You save the gap between your old bill and the lease or PPA payment. Escalators in the contract can shrink that gap. Compare offers with our lease vs buy tool.
Why do two installers show very different ROI?
Their assumptions differ. Check the production estimate, the yearly rate increase, how exports are valued, whether a federal credit was counted, and whether repairs were included. Line the inputs up side by side before comparing results.
Is solar ROI guaranteed?
No, it is a forecast. Rates, export rules, weather and equipment life can all differ from the plan. Some contracts include production guarantees; read what they pay and when. This page is not financial advice.
Sources
- U.S. Department of Energy, Will I Save Money with Solar Energy?, retrieved .
- IRS, Residential Clean Energy Credit (§25D), retrieved .
- Consumer Financial Protection Bureau, Issue Spotlight: Solar Financing (August 2024), retrieved .
- Jordan and Kurtz (NREL, now NLR), Photovoltaic Degradation Rates — An Analytical Review (OSTI 1045052), retrieved .
- U.S. Energy Information Administration, Electricity explained: factors affecting electricity prices, retrieved .
- National Laboratory of the Rockies (NLR), PVWatts Calculator, retrieved .
- South Carolina Code §12-6-3587 (solar energy income tax credit), retrieved .
- Duke Energy Carolinas (SC), Schedule RS (Docket No. 2025-172-E), retrieved .
- Duke Energy Carolinas (SC), Rider RSC Residential Solar Choice (effective 1 January 2026), retrieved .
Expert review
Written by the HyreSolar Research team. Not yet reviewed by an outside expert. We say so rather than imply a review that has not happened; see our editorial policy.
How the numbers were checked: The example uses published Duke Energy Carolinas SC tariff rates and stated assumptions; the net cost is solved from a 10-year break-even, not taken from any price.
NPV, IRR and the 0.5%/yr degradation case were computed from those cash flows (checked in Python on 8 Oct 2026). Not financial or tax advice.
Suggest a correction. We fix errors and say what changed.