Methodology: How We Calculate Solar Payback

Data sources

Residential electricity rates: U.S. Energy Information Administration (EIA), Form EIA-826, state-level residential averages.
Peak sun hours: NREL National Solar Radiation Database (NSRDB), state-level averages weighted by population centers.
Installer pricing benchmarks: Lawrence Berkeley National Laboratory Tracking the Sun reports plus EnergySage Marketplace state pricing data.
State and utility incentives: DSIRE (Database of State Incentives for Renewables & Efficiency), supplemented with state energy office filings and recent regulatory orders.

Calculation formulas

System sizing

annualKwh = (monthlyBill * 12 * 100) / rateCentsPerKwh
targetKwh = annualKwh * billOffsetTarget   (default 95%)
sizeKw    = targetKwh / (sunHours * 365 * 0.78)

Year-1 production

kwh = sizeKw * sunHours * 365 * 0.78

The 0.78 derating factor accounts for inverter losses, wiring losses, soiling, and minor shading on a typical residential install.

Net cost

grossCost     = sizeKw * 1000 * costPerWatt
federalCredit = grossCost * 0.30
stateCredit   = min(grossCost * statePct, stateMax)
netCost       = grossCost - federalCredit - stateCredit

Year-by-year projection

for year in 1..25:
  production = year1Production * (1 - 0.005)^(year-1)
  rate       = year1Rate       * (1 + 0.03)^(year-1)
  savings    = production * rate
  cumulative += savings
  if cumulative >= netCost: payback = year
  npv += savings / (1.04)^year

Default assumptions

Bill offset target: 95% (slightly under-sized to avoid over-export under successor tariffs).
Annual rate inflation: 3% (long-run U.S. average, BLS).
Annual panel degradation: 0.5% (industry standard for tier-1 monocrystalline panels).
System lifespan: 25 years (industry-standard panel warranty period).
Discount rate (NPV): 4% (approximate after-tax cost of long-term capital).
Federal tax credit: 30% through 2032, dropping to 26% in 2033 and 22% in 2034.

What we don't model

Roof orientation and tilt (we assume south-facing, optimal tilt; east/west or steep north can reduce production 10–25%).
Site-specific shading (trees, neighboring buildings).
Local labor cost variation within a state.
Roof replacement costs (solar adds 25–30 years of weight to your roof; some installs require roof work first).
Time-of-use rate optimization (we use flat-rate averages).
Battery storage economics (covered separately on our battery comparison page).

Update cadence

Electricity rates and incentive policies are reviewed quarterly. Major regulatory changes (e.g., new net metering rulings) trigger same-day updates. Last full review: April 2026.