# How to Calculate ROI for Solar Panels

Knowing how to calculate payback on solar energy is the best way to ensure your investment is worth it. Everyone hears about how much solar energy is an attractive solution and reduces costs, but how much does it reduce? How long does the investment pay for itself?

Unlike the savings generated by LED lamps or an appliance exchange for a more efficient model, the perception of savings does not appear only in the electricity bill. In solar power, you can see how much your Photovoltaic generator saves you based on how many kilowatt hours you produce in a month. That way, it’s easy to know **how to calculate payback on solar energy**.

Here, you will better understand what payback is, how to calculate payback in solar energy, and how to know if the installation will meet your expectations.

## What is payback?

The payback is the period for the installation cost to be paid and to start generating profit. It is an individual calculation that differs for each family or company. This calculation predicts when the consumer will begin to see a return on investment in the system. But how to calculate the payback on solar energy? The payback calculation must take into account the following factors:

– Total investment made

– Average monthly generation of the photovoltaic system

– Property consumption pattern

– Energy tariff in the region and variations

– Property valuation with solar energy

– Roof area or terrain

– System power

– The opportunity cost of investing in solar energy

## Ways to calculate the payback on solar energy

To know how to calculate payback in solar energy, it is essential to clarify doubts about the efficiency of the equipment. Therefore, it is essential to hire a solar company installer who can clarify the details regarding the system.

Starting with the calculation, the variable of the value of the kWh practiced in each region is one of the most important. It is possible to divide the investment value by the product of energy generated and the year by the tariff. For example, 3k PHP divided by 200 kWh, multiplied by 12, multiplied by 20 PHP per kWh.

A simple and quick way to calculate the payback on solar energy is to determine the amount saved on the electricity bill per year before and after installing solar energy. Then, divide the total investment value by the annual savings. Thus, you will discover how many years you will have your payback.

In my case, my previous bill was about 3k PHP. When I started using solar energy, it reduced to almost 1k PHP/month. My solar panel installation cost me around 145k.

## How to calculate the payback on solar energy: examples of calculations

**Residence**

Imagine a house with four residents. If the average consumption is 470 kWh per month, you will have an energy bill of approximately 4k PHP.

A solar energy system that covers this consumption pattern has an approximate value of 250k PHP for a 5kw solar energy system. Thus, your savings on the energy bill would be 2-4k, paying only the minimum rate, depending on your region.

In 1 year of solar energy, you will have saved a lot. This results in a payback of 4 and a half years. That is, after this period, you will be profiting per year. In 10 years, there will be more than 250k in profit.

**Trade**

Imagine a business that spends an average of 2400 kWh and has a bill worth approximately 20k PHP. I would save around half the monthly price with a solar energy system of at least 10kW. An investment of around 500k PHP would be required for a system of this size. Not to mention if you add a solar energy storage and solar inverter that will convert your energy.

**Applying the regional tariff variable**

Now, let’s consider a residence in Manila. The value of a kWh in Manila is 20 PHP. Let’s assume the system costs 250k PHP and generates approximately 750 kWh monthly.

Now, watch the calculation to be made:

250k (system value) divided by 750 (generated energy) times 12 (number of months) times 20 PHP (kWh value). 250,000 / 750x12x 20 PHP = 80,000

As a result, the system would take approximately three years and three months to start paying off the investment. Now, considering a useful life of at least 25 years, the customer will have about 22 years of profit with the solar energy system.

## How to calculate the payback on solar energy? Is it worth it?

As we have seen, knowing how to calculate payback in solar energy is individual and delivers different values for each family/business. Despite this, there is an average value! The average is three years for commercial properties and 4.5 years for residential properties.

Remember that the calculation depends on many variables, such as tariff increases over time and the size of the system. However, this time variation is usually for less. Depending on your consumption pattern, you can save up to 95% of your electricity bill. This can vary per year, or more, for average consumption.

Let’s consider that the maintenance of your photovoltaic energy system is minimal, and you will only have to change the solar panels after 25-30 years of installation. It becomes easier to understand the low payback, and the system is very profitable.

Learn more about solar energy and start drawing up your action plan to adhere to this renewable source.