A lot goes into our annual Solar Power Rankings report. Every year, we analyze 612 data points about residential solar power in the states to determine the best and worst places to put panels on your roof.
The categories by which we judge the states include incentives, legislative policy, and financial considerations. It’s a lot of work, but it produces some very meaningful outcomes, the most immediately compelling of which might be system payback time. Simply put, that means how long it takes to break even on your investment in solar (and yes, you break even over the long term in every state in the nation).
The calculation that determines payback time relies on all the ways you can save money on or make money with solar—variables that are as varied as the states themselves. But these variables can be boiled down to a few simple categories:
- Up-front cost of the system
- Incentives that reduce that cost
- Savings from and payments for the electricity produced by the panels
Now into those categries, we slot numbers. For example, in Massachusetts, you pay $18,750 for a typical 5-kW solar system. That’s the upfront cost. By the end of year 1, you subtract the state and federal tax credits for a total of $6,625 in savings, bringing the cost down to $12,125. Those are the incentives. Then you take the electricity savings and SREC payments into account, and you subtract another $2,895 from the cost, bringing it to $9,230.
With all those factors lined up, your entire system costs will be paid off in just 4 years—the fastest in the nation. Think about that. With incentives, savings and payments, an $18,750 investment is pays itself back in 4 years and keeps making you money for an minimum expected lifetime of 25 years. An investment in solar in Massachusetts has a 30.7% Internal Rate of Return (IRR). That. Is. Amazing.
Here’s the Massachusetts version of the image we put on every state’s page to show a summary of the costs, incentives, payback time, and IRR for a state:
As you can imagine, not all states offer the perfect mix of incentives and high electricity costs that lead to a 4-year payback. In fact, by the time you get to the end of the top 10 states, you’re in the 8-year payback range. That’s still great, considering a solar panel installed today will likely keep working for a few decades, but it isn’t bonkers like it is in Massachusetts.
No matter what state you live in solar is a great deal. The average payback time is 12 years with an IRR of 10.7%, which is better than almost any other investment you can make. You should connect with a solar expert today to get more information.
Without further ado, here are the solar payback times for all 50 states as of 2016, with IRRs listed alongside:
|State Name||Years to Payback||IRR|