What this calculator does
Simple payback period is the number of years it takes for the money saved on electricity bills to add up to what the solar system cost in the first place, after any rebates or incentives are subtracted. It is the figure most people reach for first when sizing up whether a system is worth installing.
It is called "simple" payback because it ignores things a full financial model would include, such as the time value of money, financing interest, panel degradation over time, or electricity prices changing. Those factors matter for a precise return-on-investment figure, but simple payback is still the quickest way to compare one quote against another, or against how long you plan to stay in the property.
The formula
Divide the net system cost by the annual electricity bill savings it delivers. The result is expressed in years, and the same annual savings figure divided by twelve gives the equivalent monthly saving, which is often the number that feels more concrete against a household budget.
| Term | Meaning |
|---|---|
| Net system cost | The all-up cost of the system after installation, minus any rebates, feed-in incentives or tax credits already applied. |
| Annual savings | The reduction in the yearly electricity bill that the system is expected to produce, based on generation and how much of it offsets purchased power. |
| Payback period | Net system cost ÷ annual savings, in years. |
The inputs explained
| Field | What to enter |
|---|---|
| Net system cost (after any rebates) ($) | The amount actually paid out of pocket, after subtracting any rebate or incentive already received. |
| Annual electricity bill savings ($) | The expected or actual yearly reduction in electricity spend, not the value of every kilowatt-hour generated (some of that generation may be exported at a lower feed-in rate rather than offsetting a purchased unit). |
When to use it
Comparing two quotes
A cheaper system with lower expected output and a pricier system with higher output can have very different payback periods; running both through the same formula puts them on equal footing.
Deciding whether to add a battery
Adding storage raises the net cost substantially. Recomputing payback with the higher cost and the extra savings a battery enables shows whether the addition is worth it on payback terms alone, before considering resilience during outages.
Judging a system against how long you will stay put
A payback period longer than the time you expect to remain in the property changes the calculation from "will this save me money" to "will this add resale value," which is a different question entirely.
Worked examples
Every figure in the tables below is produced by this page’s own calculator at build time, so the numbers and the tool always agree. Select any row to load that scenario.
How payback period changes with system cost at fixed annual savings
A fixed $1,500 a year in bill savings, across a range of net system costs.
| Net system cost | Simple payback period | Equivalent monthly savings |
|---|---|---|
| $6,000 | 4.0 years | $125.00 |
| $9,000 | 6.0 years | $125.00 |
| $12,000 | 8.0 years | $125.00 |
| $15,000 | 10.0 years | $125.00 |
| $18,000 | 12.0 years | $125.00 |
| $24,000 | 16.0 years | $125.00 |
How payback period changes with annual savings at a fixed system cost
A fixed $12,000 net cost, across a range of annual savings levels.
| Annual savings | Simple payback period | Equivalent monthly savings |
|---|---|---|
| $800 | 15.0 years | $66.67 |
| $1,000 | 12.0 years | $83.33 |
| $1,200 | 10.0 years | $100.00 |
| $1,500 | 8.0 years | $125.00 |
| $2,000 | 6.0 years | $166.67 |
| $2,500 | 4.8 years | $208.33 |
Questions
What counts as a good payback period?
It depends on local electricity prices, available incentives and how long you expect to own the property, so there is no universal benchmark. Many households treat anything from five to ten years as reasonable, but the honest answer is to compare it against your own expected tenure and alternative uses for the money.
Does simple payback account for panels degrading over time?
No. Simple payback assumes the first year's savings repeat every year. Panels typically lose a small, fairly steady percentage of output per year, which stretches the true payback slightly beyond this estimate, though usually not by much over a normal payback window.
Should I use the price before or after government rebates?
Use the net cost after any rebate, incentive or tax credit you have actually received or are confident of receiving, since that is the real amount your own money needs to recover.
How is this different from a full return-on-investment calculation?
Simple payback ignores the time value of money, financing costs and changing electricity prices. A full ROI or net present value calculation accounts for those, but needs more assumptions and is more sensitive to how those assumptions are set.
Once you know how the system will be sized, see the solar energy yield calculator to estimate the output that produces those savings in the first place.