The one mistake that increases your pay-back period (loan period)

The constant increase in the power price and the annual price decrease of solar forces everyone to move solar. But the terms can be daunting at first. And one of the important terms you would often hear is “pay-back period”.

What exactly is the Payback period?

It refers to the period (usually in years) it takes to save money from solar so that the amount you saved matches the amount you invested in solar. This is the time after which your system is running at pure profit. Consider it as a break-even point. When does the break-even occur for your investment?

And the calculation is simple, you just add

  1. The cost of panels
  2. The cost of inverter
  3. The cost of mounting machine
  4. Installation cost
  5. Battery cost (if off-grid)

and subtract the rebates and tax incentives received.

For example, let’s say you invested $16,000 in solar (it includes the cost of panels, inverter, mounting machine, and installation. And received $4000 as a tax incentive. Then the total investment is $12000 ($16,000 – $4000 = $12000).

So now the total cost is $12,000.

Because of solar, your energy bills are saved either partially or fully after net-metering. And let’s say you save $100 every month. If we time to the year, the total saving becomes $1200 ($100 X 12 months)

Then the pay-back period will be 10 years ($12,000/$1200)

What is the average pay-back period?

  1. If on-grid, the period between 5 to 8 years is considered average.
  2. If off-grid, the period between 10 to 12 years is average.

Anything above should be considered again. If the payback period stays in the above range, you get to enjoy around 20 years of pure profit from your solar.

What affects the pay-back period?

  1. Total cost
  2. Tax credit (this varies across states and have different incentive policy)
  3. Your house power usage
  4. The amount of power your panel produces and
  5. The cost of power in your jurisdiction.

What increases the pay-back period?

Now I assume you calculated your payback period. But there is one thing that will increase your payback period indirectly. And few people are talking about this. Which is: “A damaged roof”.

If you’re planning to install solar and your roofs are damaged, consider changing the roof before installing panels. Otherwise, it will lead to a scenario where after 2 or 3 years, the sealing leaks. And if you want to change the roof then you must unplug, uninstall the system and reinstall it. Also, you must protect your panels safely and maintain the equipment until the roofing is over. All this adds to the total cost of your solar and indirectly increases your pay-back period.

It becomes even worse if you have leased or signed a PPA. Even though PPA has no pay-back period. Changing the roof after PPA becomes a pain in the neck. Because only the company which installed the system has the authority to uninstall or reinstall it. Going otherwise leads to getting sued by the solar company.

So if your roof needs a repair in a couple of years, change your roof first before going solar. This alone will save tons of complications and money.

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