What is the typical ROI for solar panels?

The typical ROI for residential solar panels is 150-400% over 25 years, depending on your electricity rate, solar resource, system cost, and available incentives. In high-rate states like Massachusetts or Connecticut, ROI can exceed 350%. In low-rate states like Louisiana or Washington, ROI is closer to 100-150%.

How do you calculate solar panel ROI?

Solar ROI = (Total 25-year savings - Net system cost) / Net system cost x 100. For example, if your net cost is $14,000 (after the tax credit) and your 25-year savings total $52,000, your ROI is ($52,000 - $14,000) / $14,000 x 100 = 271%.

Is solar a better investment than the stock market?

In many states, yes. Solar delivers a tax-free internal rate of return (IRR) of 10-20%, while the S&P 500 averages about 10% pre-tax (7% after inflation). Since solar savings are not taxed as income, the effective comparison is even more favorable. Solar also has near-zero volatility — the sun does not crash.

What factors most affect solar ROI?

The three biggest factors are electricity rate (higher rates mean more savings per kWh), electricity rate inflation (3% annual increases compound significantly over 25 years), and net system cost after incentives. Secondary factors include solar resource (peak sun hours), panel degradation rate, and net metering policy.

Does panel degradation reduce ROI?

Yes, but minimally. Modern panels degrade 0.25-0.50% per year, meaning a system produces 87-94% of its original output at year 25. This is already factored into standard ROI calculations. Premium panels (REC, Maxeon) have lower degradation rates and 25-year performance warranties guaranteeing at least 92% output.

How does the federal tax credit affect ROI?

The 30% federal tax credit dramatically improves ROI by reducing your upfront cost by nearly a third. A $20,000 system becomes $14,000 after the credit, but the savings remain the same — so your ROI jumps from roughly 160% to 271% in a typical scenario. The credit is available through 2032.

What is the internal rate of return for solar?

The internal rate of return (IRR) for residential solar typically ranges from 10-20%, depending on location and electricity rates. High-rate states like Hawaii (IRR 20%+), Connecticut (15-18%), and Massachusetts (14-17%) deliver the strongest returns. This compares favorably to the S&P 500 historical average of about 10% nominal.

Does solar ROI account for maintenance costs?

A thorough ROI calculation should include maintenance, but solar maintenance costs are very low — typically $100-$300 per year for occasional cleaning and monitoring. Over 25 years, that is $2,500-$7,500, which reduces ROI by 5-15 percentage points. Inverter replacement (if using a string inverter) at year 12-15 adds $1,500-$2,500.

Solar ROI Calculator: Calculate Your Return On Investment (2026)

Solar panels deliver a typical return on investment of 150-400% over their 25-year lifespan, with an internal rate of return (IRR) of 10-20% depending on your electricity rate and location. In many states, solar outperforms the S&P 500 on an after-tax basis — and unlike stocks, solar savings are tax-free and virtually guaranteed. Use the calculator below to estimate your specific ROI based on your electricity costs, system size, and incentives.

Calculate Your Solar ROI

State

System size

Cost per watt (installed)

$/W

Federal tax credit

Electricity rate inflation

%/yr

Estimated payback period

0years

For a 5 kW system in California at $2.85/W with 30% tax credit

System cost (after ITC)

$9,975

$14,250 before tax credit

Year 1 savings

$2,774

11,096 kWh at $0.25/kWh

25-year net profit

$91,163

$101,138 total savings

Cost by state Peak sun hours

The Solar ROI Formula

Solar ROI measures the total financial return on your solar investment over the system's lifetime. The basic formula is:

ROI = (Total lifetime savings - Net system cost) / Net system cost x 100

Here is a worked example for a typical 7 kW system:

Item	Value
System cost (pre-credit)	$20,000
Federal tax credit (30%)	-$6,000
Net system cost	$14,000
Year 1 annual production	9,500 kWh
Electricity rate	$0.17/kWh
Year 1 savings	$1,615
Annual rate increase	3%
25-year cumulative savings	$58,600
25-year ROI	319%

The key insight is that your system cost is fixed at installation, but the value of the electricity it produces grows every year as utility rates increase. This escalating savings stream is what drives high ROI numbers over 25 years.

What Drives Solar ROI

Not all solar installations deliver the same returns. Five factors determine whether your ROI lands at 150% or 400%.

1. Electricity Rate

This is the single biggest driver of solar ROI. Every kWh your panels produce offsets a kWh you would have purchased from the grid. The higher your electricity rate, the more each kWh is worth.

Electricity Rate	Year 1 Savings (9,500 kWh)	25-Year Savings (3% escalation)	ROI (on $14,000 net cost)
$0.12/kWh	$1,140	$41,400	196%
$0.17/kWh	$1,615	$58,600	319%
$0.22/kWh	$2,090	$75,900	442%
$0.30/kWh	$2,850	$103,500	639%

The national average is $0.17/kWh, but rates vary enormously. Hawaii averages $0.43/kWh, Connecticut $0.29/kWh, and Massachusetts $0.28/kWh — making solar extremely profitable in those states. Meanwhile, states like Louisiana ($0.10/kWh) and Idaho ($0.11/kWh) have lower returns.

2. Electricity Rate Inflation

Utility rates have increased an average of 2.5-3.5% per year over the past two decades. This compounds significantly over 25 years. At 3% annual inflation, a $0.17/kWh rate becomes $0.35/kWh by year 25 — meaning your solar panels produce electricity worth twice as much as when they were installed.

The difference between 2% and 4% rate inflation on a $14,000 system is massive:

At 2% inflation: $48,600 in 25-year savings (247% ROI)
At 3% inflation: $58,600 in 25-year savings (319% ROI)
At 4% inflation: $71,200 in 25-year savings (409% ROI)

3. Net System Cost

Lower upfront cost means higher ROI. The 30% federal tax credit (available through 2032) is the single biggest cost reducer for most homeowners. State incentives can further reduce net cost:

Massachusetts SMART program: $0.05-$0.08/kWh production incentive for 10 years
New York NY-Sun: $0.20-$0.40/W upfront rebate
South Carolina: 25% state tax credit (up to $3,500)
Federal ITC: 30% of installed cost (no cap)

4. Solar Resource

Homes in Phoenix (5.7 peak sun hours) produce about 40% more electricity per installed watt than homes in Seattle (3.6 peak sun hours). More production means more savings per dollar invested.

However, solar resource alone does not determine ROI. Seattle has high electricity rates ($0.12-$0.15/kWh) that partially compensate for lower production, while Phoenix has low rates ($0.12-$0.14/kWh) that offset its production advantage. States like Massachusetts — moderate sun but very high rates — often deliver better ROI than sunnier states.

5. Net Metering Policy

If your state offers full retail net metering, every kWh you export to the grid earns the full retail rate as a credit. This maximizes the value of your production and improves ROI. States like California that have moved to reduced-rate net metering (NEM 3.0) lower the ROI for systems without battery storage.

Solar Vs. The Stock Market

Homeowners often ask whether the $14,000-$20,000 they would spend on solar would earn more in the stock market. Here is how the comparison shakes out.

S&P 500 average annual return: ~10% nominal (7% after inflation). But stock returns are taxed — capital gains tax of 15-20% reduces the effective return to roughly 5.5-8.5% after tax and inflation.

Solar typical IRR: 10-20%. And solar savings are tax-free — you do not pay income tax on electricity you avoid purchasing. The after-tax comparison:

Investment	Nominal Return	After Tax	After Inflation (3%)
S&P 500	10%	8-8.5%	5-5.5%
Solar (avg market)	12-15%	12-15% (tax-free)	9-12%
Solar (high-rate state)	18-25%	18-25% (tax-free)	15-22%

Solar also has near-zero volatility. The sun rises every day regardless of market conditions, recessions, or geopolitical events. Your savings are predictable within a narrow band determined by weather patterns.

The main trade-off is liquidity. You cannot sell your solar panels on a Thursday afternoon if you need cash. Solar is a long-term, illiquid investment that pays out as avoided utility bills each month.

25-Year ROI By State

Here are estimated 25-year ROI figures for a 7 kW system at $2.85/W pre-credit, using each state's average electricity rate and solar resource:

State	Avg Rate ($/kWh)	Peak Sun Hours	Estimated 25-Year ROI
Hawaii	$0.43	5.2	550-650%
Massachusetts	$0.28	4.2	350-420%
Connecticut	$0.29	4.1	340-410%
California	$0.27	5.4	330-400%
New York	$0.22	4.0	250-320%
New Jersey	$0.18	4.3	220-280%
Colorado	$0.15	5.3	200-260%
Texas	$0.14	5.0	170-230%
Florida	$0.14	5.2	170-230%
Ohio	$0.15	4.0	150-200%
Washington	$0.12	3.6	100-150%
Louisiana	$0.10	4.8	90-130%

Factors That Reduce ROI

While solar economics are strong in most markets, several factors can erode returns:

Panel degradation. Modern panels lose 0.25-0.50% efficiency per year. At year 25, output is 87-94% of original. This modest decline is already included in the calculations above.

Inverter replacement. String inverters typically last 12-15 years and cost $1,500-$2,500 to replace. Microinverters last 25+ years and generally do not need replacement within the system lifetime. Budget $2,000 for inverter replacement if using a string inverter.

Maintenance. Solar maintenance is minimal — $100-$300/year for monitoring and occasional cleaning. Total 25-year maintenance cost: $2,500-$7,500.

Insurance increase. Some homeowner's insurance policies increase premiums by $50-$200/year for solar systems. Check with your insurer.

Opportunity cost of roof space. Once panels are installed, that roof area is committed for 25 years. If you need a roof replacement, panel removal and reinstallation costs $1,500-$3,000.

Even accounting for all these factors, the net 25-year ROI remains strongly positive in most US markets.

How To Maximize Your Solar ROI

Right-size your system. Match system size to your actual usage. Oversizing wastes money if your state has poor export credits. Undersizing leaves savings on the table.

Claim every incentive. Federal ITC (30%), state credits, utility rebates, SRECs (Solar Renewable Energy Certificates in NJ, MA, MD, DC, OH, PA, IL). Missing any of these directly reduces ROI.

Choose efficient equipment. Higher-efficiency panels produce more kWh per installed watt, increasing savings. Premium panels also degrade more slowly, maintaining production longer.

Optimize panel placement. South-facing, 15-35 degree tilt, minimal shading. Each percentage point of production improvement compounds over 25 years.

Lock in net metering. In states where net metering policies are changing, installing sooner may grandfather you into more favorable export credit rates.