Solar Panel Savings Calculator
Solar panels can significantly reduce household electricity bills while cutting carbon emissions. This calculator estimates how much energy your solar system will produce each year, how much money you will save on electricity, how quickly the system pays for itself, and what your 25-year net return looks like after accounting for the federal Investment Tax Credit (ITC). Annual energy output is calculated using the NREL PVWatts method: system size in kilowatts multiplied by 1,000 to convert to watts, then by daily peak sun hours, 365 days per year, and an 80% system efficiency factor that accounts for inverter losses, wiring, shading, and temperature derating. The federal ITC reduces your net system cost by 30% for systems installed through 2032 under the Inflation Reduction Act. Annual savings equal the kilowatt-hours produced multiplied by your local electricity rate. Payback period is the net cost divided by annual savings. The CO2 offset uses the EPA national average grid emission factor of 0.386 kg of CO2 per kilowatt-hour. Enter your system details below to see a personalised estimate. This tool provides general estimates only and does not replace a quote from a licensed solar installer.
Estimated annual savings: -- and payback period: -- years.
How the solar savings calculation works
The annual energy production estimate follows the NREL PVWatts method, which is the industry standard for residential solar estimates used by installers and utility companies across the United States.
Annual kWh = system_kW × 1,000 × peak_sun_hours × 365 × 0.80
Annual savings ($) = annual_kWh × electricity_rate
Net cost ($) = system_cost × (1 - ITC_rate / 100)
Payback (years) = net_cost / annual_savings
25-year net savings ($) = (25 × annual_savings) - net_cost
CO2 offset (kg/yr) = annual_kWh × 0.386
Worked example
6 kW system, 4.5 peak sun hours, $0.16/kWh, $18,000 system cost, 30% ITC:
- Annual kWh = 6 × 1,000 × 4.5 × 365 × 0.80 = 7,884 kWh
- Annual savings = 7,884 × $0.16 = $1,261.44
- Net cost = $18,000 × 0.70 = $12,600
- Payback = $12,600 / $1,261.44 = 9.99 years
- 25-year net savings = (25 × $1,261.44) - $12,600 = $18,936
- CO2 offset = 7,884 × 0.386 = 3,043.22 kg/year
Key assumptions and limitations
This calculator assumes a fixed electricity rate, no electricity price inflation, and no system degradation over time. Real solar panels lose approximately 0.5% of output per year (per NREL data), meaning savings in year 25 will be slightly lower than in year 1. The 80% efficiency factor is NREL's recommended default for residential systems without shading; heavily shaded systems may perform closer to 70%.
The federal ITC applies to the full installed cost including labour, racking, wiring, and the inverter. State and local incentives (utility rebates, net metering credits, state tax credits) are not included here but can further reduce payback. Check your state energy office and utility for available programmes.
| US Region | Typical Peak Sun Hours |
|---|---|
| Southwest (AZ, NM, NV, CA desert) | 5.5 to 7.0 |
| Southeast (TX, FL, GA) | 4.5 to 5.5 |
| Midwest (IL, OH, MI) | 3.5 to 4.5 |
| Northeast (NY, MA, PA) | 3.5 to 4.5 |
| Northwest (WA, OR) | 3.0 to 4.0 |
Source: NREL National Solar Radiation Database (NSRDB). Use NREL PVWatts for a precise figure for your address.
Solar savings calculator: frequently asked questions
How is solar panel payback period calculated?
Payback period is calculated by dividing the net system cost (after applying the federal Investment Tax Credit) by the annual electricity savings. For example, a $18,000 system with a 30% ITC has a net cost of $12,600. If the system saves $1,209.60 per year, the payback period is about 10.4 years. After that point, savings are effectively free energy from sunlight.
What is the federal solar Investment Tax Credit (ITC)?
The federal ITC is a tax credit equal to a percentage of the total solar system installation cost. Under the Inflation Reduction Act, the credit is 30% for systems placed in service from 2022 through 2032, dropping to 26% in 2033 and 22% in 2034. The credit is claimed on IRS Form 5695. It reduces your federal income tax liability dollar-for-dollar, not just a deduction. Consult a tax professional to confirm eligibility for your situation.
What are peak sun hours and how do I find mine?
Peak sun hours represent the number of hours per day when solar irradiance averages 1,000 watts per square metre, equivalent to full sunlight. They are not the same as hours of daylight. A location with 4.5 peak sun hours receives the solar energy equivalent of 4.5 hours of full sun. NREL's PVWatts tool and National Solar Radiation Database provide location-specific peak sun hour data for every US location.
What efficiency factor is used in this calculator?
This calculator uses a system efficiency factor of 0.80 (80%), which is the standard default used by NREL's PVWatts calculator. This factor accounts for typical real-world losses including inverter inefficiency, wiring losses, shading, soiling, temperature derating, and system downtime. NREL recommends 80% as a conservative default for residential systems. High-efficiency inverters and optimisers can push this closer to 85%.
Does this calculator account for electricity price inflation?
This calculator uses a fixed electricity rate to keep the calculation transparent and auditable. In practice, electricity prices tend to rise over time, which would increase savings in later years and shorten the effective payback period. The EIA projects modest electricity price growth over the long term. For a more conservative estimate, use today's rate; for an optimistic estimate, model a higher future rate by adjusting the electricity rate input.
Official sources
- NREL PVWatts Calculator: pvwatts.nrel.gov.
- IRS Form 5695 (Residential Energy Credits): irs.gov/forms-pubs/about-form-5695.
- EIA Average Retail Electricity Prices: eia.gov/electricity/data/browser.
- EPA GHG Equivalencies Calculator: epa.gov/energy/greenhouse-gas-equivalencies-calculator.
Reviewed by the CalculatorHub team, edited by James Graham, 14 June 2026. See our methodology. General information only, not financial or tax advice.