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Simple payback divides net system cost by first-year savings. However, this ignores rate escalation and degradation, so levelized methods provide more accurate break-even timing.
Simple Payback = Net System Cost / Year 1 SavingsAccounts for annual utility rate increases (typically 2-4%), panel degradation (0.5%/year), inverter replacement (year 12-15), and ongoing O&M costs. Break-even occurs when cumulative savings equal cumulative costs.
Year N savings = kWh × (1-degradation)^N × Rate × (1+escalation)^N - O&MUpdated: July 2026
Typical US residential installation with 30% federal tax credit.
→ Break-even: ~8.5 years (with 3% rate escalation)
Small business system with MACRS depreciation and ITC stacking.
→ Break-even: ~5.5 years
Panels degrade 0.5-0.7% per year. A 10 kW system in year 20 produces approximately 90% of year-1 output. Failing to model this overstates lifetime savings by 8-12%.
String inverters typically need replacement at year 12-15 ($1,500-3,000). Microinverters have 25-year warranties but higher upfront cost. Include this in your total cost of ownership.
Calculate the payback period for a grid-tied solar installation by modeling system cost, annual production, electricity rate escalation, panel degradation, and O&M expenses over the system lifetime. Critical for comparing solar investment against alternative uses of capital.