Solar Panel ROI: How to Calculate Your Solar System’s ROI

Updated: June 26, 2025

At Solar Topps, we believe in transparency when discussing the return on investment (ROI) for your solar project. While some companies make complex ROI claims based on numerous assumptions about future utility rates and home values over 20+ years, we prefer a straightforward approach that gives you a clear picture of your investment’s value. At Solar Topps, we serve the entire state of Arizona, so please come to us for a Residential or Commercial quote. 

The Simple Solar Panel ROI Calculation 

The most direct way to calculate your solar panel ROI for your home is by using this simple formula: 

First-Year ROI = (Year 1 Energy Cost Savings) / (Total Cost of Going Solar

Key points to remember:

1. Year 1 Energy Cost Savings
   This is the amount of money you saved on your electricity bill in the first year, thanks to your solar panels.
2. Total Cost of Going Solar
   This includes the cost of the solar panels, installation, permits, and any other upfront expenses related to your solar system. 
3. A Real-World Example
   Let’s walk through a practical example using typical figures for an Arizona home: 
4. System Details
   Our example system is sized at 7.2 kW with an annual production of approximately 12,500 kWh. After applying all available incentives, the total cost comes to $16,500. Using the average Arizona utility rate of $0.17/kWh, we can calculate the potential savings. 

First-Year Solar Panel ROI Calculation 

Energy cost savings equals system production multiplied by the local utility rate. In our example:

12,500 kWh × $0.17/kWh = $2,125 saved in the first year 

This means the first-year ROI is:

$2,125 ÷ $16,500 = 12.9%

Outperforming many traditional investment options, including the average S&P 500 returns (which have averaged about 10.7% annually since 1957), real estate investments, and most savings accounts. Moreover, this return is remarkably stable compared to market-based investments, as sunshine is predictable and utility rates have historically increased over time. 

The Long-Term Financial Picture of your Solar Panel ROI

The calculation becomes even more impressive when you consider multiple factors over time. Energy savings accumulate year after year, especially as utility rates rise, increasing your annual savings. Additionally, homes with solar systems typically sell for more than comparable homes without solar systems. A study by Zillow found that homes with solar panels sell for approximately 4.1% more.

Expanding our example to a 5-year outlook, the total savings over 5 years amount to:

$10,625 (5 × $2,125)

The estimated home value increase is:

$3.00 × 7,200 watts = $21,600

Subtracting the original investment of $16,500 from the combined benefits of

($10,625 + $21,600 = $32,225) - $16,500  

gives us a total 5-year return of $15,725.

This translates to a remarkable 5-year ROI 195%

$32,225 ÷ $16,500 = 195%

In just five years, your investment could nearly triple in value. Few other investments offer this combination of strong returns and minimal risk.

How do you Calculate Commercial Solar Panel ROI?

Calculating the return on investment (ROI) for commercial solar panels involves considering several key factors. First, you’ll need to assess the initial cost of the solar installation, which includes expenses for equipment, labor, and any necessary permits. Next, calculate the system’s energy production over its lifespan, typically 25 to 30 years, and compare it to your current energy expenses. Factors such as utility rate increases, available tax incentives, and solar renewable energy credits (SRECs) must also be factored in. Additionally, maintenance and operational costs should be accounted for to determine net savings. By analyzing these elements, you can gain a clear understanding of the financial benefits and long-term value of investing in commercial solar energy.

What is the Average Solar Panel ROI on Commercial Solar?

The average return on investment (ROI) for commercial solar panels typically falls within the range of 8 to 12 years, depending on factors such as installation costs, energy usage, and local utility rates. Businesses located in regions with higher electricity costs or that receive significant sunlight often see faster payback periods. Additionally, federal and state incentives can significantly reduce upfront installation expenses, further improving the ROI. Over the lifespan of the solar system, which can exceed 25 years, businesses may experience substantial energy cost savings and even generate additional revenue through programs like net metering or selling surplus energy back to the grid. This makes commercial solar a highly attractive option for companies seeking to improve financial performance while supporting sustainability goals.

The Solar Topps Advantage: Accurate, Custom Calculations 

While these example calculations provide a good starting point, every home is unique. At Solar Topps, we use advanced modeling tools that account for: 

• Your roof’s specific characteristics (orientation, pitch, shading) 
• Local Arizona weather patterns 
• Your utility’s rate structure and net metering policies 
• Your household’s energy consumption patterns 
• Current incentives and tax credits 

This personalized approach ensures you receive an accurate projection of your solar investment’s return, not just generic estimates. 

Beyond the Numbers: The Benefits of Calculating Your Solar Panel ROI

While the financial returns are compelling, solar energy provides benefits beyond ROI. Solar installation grants you greater energy independence, reducing your vulnerability to utility rate increases that have become increasingly common. The environmental impact is significant, with each system substantially reducing a household’s carbon footprint—the average home solar system can reduce carbon emissions by 3-4 tons annually. You’ll also benefit from tax advantages, including the 30% federal tax credit and potential state incentives available through 2032. When paired with battery storage, your system provides energy resilience, protecting your home from outages and further increasing your independence from the grid. 

Get Your Personalized ROI Analysis 

At Solar Topps, we recognize that every home is unique. That’s why we offer a comprehensive, personalized ROI analysis tailored to your specific circumstances. We carefully consider your roof’s specific characteristics, including size, pitch, and orientation, as well as local solar irradiance data for your exact location based on the National Renewable Energy Laboratory’s data. Our analysis incorporates your utility’s rate structure, including any time-of-use plans that might affect your savings. We also factor in all available incentives specific to your situation and can include optional battery storage impact on your investment. This thorough approach provides a clear picture of what solar can do for your financial future, without requiring complex spreadsheets or financial expertise on your part. 

Ready to see what solar can do for your bottom line? Contact Solar Topps today for your free, no-obligation solar ROI assessment.