How we calculate solar ROI.

Overview

Our calculator answers one question: over the next 25 years, will a homeowner save more money on electricity than they spend on a solar PV system? It does so through five sequential calculations, each derived from a single public data source:

1. Convert the dollar bill into kilowatt-hours.
2. Translate kilowatt-hours into the system size that would produce them.
3. Multiply system size by an installed cost per watt.
4. Apply the 30% Residential Clean Energy Credit (IRS §25D).
5. Project 25 years of cumulative savings under transparent assumptions.

We deliberately do not include state rebates, utility-specific net-metering rules, financing, or battery storage. Those decisions are too local and time-sensitive to embed in a national average; we surface them separately on our state pages and in our guides.

Step 1 — Convert the bill into annual energy use

The starting point is your average monthly utility bill in dollars. We convert it to kWh:

monthly_kWh = monthly_bill / state_avg_rate
annual_kWh = monthly_kWh × 12

Step 2 — Size the system from peak sun hours

To produce annual_kWh from solar, we need a system of size:

system_size_kW = annual_kWh / (peak_sun_hours × 365 × performance_ratio)

Peak sun hours is the daily average number of hours at which solar irradiance averages 1,000 W/m² — the standard test condition for a PV module's nameplate rating. We use state-level averages derived from the NREL National Solar Radiation Database, weighted toward population centres. The figures on this site are hand-keyed approximations from NSRDB published data; for site-specific values use NREL PVWatts directly.

Performance ratio (PR) bridges the gap between nameplate DC output and actual delivered AC energy. We use 0.80, the long-standing industry default endorsed by NREL's PVWatts engine for well-designed residential systems.

Step 3 — Compute installed cost

cost_per_watt = $2.90 × roof_multiplier
gross_cost = system_size_kW × 1000 × cost_per_watt

$2.90 / W DC is the midpoint of the $2.50–$3.30 range that multiple market trackers report for US residential cash-purchase systems in the 6–10 kW range:

• EnergySage Solar Marketplace Report — H2 2024 median $2.75/W (cash, pre-incentive).
• Wood Mackenzie / SEIA US Solar Market Insight — Q3 2024 residential blended cost $3.10/W.
• NREL US Solar PV System Cost Benchmark — Q1 2024 modeled $2.94/W (7 kW residential).

Roof multipliers reflect installation-labor variance: shingle 1.00, standing-seam metal 1.05, tile 1.15.

Step 4 — Apply the Federal tax credit

federal_credit = gross_cost × 0.30
net_cost = gross_cost − federal_credit

Authority: 26 U.S.C. § 25D, the Residential Clean Energy Credit, as amended by §13302 of the Inflation Reduction Act of 2022 (P.L. 117-169). The credit equals 30% of qualifying expenditures for systems placed in service in tax years 2022 through 2032, stepping down to 26% in 2033 and 22% in 2034.

Step 5 — Project 25 years of cumulative savings

For each year n in 1 … 25 we compute:

kWhn = system_size_kW × peak_sun × 365 × PR × (1 − 0.005)^(n−1)
raten = state_rate × (1 + 0.029)^(n−1)
savingsn = kWhn × raten

Cumulative savings begin at −net_cost and accumulate yearly. The payback year is the year cumulative savings first cross zero, reported as a fractional value via linear interpolation within the crossing year.

Constants reference

All constants are declared at the top of classes/SolarCalculator.php in the source tree for direct audit.

Limitations & honest caveats

This calculator is intentionally simple. The five most important things it does not model are:

• Tariff structure. We treat retail electricity as a single $/kWh rate. Tiered and time-of-use rates can shift payback by ±2 years.
• Net metering vs. net billing. Our 1-for-1 retail offset is roughly true under NEM 1.0/2.0; California NEM 3.0 and similar "net billing" regimes compensate exports at much lower avoided-cost rates.
• Battery storage. Storage can recover much of the value lost under NEM 3.0 and provide outage backup, but its economics depend on local rate spreads and battery chemistry.
• Roof geometry. A south-facing 30° tilt and a north-facing 15° tilt in the same Phoenix neighbourhood produce very different energy. PVWatts is the right tool.
• Installer pricing variance. Real-world quotes routinely span ±30% of our $2.90/W national midpoint for identical equipment.

Methodology changelog

We commit to dating and listing every change to formulas or constants here so prior results remain auditable.