What is the difference between simple and discounted payback?

Simple payback ignores the time value of money and just divides cost by annual savings, escalated each year. Discounted payback applies your discount rate so a dollar saved in year 15 counts for less than one saved today. Discounted payback is always longer and is the more conservative figure.

Why does the utility rate escalation matter so much?

Electricity prices have historically risen faster than general inflation. A 3 percent annual escalation means the energy your panels offset is worth more each year, which shortens payback and increases lifetime savings substantially over a 25-year horizon.

Does this assume full net metering?

It assumes every kilowatt-hour produced offsets a kilowatt-hour you would otherwise buy, valued at the rate you enter. Under net billing or lower export rates, enter a blended effective rate so the credit reflects what you actually receive for exported energy.

Should I include panel degradation?

This simplified model holds annual production constant. Real panels degrade roughly 0.5 percent per year, so reduce your production input slightly or treat the 25-year savings figure as a modest overestimate. The escalation usually outweighs degradation.

What discount rate should I use?

Use a rate reflecting your cost of capital or the return you would otherwise earn, often 3 to 6 percent for a homeowner. A higher discount rate lengthens discounted payback because future savings are valued less.

Net Metering Payback Period Calculator

A grid-tied solar system pays for itself by replacing electricity you would otherwise buy, with net metering crediting any surplus you export. This calculator turns your system cost, production, and utility rate into a clear payback period and a 25-year savings figure, accounting for rising electricity prices and the time value of money.

How it works

Each year the array offsets energy worth more than the year before, because utility rates escalate:

savings(year n)   = annualProduction × rate × (1 + escalation)^(n-1)
cumulative        = running sum of yearly savings
simple payback    = first year cumulative savings ≥ system cost
present value(n)  = savings(year n) / (1 + discount)^n
discounted payback = first year cumulative present value ≥ system cost

Simple payback uses raw savings; discounted payback discounts each year’s savings to present value first, giving a more conservative recovery time. The 25-year total sums all yearly savings over the typical warranty life.

Example and tips

A 15,000 unit system producing 9,000 kWh per year at 0.18 per kWh saves about 1,620 in year one. With 3 percent annual rate escalation it reaches simple payback in roughly 8 years and produces well over 50,000 in cumulative 25-year savings. Use your effective export rate, not retail, if your utility pays less for exported energy than it charges, and trim production slightly to allow for panel degradation over the system’s life.