#How the system is sized
Solar quotes are deliberately hard to compare, so this calculator starts from the one number you already know: your electricity bill.
Dividing your monthly bill by your utility rate per kilowatt-hour gives your consumption. Annualise it, apply your target offset, and you have the production the array must deliver. Converting that to system size requires two adjustments most sales estimates skip:
kW needed = annual kWh required / (peak sun hours × 365 × derate × orientation factor)The derate factor of 0.86 accounts for inverter losses, wiring resistance, soiling, and the fact that panels lose efficiency as they heat up. Nameplate ratings are measured at 25°C; a roof in July is considerably hotter. The orientation factor penalises anything other than a true south-facing array — an east or west facing roof loses roughly 18% of its potential.
#Understanding payback
Payback is the year in which cumulative electricity savings exceed your net system cost. Three things drive it:
Your utility rate. This is the dominant variable. A homeowner paying $0.32/kWh in California reaches payback in half the time of one paying $0.11/kWh in Washington, with an identical system on an identical roof. Solar is not a bet on sunshine so much as a bet on electricity prices.
Utility rate inflation. US residential electricity has risen at roughly 3% to 4% annually over recent decades, and the model compounds your savings accordingly. This is why year-25 savings are so much larger than year-one savings — you are locking in today's price against three decades of increases.
Incentives. The federal residential clean energy credit covers 30% of total system cost including installation and battery storage. It is a credit against tax owed, not a deduction, so it is worth its full face value to anyone with sufficient tax liability. It is non-refundable but unused amounts carry forward.
#What the internal rate of return tells you
The IRR figure converts your 25-year cash flow into an equivalent annual return, so you can compare a solar investment against anything else you might do with the money. A system with an eight-year payback typically returns 10% to 14% annually.
That return is also effectively tax-free, because you are avoiding a bill rather than earning income. A 12% tax-free return is equivalent to roughly 17% pre-tax for a household in the 28% marginal bracket — a comparison worth making before assuming the stock market is the better use of the cash.
#Should you add a battery?
Batteries make financial sense in three situations and are usually a poor investment otherwise:
- Your utility has replaced full retail net metering with a low export rate, so exported power is worth far less than power you consume
- You are on a time-of-use tariff with a large peak-to-off-peak spread
- Outages are frequent enough that resilience has genuine value to you
Under full retail net metering, the grid acts as a free, infinitely large battery. Adding storage in that environment typically lengthens payback by three to five years and reduces IRR substantially. Toggle the battery option to see the effect on your specific numbers.
#Buy, loan or lease?
Cash purchase captures the tax credit, all the savings, and adds resale value. It produces the best return by a clear margin.
Solar loan is usually sound if the rate is below about 6%, since the electricity savings typically exceed the loan payment from day one. Watch for dealer fees rolled into the financed amount — a "0% APR" solar loan almost always carries a 15% to 25% price uplift that funds the buydown.
Lease or power purchase agreement routes the tax credit to the installer, delivers a much smaller share of the savings to you, and frequently complicates a future home sale because the buyer must assume the contract. Avoid unless you have no tax liability to offset.
#How to use this before signing anything
Take the quoted price per watt from each proposal and enter it here. Reputable US installers currently land in the $2.75 to $3.35 per watt range before incentives; anything materially above that needs justification. Compare the resulting payback and IRR across proposals rather than comparing monthly payment figures, which are engineered to look similar.
Then verify three things the calculator cannot know: your roof's remaining life (replacing a roof under an array costs thousands), your utility's current net metering rules, and whether the production estimate in the proposal matches what this calculator suggests. A proposal claiming production more than 10% above this model's estimate deserves a direct question about how it was derived.