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Solar Infographic: 50 States of Solar Investment Returns

Avatar for Ben Zientara
Published on 12/05/2016 in
Updated 10/23/2018

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Solar Infographic: Investment Return in the United States

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Nice infographic. What’s it mean?

Hi there, folks! We’ve been working hard on the 2017 version of our state solar power rankings report, and we’re ready to dish some data! We thought the information about the investment returns of solar power deserved to escape our sealed envelope before the rest of the report was ready for publishing.

What you see in the graphic up there are bars representing the potential returns on a solar investment for all 50 states and the District of Columbia. The bars reach closer to the center of the sun as the investment return percentage goes up. Every state is graded A-F on their investment return, and bars that signify A and B grades are burnin’ hot!

We tried to make this infographic an easy way to see that and investment in solar beats the stock market in most states. The current 25-year performance of the S&P 500 is about 7% (not adjusted for inflation), which pales in comparison to the returns with solar in places like Massachusetts (28.5%), New York (25.1%), and New Jersey (22.5%).

But solar even meets the 7% threshold in places you wouldn’t expect, like Wisconsin and Minnesota. That’s the big, shocking news we hope the infographic conveys in a compelling way.

How we calculate Investment return for solar

There are a ton of variables that go into calculating the numbers you see above. Basically, it boils down to costs and income (energy savings and incentive payments). We plot those numbers on a graph for 25 years (the length of major panel manufacturer’s warranties), and do the math to find the payback time, Internal Rate of Return, and Net Present Value.

For 2017, we added a new variable called panel degradation. Solar panels don’t last forever, but that warranty means the manufacturers guarantee their panels will continue to function at better that 80% of their rated production after 25 years. That’s a loss of about 0.7% of output per year. Some manufacturers now report better-than-expected degradation rates of less than 0.5%, but until the lengths of those warranties increase, we’re sticking with 0.7%.

Here’s how the calculation works:

  • Year 1 (cost): Cost of solar panels, minus rebates, electricity bill savings, and tax credits (including the federal 30% tax credit)
  • Year 2-25 (income): Electricity bill savings and SREC payments; additional tax credits (if applicable)

Paying for electricity from the utility company gets more expensive each year by an average of 3.5%. That means electricity bill savings get larger every year, even as the panels produce slightly less electricity. SREC payments vary widely by state, but generally last a few years after installation. State solar tax credits often have per-year caps that mean you only get a certain amount until your full credit has been claimed.

Here’s how that looks in a chart of the cumulative returns over 25 years:

2017 solar payback in Connecticut

Once we put all of that together, we find the “Internal Rate of Return,” or IRR, a tool used by businesses to determine the best ways of investing their money. The IRR is the interest rate you would have to get to equal the return this investment provides.

According to our calculations, the average IRR of a solar investment in the US as of 2017 is 9.24%. Better than the stock market! For reference, the IRR in the Connecticut chart above is 17.7%, which is like “whoa, crazy” good.

But this is just the beginning. We do these kinds of calculations for all 50 states, so head over to our home page and click your state for more info!

Last modified: October 23, 2018

4 thoughts on “Solar Infographic: 50 States of Solar Investment Returns

  1. Avatar for Matt Matt says:

    I remain skeptical. First, relying on other people’s money for subsidies doesn’t indicate a real rate of return but rather a return on stolen money. In your calculations, how much did you deduct from the ROI for maintenance? Do I have to brush the snow off my panels in the winter? Clean them periodically? And decommissioning costs, are those included? Also, the S&P 500, with dividends reinvested, yields closer to 9-10% over most long periods.

    1. Avatar for Ben Zientara Ben Zientara says:

      Hi, Matt-

      I wouldn’t say “stolen money.” We, as a nation, subsidize what we find valuable. In this case, that’s the potential for people to produce 25 years of carbon-free electricity. I’d guess the sum total cost of the ITC during its tenure pales in comparison to other line items in the budget that are far less popular.

      Subsidies like the ITC and utility rebates have led to a great decline in the installed cost of solar, which can be seen as a direct benefit to those companies now working to install, many of whom wouldn’t have the business if the cost to install was as high as it was 10 years ago. The revenue they generate is taxed and adds to the economy, which is essentially a repayment of the money used to fun the ITC in the first place.

      Regardless of subsidy, the major financial benefit of home solar comes in the form of long-term electric bill savings, and in the highest-electricity-cost states, would lead to better-than-opportunity-cost benefits even without subsidies.

      Solar panels are virtually maintenance-free. Simply spraying them off with a hose is usually all that’s needed for cleaning, unless you live in a particularly dusty or pollen-filled environment. They do slowly degrade over the long term so that, by the end of year 25, they should be able to put out at least 85% of their initial output rating. That degradation is taken into account in our calculations.

      As of this writing (Feb 19,2019), the inflation-adjusted 25-year return of the S&P 500 with dividends reinvested was 7.078% over the past 25 years.

  2. Avatar for Anonymous Anonymous says:

    Very great point on the need to split the ROI calculations into the first year, in addition to the following 24 years.

  3. Avatar for victoria langan victoria langan says:

    My team is representing Solar power in the Chicago Polar Plunge in March 2017. I hope you will come and hand out literature about solar panels and saving money. The team I put together is The Solar Polar. I have already registered my team. I personally want solar panel roofing for my house. It would be the first one in my town if I do! Contact me if you want to be represented and sponsor us.

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