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.

What is the Net Metering Payback Period Calculator?

Subtract net-metering export credits from your utility bill, amortize system cost over 25 years with a configurable utility-rate escalation, and read both simple and discounted payback periods plus lifetime savings. Built for grid-tied solar economics. Runs in your browser. It runs free in your browser on Gera Tools, with nothing uploaded.

Net Metering Payback Period Calculator

Name: Net Metering Payback Period Calculator
Creator: Gera Tools
License: https://creativecommons.org/licenses/by/4.0/

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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.

Why two payback numbers matter

Most solar quotes show a single payback figure. That figure is almost always the simple payback — it ignores that a dollar saved in year 15 is worth less than one saved today. A discounted payback corrects this by applying a discount rate to each year’s savings before adding them up. The discounted figure is always longer and is the more honest number to use when comparing solar against other investments or loans. Both are useful: simple payback for a quick sanity check, discounted payback for a rigorous comparison.

How it works

Each year the array offsets energy worth more than the year before because utility rates escalate. The formulas:

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

25-year total      = sum of savings(years 1..25)

Simple payback uses raw dollar savings; discounted payback discounts each year’s savings to today’s dollars first. The 25-year total sums all yearly savings over the typical panel warranty life, including the compounding effect of rate escalation.

Worked example

A system costing $15,000 net of incentives produces 9,000 kWh per year. Current utility rate is $0.18/kWh, annual rate escalation 3%, discount rate 5%.

Year 1 savings: 9,000 × $0.18 = $1,620
Year 10 savings (after escalation): $1,620 × 1.03^9 ≈ $2,113
Simple payback: roughly 8 years
Discounted payback: roughly 10–11 years at 5% discount
Cumulative 25-year savings: well above $50,000

If the utility pays a lower export rate for surplus energy (net billing instead of full net metering), enter the blended effective rate — weighted by the share of energy self-consumed versus exported — to get an accurate picture.

What to watch for

Panel degradation. Real panels lose around 0.5% of output per year. This simplified model holds production constant, so treat the 25-year total as a modest overestimate. You can compensate by reducing your production input by a few percent.

Utility rate choice. Use the retail rate if you self-consume most of your production and only export a small surplus. Use a lower blended rate if your utility pays feed-in tariff prices for exported power rather than the full retail rate.

Discount rate. A homeowner with a low-cost loan or cash might use 3–4%. Someone comparing solar against other investments might use 6–8%. The higher the discount rate, the longer the discounted payback — but the 25-year savings figure still shows the absolute gain regardless of discount choice.