Solar ROI — methodology

Your real cost

We strip the sticker price down to what you actually pay:

federal credit = (gross cost − state grant) × credit rate
net cost = gross cost − state grant − federal credit

Important for 2026: the federal residential solar credit (IRC §25D) ended after 2025, so the calculator defaults the federal credit to off. We keep a “legacy 30%” toggle so you can see what the deal would have looked like, or model a state-equivalent credit — but verify any credit you claim with a tax professional.

Year-by-year savings

For each year of the system's life we compute the dollar value of the power it produces, accounting for panels slowly degrading and utility rates slowly rising:

savings(year) = annual production × (1 − degradation)^year × rate × (1 + utility inflation)^year

Summing those gives lifetime savings; lifetime profit is lifetime savings minus net cost (and minus financing interest, if you finance rather than pay cash — financed deals therefore show a lower return automatically).

Payback, IRR, and the comparison

• Payback is the first year cumulative savings clear your net cost (we interpolate within the year for a smoother number).
• IRR is the internal rate of return on the cash-flow stream [−net cost, savings₁, savings₂, …], solved with Newton's method and a bisection fallback for ill-conditioned inputs.
• The honest comparison: we show what the same net cost would become in a money-market account (~4%) and a broad index fund (~8%) over the same horizon, plus the “stock-market breakeven” return — the rate the market would need to hit to match solar's lifetime dollars.

Tracking actuals

Once a system is installed you can log real monthly production and dollar value. We annualize the logged months — but we warn you when the data is summer-only (ROI looks too high) or winter-only (too low), and when you have under six months of data, because solar output swings hard with the seasons.

What we don't model

• Detailed net-metering rules and rate schedules by utility
• Battery storage economics
• SREC market price changes over time
• Roof replacement or removal/reinstall costs
• Home-resale-value impact

The honest caveat

This is an estimate, not tax, investment, or legal advice. Production estimates, utility rates, incentives, and panel performance all vary. Confirm incentives and net-metering terms with your installer and a tax professional before signing. Run the calculator to see your numbers, or read our Editorial Policy.