Solar Investment vs. Other Investments: Which is better?

Forget stock market gambles and complicated investment vehicles – solar investment is an ideal, reliable, highly profitable alternative to traditional investments.

The fact is well-established that solar panels are an excellent tool to access the biggest alternative energy source on the planet, the sun. And they are also useful for disconnecting from increasingly unreliable and expensive power grids – all while doing your part to create a sustainable future for the Earth.

But, in addition to all of those benefits, solar panels themselves are also wise long-term financial investments that pay dividends over decades. Let’s find out how.

The key points we’ll cover here are to determine the long-term return on solar investment, and how they stack up against other popular investments.

What Return on Investment Means (and How to Measure It)

Here is the most straightforward definition of return on investment (often abbreviated as ROI):

“A mathematical formula that investors can use to evaluate their investments and judge how well a particular investment has performed compared to others.”

Large investment banks use ROI calculations to make multi-million (or sometimes multi-billion) dollar decisions and by entrepreneurial startups looking to wow potential investors – but they’re not just for the big financial players.

Homeowners and small business owners, as well, can and should rely on these predictors to make wise spending decisions. ROI is an integral part of any solid investment strategy to maximize value (the “return”) with minimal cost (the “investment”).

There are multiple methods to gauge ROI, some more complicated than others. The most common and simplest equation for determining the ROI of solar panels is below:

ROI = net return / cost of investment x 100%

So how does the formula apply to solar panels?

How Can I Determine the Return on Investment That Solar Panels Provide?

Here’s how ROI calculations apply to solar panels.

Finding the Cost of Solar Investment

First, you’ll want to evaluate the cost of investment portion of the equation to figure out how much you’re going to spend in the final tally on installing and maintaining solar panels for however long you plan to own the home (which might be decades for many).

Here’s a basic formula for determining solar panel investment cost:

Cost of solar investment = total money into the project – value of incentives/rebates

The total money into the project may include expenses like:

  • Cost of the system itself
  • Installing the system
  • Getting the necessary permits for the system
  • Maintaining the system (sometimes for decades), including minor repairs

You should also take into account the value of incentives – for example, Floridians qualify for federal income tax credits via the federal residential solar energy credit:

“In December 2020, Congress passed a… a 26% tax credit for systems installed in 2020-2022, and 22% for systems installed in 2023. (Systems installed before December 31, 2019 were eligible for a 30% tax credit.)”

solar investment tax credit

That means, if you install your solar panel system in 2022, then you are eligible to receive up to 26% of the system’s cost back in reduced federal taxes. The only requirement is that the solar system is used to generate electricity for a residence, and no maximum limit caps the total amount.

Florida residents also qualify for Residential Solar System Tax Exemption as well as net metering (in which your utility provider buys any excess energy produced by your solar system).

As the economy gears increasingly towards renewable energy, you may qualify for other, unexpected incentive programs as well – which you should also factor into the cost of solar investment portion of the ROI calculation.

Finding Solar Panels’ Return on Investment

So, now that you’ve determined the cost of solar investment, the next step is to calculate the other part of the equation, the net return that your solar panels bring in.

Here are several important considerations to consider when calculating your net return:

  • Your solar system will likely cover 95%+ of your electricity needs
  •  Electricity prices have inflated in Florida substantially in the last year (a typical Florida home’s energy usage of 1,000 kilowatt hours increased from $101.70 to $120.67). Forecasting further out, these prices will likely inflate further each year that you have your solar system – which means ever-increasing savings on costly utility bills
  • General inflation will dilute the power of your dollar moving forward (the cost of solar energy doesn’t increase)
  • Your warranty will protect against unexpected costly repairs

Adding up the total net return (monthly electricity bill savings over 25-30 years), your final ROI calculation will likely show upwards of a potential 250% ROI across 2-3 decades. Most homeowners’ ‘”break-eve point” (the point at which the solar panels have paid for themselves in full) occurs at the 8-year mark.

Comparing Solar Investment to Other Investments

Forbes Magazine puts the threshold for a solid investment at 7% ROI (after adjusting the figure for inflation). As we discussed previously, solar panels’ ROI greatly exceed 7%.

Let’s compare solar to some other common investment options:

It’s worth emphasizing the low-risk nature of solar panel investment – given the warranty that you get with your system, it’s as close to a sure thing as you can get, and much safer than, for example, an investment in the volatile stock market.

What Makes Solar Panels a Great Investment?

Here are a few reasons that solar panels are a great investment:

  • Generous tax incentives
  • A hedge against rising energy costs
  • Reliable, consistent returns with low risk
  • Adds value to your property
  •  Investment is protected by warranty
  • Financing is an option

Invest in the Long-Term Value of Your Property By Joining the Compass Solar Family of Northwest Florida

Compass Solar is the definitive solar panel leader of Pensacola and the wider Northwest Florida community.

Since first opening our doors in 1998, we’ve helped thousands of Floridians maximize the long-term value of their properties with solar panel investments. You can read some of their testimonials here.

Give us a call at (850) 446-4773, stop by our offices at 2302 Town Street in Pensacola, or book a demonstration online to learn more about the solar panel services we provide.