How much do solar panels degrade per year?

NREL research found median degradation of 0.5%/year for modern monocrystalline panels. Premium manufacturers achieve 0.3-0.4%/year. Most manufacturer warranties guarantee 87-92% output at year 25. Use 0.5% for a typical system, 0.4% for premium panels.

What is IRR and is 11% a good return for solar?

IRR (Internal Rate of Return) is the annualized return on your investment, equivalent to what interest rate would produce the same result in a savings account. Solar IRR of 8-14% in medium-to-high electricity rate states is typical and compares favorably against bonds (3-5%) and roughly matches long-run stock market average returns (7-10%).

Does the calculator include the federal tax credit?

Yes — the 30% federal ITC is automatically subtracted from your system cost to compute the net investment, which is the actual capital at risk for payback and ROI calculations. The ITC applies to systems installed through 2032.

What happens if electricity rates don't increase?

Set rate inflation to 0% to model flat rates. Even with no rate inflation, most solar systems achieve payback within 7-12 years in states with rates above $0.12/kWh. Lower rates (below $0.09/kWh) in some rural states make solar economics significantly weaker.

Solar 25-Year Financial Forecast Calculator

Enter system size, cost, and location — get a year-by-year table with production degradation, rate inflation, maintenance costs, payback year, IRR, and NPV.

System & financial parameters

System size?

Install year?

Total system cost?

State?

Current electricity rate?

$/kWh

Rate inflation?

%/yr

Panel degradation?

%/yr

Panel cleaning frequency?

Inverter replacement (year 12, ~$2,000)?

Panel maintenance (year 18, ~$500)?

25-Year Lifetime Financial Forecast

$50,776 net lifetime cash flow — payback in year 8

Year 1 Production

16,060 kWh

Federal ITC (30%)

$6,600

Net Investment

$15,400

Total Savings (25yr)

$71,176

Total Maintenance

$5,000

IRR

14.3%

NPV @ 4%

$23,862

ROI

330%

Year-by-Year Projection

Yr	Cal Year	Efficiency	Production (kWh)	Rate $/kWh	Saved ($)	Costs ($)	Net ($)	Cumul. Savings	Net Cash Flow
1	2026	100.0%	16,060	$0.130	$2,088	$100	$1,988	$2,088	$-13,412
2	2027	99.5%	15,980	$0.134	$2,140	$100	$2,040	$4,227	$-11,373
3	2028	99.0%	15,900	$0.138	$2,193	$100	$2,093	$6,420	$-9,280
4	2029	98.5%	15,820	$0.142	$2,247	$100	$2,147	$8,668	$-7,132
5	2030	98.0%	15,741	$0.146	$2,303	$100	$2,203	$10,971	$-4,929
6	2031	97.5%	15,662	$0.151	$2,360	$100	$2,260	$13,331	$-2,669
7	2032	97.0%	15,584	$0.155	$2,419	$100	$2,319	$15,750	$-350
8 *	2033	96.6%	15,506	$0.160	$2,479	$100	$2,379	$18,230	$2,030
9	2034	96.1%	15,429	$0.165	$2,541	$100	$2,441	$20,770	$4,470
10	2035	95.6%	15,352	$0.170	$2,604	$100	$2,504	$23,374	$6,974

PAYBACK REACHED — Year 8 (marked with *)

After year 8 every dollar saved is pure profit. With 17 remaining years of the 25-year forecast, your system generates $50,776 total net cash flow at an IRR of 14.3%.

* Payback year. PSH used: 5.5 hrs/day for Texas. ITC = 30% for install years 2024-2032. Costs include: $30 ITC (6600) off upfront. Inverter replacement and panel maintenance applied per settings above. NPV discounted at 4%.

How to Use This Calculator

Enter your system size, cost, and location

Start with your system's kilowatt capacity, total installed cost, and state. The calculator uses state-specific peak sun hours (PSH) — ranging from 3.7 in Seattle to 6.5 in Phoenix — to compute year-by-year production. Your federal ITC (30% through 2032) is automatically subtracted from your net investment, since the ITC directly reduces your payback period.

Set your electricity rate and inflation assumptions

Your current electricity rate (found on your utility bill) is the foundation of all savings projections. Rate inflation compounds the value of solar savings every year — at 3% inflation, a $0.13/kWh rate in 2026 becomes $0.24/kWh by 2046, making your solar production worth nearly twice as much in later years. Historical US electricity rate inflation has averaged 2-4% per year since 1980.

Read the year-by-year table and summary metrics

The table shows annual production (with degradation applied), money saved that year (with rate inflation applied), maintenance costs, and cumulative net cash flow. The payback year is highlighted in green — after that point, every dollar saved adds to your net profit. Summary metrics include IRR, NPV at 4% discount, and total ROI over 25 years.

The Formula

Year 1 Production = System kW × Peak Sun Hours/day × 365 days Year N Production = Year 1 Production × (1 - Degradation)^(N-1) Rate in Year N = Initial Rate × (1 + Rate Inflation)^(N-1) Savings in Year N = Production(N) × Rate(N) Net Cash Flow = -Net Investment + ∑(Annual Savings - Annual Costs) Net Investment = System Cost × (1 - 0.30) [ITC at 30%] IRR: rate r where NPV = 0 (Newton's method, 100 iterations) NPV = ∑[Net Cash Flow(t) / (1.04)^t] [4% discount rate] ROI = (Total Net Cash Flow / Net Investment) × 100%

Panel degradation compounds from year one — a 0.5%/year degradation means the system produces 99.5% of year-1 output in year 2, 99.0% in year 3, and 87.8% in year 25. Rate inflation compounds the value of each kWh saved, partially offsetting the degradation effect. The combination of these two forces determines whether your solar investment improves or worsens financially over time compared to grid electricity.

Example

Standard scenario — 8 kW system in Texas, $22,000 installed

A typical Texas homeowner installs an 8 kW system at $22,000. After the 30% federal ITC ($6,600), the net investment is $15,400. Texas averages 5.5 peak sun hours per day.

System size8 kW

Installed cost$22,000

Federal ITC (30%)$6,600

Net investment$15,400

Year 1 production16,060 kWh

Year 1 savings$2,088 (at $0.13/kWh)

25-Year Forecast Highlights

Payback yearYear 8

Year 25 savings~$4,200/yr (rate inflation)

Total 25-yr savings~$73,000

Total maintenance costs~$5,000 (inverter + cleaning)

Net 25-yr cash flow~$52,000

IRR~11%

NPV @ 4%~$28,000

Year 12 sees a higher cost line from the $2,000 inverter replacement — this is reflected in the year's net savings dropping, but cumulative cash flow continues upward. By year 25, electricity rate inflation has more than doubled the per-kWh savings value compared to year 1, even accounting for panel degradation reducing production by about 12% from peak.

FAQ

How accurate are 25-year solar forecasts? ▼

25-year forecasts are directionally accurate but carry compounding uncertainty. The biggest unknowns are future electricity rates (could be higher due to grid upgrades or lower due to renewables abundance), utility rate structure changes (net metering policy changes are the largest risk), and actual panel performance (most modern panels beat their rated degradation specs). The IRR and NPV numbers give you a financial framework — compare your solar IRR against alternative investments like bonds or index funds to make your decision. Most residential solar projects achieve 8-14% IRR in high-rate states.

How much do solar panels actually degrade per year? ▼

NREL research on thousands of real-world systems found median degradation of 0.5%/year for modern monocrystalline panels, with some premium manufacturers like SunPower, REC, and Jinko achieving 0.3-0.4%/year in practice. Manufacturer linear power warranties typically guarantee 87-92% output at year 25, which implies a maximum degradation rate of 0.52-0.32%/year. Harsh climates (extreme heat, UV exposure, freeze-thaw cycles) accelerate degradation slightly. Use 0.5% for a typical system, 0.4% for premium panels, and 0.7% for older or budget panels.

What is NPV and why does it matter for solar? ▼

Net Present Value (NPV) discounts future cash flows back to today's dollars, accounting for the fact that money received in the future is worth less than money received today (due to inflation and opportunity cost). A 4% discount rate is used here as a conservative estimate of what your money could earn in a low-risk investment. If your solar NPV is positive at 4% — meaning the present value of your solar savings exceeds the net investment — the system is a better financial decision than leaving that money in a 4% savings account. Most residential solar in medium-to-high electricity rate states yields positive NPV.

Will I really need to replace my inverter at year 12? ▼

String inverters typically carry 10-12 year manufacturer warranties and have median lifespans of 12-15 years in field conditions. Many last 20 years, many fail at 10. It is prudent to budget for one replacement in a 25-year horizon. Microinverters (Enphase) carry 25-year warranties and rarely need replacement within the system lifetime — you can safely disable the year-12 cost if you have microinverters. Battery inverter/hybrid inverters tend to need replacement at similar rates to string inverters. Cost depends heavily on brand and size; $1,500-3,000 is typical for a residential string inverter swap.

How is this calculator different from a basic solar savings calculator? ▼

A basic solar savings calculator shows you annual or lifetime gross savings. This calculator provides a year-by-year financial model that separately tracks production degradation, electricity rate inflation, and scheduled maintenance costs, then derives proper financial metrics: IRR (internal rate of return), NPV at a defined discount rate, exact payback year, and true ROI on net investment after ITC. This is the level of analysis a financial advisor or installer pro forma would produce — it lets you compare solar against other investments on equal footing.

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