Short answer: In 2026, solar pays back fastest where electricity is most expensive and where net metering and state incentives are strongest, which points to Hawaii, California, Massachusetts, Connecticut and New York. Sunshine matters less than most people assume. One major change also applies everywhere: the 30% federal tax credit for homeowner-owned solar (Section 25D) ended for systems installed after December 31, 2025, so 2026 payback periods are longer than the figures you may see in older guides.
Last reviewed: September 29, 2026. Electricity prices and incentive rules change often; verify current figures with your utility and state energy office before signing a contract.
What Changed in 2026: The Federal Credit Is Gone for Owned Systems
Under the One Big Beautiful Bill Act (signed July 4, 2025), the Residential Clean Energy Credit (Section 25D) does not apply to expenditures made after December 31, 2025. The IRS treats the expenditure as made when installation is completed. A system finished in 2026 or later does not qualify. Earlier guidance that promised 30% “through 2032” is outdated.
What this means in practice:
- If you buy with cash or a loan in 2026, you pay the full installed cost, before any state or local incentives.
- Congress did not change the carryforward rules: homeowners who completed a system in 2025 can still carry unused credit forward to later tax years.
- Leases and power purchase agreements (third-party ownership) fall under business-side credits with different, tightening rules. Ask any installer offering them exactly what they claim and how it affects your price.
Because the federal credit no longer lowers the price, local electricity rates and state incentives now decide most of your return.
The Four Variables That Drive Solar ROI
1. Your electricity rate. Every kilowatt-hour your panels produce is worth what you would otherwise pay the utility. The U.S. residential average was about 17.3¢/kWh in 2025 (EIA, preliminary) and has been trending higher in 2026. State averages range from roughly 11¢ in North Dakota to over 40¢ in Hawaii.
2. Net metering and export rules. Net metering sets what the utility pays you for surplus power. Full retail credit is the most valuable. California moved new customers to a lower export rate (often called NEM 3.0) in 2023, which made home batteries far more important there. Rules differ by utility, so check your own.
3. State and local incentives. Examples that existed at the time of writing (verify current status and caps):
- New York: state income tax credit of 25% of cost, capped at $5,000, plus a property tax exemption for added home value.
- Massachusetts: state income tax credit of 15% of cost, capped at $1,000.
- New Jersey: exemptions from sales tax and from property tax on the added value.
- Arizona: residential solar income tax credit (capped) and a sales tax exemption on equipment.
- Hawaii: a state income tax credit for residential systems. Check current caps and net metering status, since Hawaii closed its original net metering program to new customers years ago. For a full cost breakdown by state and system size, see our guide to How Much Do Solar Panels Cost in 2026?.
4. Sun and system output. Location affects annual output; NREL’s PVWatts tool estimates it for your address. A sunnier state with cheap power can still lose to a cloudier state with expensive power.
Electricity Prices by State: The Best Single Predictor
The chart below uses published EIA residential price data. Higher prices mean each kWh your system produces saves more money.
Chart summary: Hawaii’s residential price (about 42¢/kWh) is roughly 2.4 times the national average, and Massachusetts, New York and California all sit near or above 30¢/kWh. North Dakota is near 11¢. A homeowner in Hawaii or the Northeast offsets far more expensive power per panel than one in the Upper Midwest, which is why high-price states lead solar ROI even without a federal credit.
What This Looks Like in Numbers (Illustrative)
The table shows simple payback for a hypothetical 8 kW system costing $24,000 and producing 11,000 kWh per year, with no federal credit and no state incentives, and assuming each kWh is credited at your full retail rate. It is arithmetic, not a forecast for any state. To see how your state compares, our guide to Solar Panel Payback Period by State has the full data.
| Electricity price | Annual savings | Simple payback |
|---|---|---|
| 12¢/kWh (low-price state) | about $1,320 | about 18 years |
| 17.3¢/kWh (U.S. average, 2025) | about $1,900 | about 12.6 years |
| 30¢/kWh (high-price state) | about $3,300 | about 7.3 years |
| 41¢/kWh (Hawaii-level) | about $4,500 | about 5.3 years |
Table summary: Payback falls roughly in proportion to the electricity price. Doubling the rate roughly halves payback. Real results shift with export rules (which can lower savings), state credits (which lower cost), financing interest, roof shading and installer pricing.
Chart summary: Because the price of each kWh scales the savings directly, moving from a 12¢ to a 30¢ market cuts simple payback by more than half, from about 18 years to about 7 years.
Payback Over 25 Years With Rising Rates (Illustrative)
Simple payback ignores rate increases. The chart below applies a 3% annual electricity price escalation and 0.5% annual panel degradation to the same hypothetical system (no federal credit, no state incentives, full retail credit for all output). The 3% escalation is an assumption, in line with the 2–3% annual average increase in recent EIA residential price history; your utility’s actual path may differ.
Chart summary: Rate escalation shortens payback versus the simple table above: about 12 years instead of 12.6 at the U.S. average, and about 7 years instead of 7.3 at 30¢. These results exclude loan interest, inverter replacement (commonly needed within 25 years), maintenance and any change in export credit rules, so real-world results will be lower.
Where Solar ROI Is Strongest and Weakest in 2026
Strongest (high prices, meaningful incentives): Hawaii, California, Massachusetts, Connecticut, New York, and often Rhode Island and Maine. In California, pair solar with a battery because of the reduced export rate.
Middle: New Jersey, Maryland, Arizona, Colorado and Texas. Results vary a lot by utility. Arizona and Texas have strong sun but moderate prices; New Jersey benefits from tax exemptions.
Weakest: States with the lowest retail prices, such as North Dakota, Utah, Washington, Idaho and Nevada in recent EIA data, where simple payback can run well past 15 years without incentives. Solar can still make sense if you face rising rates, have very high usage or get a low installer quote, but the margin is thinner.
We do not publish a precise state-by-state payback ranking because payback varies by utility, system price and usage, and no single public dataset covers all of these. Use your own quotes and a calculator instead.
How to Estimate Your Own Payback
- Find your actual marginal rate (¢/kWh) on your bill.
- Estimate annual output for your address with NREL PVWatts.
- Subtract any state credits and exemptions from the quote.
- Check whether exports are credited at retail or a lower rate.
- Add loan interest if financing. Divide net cost by annual savings.
Then run the solar payback calculator with your numbers.
Frequently Asked Questions
Which states have the best solar ROI in 2026?
States with the highest electricity prices and supportive incentives generally lead: Hawaii, California, Massachusetts, Connecticut and New York. Exact payback depends on your utility, net metering rules and installer pricing, so state averages are only a starting point.
Is the 30% federal solar tax credit still available in 2026?
Not for homeowner-owned systems installed after December 31, 2025. Section 25D was repealed for later expenditures by the One Big Beautiful Bill Act. Systems completed in 2025 can still claim it and carry forward unused amounts. Third-party-owned systems follow different business-credit rules.
Does more sunshine mean better solar ROI?
No. Electricity price, export rules and incentives usually matter more than sun hours. A cloudier state with expensive power can pay back faster than a sunny state with cheap power.
Is solar still worth it without the federal credit?
It can be, mainly in high-price states or for households with high usage. In low-price states, simple payback can exceed 15 years, so compare quotes, consider financing costs, and check your net metering terms before deciding.
How do I calculate my own solar payback period?
Divide your net system cost (after state incentives) by your annual bill savings. Estimate savings from your actual rate per kWh, your expected annual output (NREL PVWatts) and how your utility credits exported power.
Sources
- IRS, Residential Clean Energy Credit: https://www.irs.gov/credits-deductions/residential-clean-energy-credit
- Congressional Research Service, Expiration and Carryforward Rules for the Residential Clean Energy Credit: https://www.congress.gov/crs-product/IN12611
- SEIA, Clean Energy Provisions in the One Big Beautiful Bill: https://seia.org/research-resources/clean-energy-provisions-big-beautiful-bill/
- U.S. EIA, Electric Power Monthly (Table 5.6.A): https://www.eia.gov/electricity/monthly/
- NREL PVWatts Calculator: https://pvwatts.nrel.gov/
- DSIRE (state incentive database): https://www.dsireusa.org/