Assumes 3%/yr rate increases, 0.5%/yr panel degradation and no federal tax credit (the 30% §25D credit ended for systems installed after Dec 31, 2025). How we calculate
Data approachEIA rates · NREL sun hours · 2026 federal policy · methodology
Short answer: In 2026, rooftop solar bought with cash or a loan earns a modeled internal rate of return (IRR) of about 8% at the US average electricity price of roughly 19¢/kWh, because the 30% federal credit for purchased systems ended after December 31, 2025. Returns pass 10% only where electricity costs roughly 22¢/kWh or more and the utility pays well for exports.
Many older guides still quote 10–20% IRRs and a 30% credit through 2032. Those figures describe the pre-2026 rules and no longer apply to new purchases. This guide rebuilds the numbers with a transparent model you can check, shows how IRR changes with electricity price and policy, and lists what to verify before you sign a contract.
IRR is the discount rate that makes the net present value of all your cash flows equal to zero. In plain English, it is the annualized return you earn on the money you put into the system over its 25-year life. Four inputs drive it: upfront cost, electricity price, system output and incentives.
📈 Payback Period
How Solar IRR Is Calculated — and Why It Differs From Simple Payback
Simple payback tells you how many years until cumulative savings equal your upfront cost. IRR goes further by accounting for the time value of money: a dollar saved in year one is worth more than a dollar saved in year twenty. That is why two systems with the same payback period can have different IRRs.
The cash flow model is straightforward. Year zero is your net installed cost. Years one through twenty-five are the electricity you no longer buy, plus any export credits.
What changed in 2026. The One Big Beautiful Bill Act, signed July 4, 2025, ended the 30% Residential Clean Energy Credit (Section 25D) for expenditures made after December 31, 2025, with no phase-down. Homeowners who buy a system outright or with a loan now model the federal credit at $0. Leased and PPA systems are different: the company that owns the system can still claim the Section 48E commercial credit if construction began by July 4, 2026, or the system is placed in service by December 31, 2027, and may pass some of the savings to you through lower rates. Confirm any such pricing in writing.
The model used in this guide. We use a simple, auditable model rather than a quoted average:
8 kW system at $3.00 per watt, or $24,000 before incentives. EnergySage reports average quotes of roughly $2.75/W in 2025–26, and published ranges run from about $2.50 to $3.30/W, so $3.00/W is a mid-range assumption.
Output of 1,300 kWh per kW per year (10,400 kWh in year one), declining 0.5% per year.
Electricity at 18.8¢/kWh, about the US residential average in spring 2026 per EIA-based data, rising 2.5% per year.
One $2,500 inverter replacement in year 13, no other maintenance, 25-year life, nominal dollars, no federal credit.
At 18.8¢/kWh, year-one savings are about $1,955. Over 25 years the system avoids about $62,500 of utility bills against about $26,500 of total spend (purchase plus inverter), a nominal net gain of roughly $36,000. That works out to an IRR of about 7.9% and a simple payback of about 11 years. Give the same system the old 30% credit and the IRR rises to about 12.2%, which matches the 10–12% figures common in earlier guides.
This is a planning model, not a quote. Your roof, shading, tariff and installer pricing will move the result, which is why you should run your own numbers in the solar ROI calculator.
The chart below shows the same system year by year. Cumulative cash flow starts at -$24,000 and turns positive in year 12 (about 11.1 years) when rates grow 2.5% annually; with flat rates it takes about 14 years. The small dip in year 13 is the inverter replacement.
Data visualization
An 8 kW system breaks even after about 11 years at the US average rate. Cumulative cash flow, 18.8¢/kWh, $24,000 cost, no federal credit, inverter replaced in year 13. Source: GreenEnergyCalc model.
Chart summary: At the US average rate of 18.8¢/kWh, the modeled system recovers its $24,000 cost in about 11 years and ends year 25 about $36,026 ahead if rates grow 2.5% per year, or about $19,557 ahead if rates stay flat. Rate growth is a key assumption, so test both cases with your own utility’s history.
Solar vs utility company · 25-year comparison
25-year totals: 3%/yr rate increases, 0.5%/yr degradation, no federal credit. Methodology
What Solar IRR to Expect at Different Electricity Prices
Electricity price is the biggest swing factor in the model, and it differs sharply by state. EIA-based data for spring 2026 puts the US residential average near 18.8¢/kWh. North Dakota is the lowest at roughly 12¢/kWh, and Louisiana is also near 12¢/kWh. Hawaii is the highest, above 40¢/kWh, and California and Massachusetts are both well above 25¢/kWh. Rates change monthly, so check your own utility bill or the EIA’s latest state table.
The chart below runs the same 8 kW model across electricity prices. It is a rate-based model, not a measured IRR for any state, because actual state results also depend on export credits, incentives and installed cost.
Data visualization
Modeled solar IRR rises steeply with electricity price. At the 18.8¢ US average the 2026 purchase case is about 7.9% (8 kW, $3.00/W, 2.5% yearly rate growth). Source: GreenEnergyCalc model; rate benchmarks from EIA 2026 data.
Chart summary: Without the federal credit (blue line), the modeled IRR is about 1.8% at 10¢/kWh, 5.5% at 15¢, 11.4% at 25¢ and 18.7% at 40¢, and it crosses 10% at roughly 22–23¢/kWh. Cutting the value of exports (orange line, assuming 30% of output is exported at 25% of retail) lowers IRR by roughly 2 to 5 points depending on the price. The dashed green line shows the old 30% credit, which added about 3 to 8.5 points; it no longer applies to purchased systems. Reference rates: about 12¢ in North Dakota, about 18.8¢ US average, above 40¢ in Hawaii.
What this means by state. High-rate states such as Hawaii, California and Massachusetts can still reach double-digit modeled returns without the federal credit, particularly with strong self-consumption. In California, the net billing tariff (NEM 3.0) cut average export value by about 75% for applications after April 2023, so the orange line is more relevant there than the blue one. Low-rate states such as North Dakota and Louisiana sit at the left of the chart, where purchased solar often takes well over a decade to pay back. For payback by state, see our guide to Solar Panel Payback Period by State.
⚡ Key Drivers
The Four Variables That Drive Solar Panel Internal Rate of Return
Four inputs decide most of the outcome. The chart shows how far each one moves the modeled IRR at 18.8¢/kWh.
Installed cost per watt. At $2.50/W the modeled IRR is about 10%; at $3.00/W, about 7.9%; at $3.50/W, about 6.3%. On an 8 kW system the gap between $2.50 and $3.50 per watt is $8,000. Get at least three itemized quotes, and compare price per watt after any state or utility incentives.
Electricity price and growth. Every cent per kWh raises the value of each kilowatt-hour your panels produce. If rates never rise, the modeled IRR is about 5.4%. At 2% annual growth it is about 7.4%, at 2.5% about 7.9%, and at 4% about 9.4%. Because that assumption compounds over 25 years, use a conservative value in your own model.
Net metering and export policy. Systems credited at retail for every exported kilowatt-hour earn more than those credited at avoided-cost rates. In our reduced-export scenario the IRR falls from about 7.9% to about 5.3%. If your utility pays far less for exports than it charges for imports, right-size the array to your own consumption using the solar system size calculator.
Incentives. The federal credit is no longer available for purchased systems, so state, local and utility programs now carry more weight. Examples include Massachusetts’ SMART program, which pays for production, and various state tax credits, rebates and property-tax exemptions. Programs change often, so confirm eligibility with the program administrator. The incentive calculator lists what applies to your address.
Data visualization
Cost, rate growth and export policy each move IRR by several points. Base case 7.9% at 18.8¢/kWh with no federal credit; green bars beat the base, orange bars fall short. Source: GreenEnergyCalc model.
Chart summary: The base case is about 7.9%. Lowering installed cost to $2.50/W lifts IRR to about 10%, while $3.50/W drops it to about 6.3%. Zero electricity price growth gives about 5.4%, and 4% growth gives about 9.4%. A weak export credit cuts IRR to about 5.3%. The old 30% credit, no longer available for purchases, would have lifted it to about 12.2%.
🔋 Storage & EV
Battery Storage, EVs, and the Effect on Your Solar IRR
A battery changes the math only when it captures value your solar system would otherwise lose. If your utility credits exports at or near retail, a battery adds cost without adding much savings and usually lowers IRR. If exports earn far less than retail, storing midday output for evening use can improve returns. California’s net billing tariff, which took effect for new applicants in April 2023, is the best-known example: average export value fell about 75%, and storage became a common way to avoid selling power cheaply.
There is also no federal credit for batteries installed after 2025. Ask installers to quote the system with and without storage, and compare IRR using your actual rate schedule, including time-of-use pricing and any backup-power value you want. We do not publish a single IRR change for batteries, because it depends heavily on tariff structure.
An electric vehicle can improve solar economics by raising on-site use. Driving about 12,000 miles a year typically adds roughly 3,000–4,000 kWh of annual electricity demand, depending on the vehicle and driving conditions. Charging that load from your own panels replaces grid purchases, which helps if you would otherwise export surplus at a low rate. If you plan to buy an EV, tell installers so they can size the system accordingly.
What is the total price per watt after all incentives, and what is included?
How does my utility credit exported solar power, and could that change?
What annual rate increase does your savings estimate assume, and is it documented?
If I lease or sign a PPA, what are the escalator, buyout terms and transfer rules?
What are the warranty terms for panels, inverter and workmanship, and who replaces the inverter?
Sources and Method
Federal credit status: Solar Power World, “How does the OBBBA change the residential solar ITC?” (July 2025); EnergySage, “President Trump signs bill killing the solar tax credit” (updated July 2025); EnergySage, “Trump’s tax changes and TPO solar” (lease/PPA eligibility). Electricity prices: U.S. Energy Information Administration (EIA) Electric Power Monthly and EIA-derived state rate tables (spring 2026). Installed cost: EnergySage Marketplace data (2025–26 average roughly $2.75/W; range about $2.50–$3.30/W). California export rates: CPUC net billing tariff decision and CALSSA analysis (about 75% lower export value). S&P 500 return: long-run nominal historical average of roughly 10%, before inflation; past returns do not guarantee future results.
All IRR, payback and savings figures in this guide come from the model described above and are illustrations, not quotes or guarantees. This guide is general information, not tax, legal or financial advice; consult a qualified professional about your situation.
Related calculators
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A solar IRR of 10% or more is a strong result in 2026, because it roughly matches the long-run nominal return of the S&P 500. With no federal tax credit, our model reaches that level only where electricity costs about 22¢/kWh or more and the utility credits solar exports generously. At the national average of about 19¢/kWh the modeled IRR is closer to 8%. Treat anything below about 5% as a signal to re-check the quote, your utility's export policy and any state incentives.
Not for homeowner-purchased systems placed in service after December 31, 2025. The One Big Beautiful Bill Act, signed July 4, 2025, ended the 30% Residential Clean Energy Credit (Section 25D) for expenditures after 2025. Companies that own leased or power-purchase-agreement (PPA) systems can still claim the Section 48E credit if construction began by July 4, 2026, or the system is placed in service by December 31, 2027, and some pass part of that value to homeowners through lower rates. In our model the credit lifts IRR at the national average rate from about 7.9% to about 12.2%, which shows how much it mattered.
The S&P 500 has historically returned roughly 10% per year in nominal terms, but with large swings. Solar savings are more predictable because they come from avoided utility bills, and they tend to rise if rates rise. In our model, solar beats 10% only at electricity prices above roughly 22¢/kWh without the federal credit. Below that, a diversified portfolio has historically offered higher expected returns, though solar also reduces exposure to future rate increases. Neither result is guaranteed.
It depends on how your utility values exported power. Where exports are credited at or near retail rates, a battery usually adds cost without adding much savings, so it tends to lower IRR. Where exports earn far less than retail, as under California's net billing tariff (NEM 3.0, effective April 2023, which cut average export value by about 75%), storing midday solar for evening use can improve the economics. Batteries bought after 2025 also get no federal homeowner credit, so request quotes both with and without storage and compare after-incentive costs.
Compare the system's modeled IRR with the loan's interest rate. If your IRR is 11% and the loan costs 7%, borrowing leaves a positive spread, though loan fees can narrow it. If the loan rate is close to or above the IRR, financing erases most of the gain, and a cash purchase, or a lease or PPA with a lower effective rate, may be better. Always model the after-financing return, and check loan fees, which can raise the effective cost.
$150/month electric bill by state
System size and payback vary by electricity rate and sun hours — see your state.
18.19¢/kWh — US average residential price. Source: EIA Electric Power Monthly, Table 5.6.B (year-to-date through July 2026), residential average retail price (July 2026) (EIA)
Solar production
4.5 peak sun hours/day × 0.82 system derate. Approximate state-average daily solar resource (peak sun hours) based on NREL solar resource data (NSRDB); not location-specific — use NREL PVWatts for an address-level estimate. (NREL PVWatts)
Installed price
$3.00 per watt before incentives. Blended 2026 US residential installed price used by this site; EnergySage marketplace reported about $2.60/W (mid-2026); full-market medians are higher.
Federal tax credit
$0 for homeowner-owned systems installed in 2026 — the 30% §25D credit ended Dec 31, 2025 (IRS)
Net metering
National blend — solar assumed to offset 75% of the bill (87% in full-retail net-metering states, 55–70% elsewhere).
Estimates only — not tax, legal or financial advice. Get at least three installer quotes and confirm incentives with your utility and a tax professional.