US residential solar · 2026 data

Solar Panel IRR: What a Good Internal Rate of Return Looks Like

SAVE

$0+

Over 25 Years

10–20% Strong IRR
9.3 yrs Payback
8.0 kW Typical system

Most homeowners need:

  • **10–20%** strong residential IRR
  • Beats bonds; competitive with equities
  • Sensitive to rate, cost & incentives
  • **9.3 yr** avg. simple payback
✓ Updated monthly ✓ NREL data ✓ Reviewed by solar experts ✓ IRS tax credit included
· 8 min read ·By ·Reviewed by Green Energy Calculators Editorial Team
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Without solar vs with solar

25-year cost comparison for a $300/month US electric bill.

Without solar

25-year utility cost

$75,000

Rates rise ~3% per year (EIA avg.)

With solar

Net system cost

$16,800

After 30% federal ITC

Your savings

Difference

+$58,200

Estimated lifetime advantage

500,000+
calculations completed
25,000+
users monthly

Trusted by US homeowners · Data sourced from

NREL EIA Energy.gov DSIRE IRS / SEIA
Author Mark Sullivan
Reviewed by Green Energy Calculators Editorial Team
Last updated
Sizing formula kW = Annual kWh ÷ (Peak Sun Hours × 365 × 0.82)

A residential solar installation in the US delivers an average internal rate of return between 10% and 20%, which comfortably beats the long-run S&P 500 average of roughly 10% per year — before you even factor in tax benefits. That headline figure surprises many homeowners who treat solar as a feel-good purchase rather than a hard financial decision. Understanding what drives that number, and knowing the difference between a strong deal and a weak one, is the most useful thing you can do before signing any contract.

IRR is the discount rate that makes the net present value of all your cash flows equal to zero. In plain English: it tells you the annualized return you are earning on every dollar you put into the system over its 25-to-30-year life. If your solar array’s IRR is 14% and a diversified bond fund is yielding 5%, the math is not subtle. But IRR is sensitive to upfront cost, electricity rate, system output, and incentives — four variables that swing wildly from one address to the next.

This guide explains what a good solar IRR looks like in 2026, which factors push it up or down, how US homeowners in different states can benchmark their own numbers, and what questions to ask an installer before you commit.

How Solar IRR Is Calculated — and Why It Differs From Simple Payback

Simple payback period tells you how many years until cumulative savings equal your upfront cost. IRR goes further: it accounts for the time value of money, recognising that a dollar saved in year one is worth more than a dollar saved in year twenty. That distinction matters enormously for a 25-year asset, and it is why two systems with identical payback periods can have meaningfully different internal rates of return.

The cash flow model for a typical residential solar system looks like this. Year zero is a large negative number — your net installed cost after the federal Investment Tax Credit (ITC). Under the Inflation Reduction Act the ITC currently sits at 30% of system cost, which the IRS confirmed applies to systems placed in service through at least 2032. For a $20,000 system that means a $6,000 tax credit, reducing your effective outlay to $14,000. Years one through twenty-five are positive cash flows: the electricity you no longer buy from the grid, any net metering credits exported to the utility, and in some states, Solar Renewable Energy Certificate (SREC) income.

NREL data from 2025 puts the median installed cost of a residential system at $3.00 per watt before incentives. A 7 kW system therefore costs around $21,000 gross, or $14,700 after the 30% ITC. At an average US electricity rate of $0.17 per kWh and a system generating 9,000 kWh annually, the first-year saving is approximately $1,530. Escalate that at a 3% annual utility rate increase, assume 0.5% annual panel degradation, and your IRR over 25 years lands near 11–12% before any state incentives enter the picture. Add a generous state rebate or SREC income and 15–18% is achievable. These are the solar investment return benchmarks worth holding any installer quote against.

You can model these figures precisely for your own address using the solar ROI calculator, which accounts for degradation, rate escalation, and net metering rules in a single calculation.

Solar vs utility company · 25-year comparison

Total cost of staying on the grid vs owning solar for a $300/month bill (national average assumptions).

Total utility payments

$75,000

Total solar cost (after ITC)

$16,800

Net savings

+$58,200

Avg. monthly difference

+$127/mo

See my savings →

What Solar IRR to Expect by State — and Why the Gap Is So Wide

Geography reshapes solar panel return on investment more than almost any other factor. Sun hours per day, local electricity rates, net metering generosity, and state-level rebates all compound. The difference between the best and worst states in the country is not marginal — it can be 10 percentage points or more of annualized return, making location the single biggest variable in any residential solar financial analysis.

California consistently tops the charts. High retail electricity rates — averaging $0.31 per kWh according to EIA’s 2025 data — combined with strong net metering and abundant sunshine push IRR above 15% for most owner-occupied homes. Hawaii runs even higher electricity costs at $0.42 per kWh, which can produce IRRs exceeding 20% despite reduced incentives. Massachusetts benefits from an SREC II program that effectively adds several cents per kWh of extra income, lifting typical IRRs into the 14–17% range.

At the other end of the spectrum, states with low electricity rates or weak net metering see compressed returns. Louisiana averages around $0.11 per kWh — among the lowest in the nation — and largely net-bills rather than net-meters, which can push solar IRR below 8% for some households. North Dakota faces a similar challenge: modest electricity rates combined with lower insolation mean payback periods stretch toward 14–16 years, reducing IRR substantially. For state-by-state payback data, our guide to Solar Panel Payback Period by State is the most complete resource.

The middle of the country sits in the 10–13% range. Texas benefits from strong sun but its retail rate of around $0.14 per kWh and inconsistent utility net metering programs mean returns cluster around 10–12%, though time-of-use tariffs are improving the economics for battery-paired systems. Understanding these regional differences is essential when evaluating whether solar makes financial sense for your specific address.

Horizontal bar chart comparing solar panel IRR percentage across 10 US states in 2026
Solar IRR varies widely across the US. Hawaii leads at ~21% while Louisiana trails near 7% — a gap driven almost entirely by electricity rates and net metering policy. Source: NREL, EIA 2026.

The Four Variables That Drive Solar Panel Internal Rate of Return

Once you understand that solar IRR is a function of initial cost and future cash flows, four specific variables emerge as the ones worth examining before you sign anything.

Installed cost per watt. The single biggest driver is what you pay upfront. The difference between $2.80/W and $3.40/W on a 7 kW system is $4,200 — roughly a third of your effective post-ITC investment. Getting three installer quotes is not optional; it is the most productive 90 minutes you will spend in the entire process. SEIA data shows that competitive markets have driven installed costs toward $2.70–$2.90/W in many regions, while less mature markets can still run $3.50/W or higher, making quote comparison one of the highest-return activities available before you commit.

Electricity rate and escalation assumption. Every cent per kWh your utility charges increases the value of every kilowatt-hour your panels produce. Modelling future savings at a flat rate is overly conservative; EIA’s historical data shows retail residential electricity prices rose at roughly 2.8% per year over the past decade. A 3% annual escalator is a reasonable central assumption for a solar financial model. Changing that assumption from 2% to 4% on a 25-year projection can shift IRR by two to three percentage points — a difference that separates a mediocre investment from an excellent one.

Net metering policy. Systems that receive retail-rate credit for every kilowatt-hour exported generate materially better returns than those subject to avoided-cost buyback rates. If your utility pays $0.05/kWh for excess generation but charges $0.17/kWh for consumption, oversizing your array destroys value. Right-sizing to your actual consumption — something the solar system size calculator helps quantify — is essential for maximising your solar payback period and IRR together.

Federal and state incentives. The 30% ITC is the most powerful single incentive in the stack, but state programs can add meaningful basis points. SREC income in markets like New Jersey, Massachusetts, and Illinois can add $0.03–$0.06 per kWh of effective value over the system’s life. The solar tax credit calculator shows exactly what federal and state credits apply to your system cost and filing status, which directly affects your year-zero cash flow and therefore your overall IRR.

Battery Storage, EVs, and the Effect on Your Solar IRR

Adding a battery to a solar installation changes the IRR calculation in ways that are not always intuitive. A standalone battery — purchased without solar — rarely clears the financial hurdle unless you are in a time-of-use market with a large spread between on-peak and off-peak rates. But a battery paired with solar can meaningfully improve returns when net metering has deteriorated in your utility territory, making the solar-plus-storage combination the stronger financial case in a growing number of states.

California’s NEM 3.0, which took effect in April 2023, cut export compensation by roughly 75% compared to NEM 2.0. That change made standalone solar less attractive for customers who export heavily, but made solar-plus-battery combinations significantly more valuable because stored energy consumed on-site avoids paying retail rates that average $0.31/kWh. NREL modelling suggests that in NEM 3.0 territories, adding a 10 kWh battery can recover 3–5 percentage points of IRR lost from the export rate reduction — a material improvement to the residential solar return on investment.

EV ownership is a separate tailwind that often goes uncalculated in a solar IRR analysis. A household driving 12,000 miles per year in an EV and charging primarily at home adds roughly 3,000–4,000 kWh of annual electricity demand. Without solar, that demand costs $500–$600 per year at average US rates. With solar covering that load, the effective saving is captured inside the IRR calculation as avoided cost. A system that would have been slightly oversized for a grid-only household becomes right-sized once EV charging demand enters the picture — improving both self-consumption and annualized return.

The economics of battery timing and self-consumption are worth modelling carefully before you commit. The self-consumption rate calculator lets you estimate how much of your solar generation you will actually use on-site versus export, which directly determines whether adding storage improves or dilutes your overall solar panel IRR.

Related calculators

Free tools for US homeowners — instant results, all 50 states.

Solar ROI Calculator
25-year return on investment
Solar Payback Calculator
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Solar Savings Calculator
Annual and 25-year electricity savings
Solar Tax Credit Calculator
30% federal ITC amount

Frequently asked questions

Direct answers for US homeowners — sized for a $150/month electric bill.

A residential solar system with an IRR of 10% or higher is generally considered a solid investment in 2026, since it exceeds the long-run average of the S&P 500 and outperforms most fixed-income alternatives. IRRs between 14% and 20% are achievable in high-electricity-rate states. Anything below 7% warrants scrutiny of the installer quote and local net metering policy before you sign.

$150/month electric bill by state

System size and payback vary by electricity rate and sun hours — see your state.

CA California $150/mo · 29.4¢/kWh TX Texas $150/mo · 13.8¢/kWh FL Florida $150/mo · 13.5¢/kWh AZ Arizona $150/mo · 13.2¢/kWh NC North Carolina $150/mo · 12.8¢/kWh NY New York $150/mo · 22.4¢/kWh MA Massachusetts $150/mo · 24.5¢/kWh CO Colorado $150/mo · 14.2¢/kWh
Compare all 50 states for $150/mo →

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Popular state solar guides

Electricity rates and incentives vary — see data for your state.

CA California 29.4¢/kWh · 5.8h sun TX Texas 13.8¢/kWh · 5.6h sun FL Florida 13.5¢/kWh · 5.7h sun AZ Arizona 13.2¢/kWh · 6.5h sun NC North Carolina 12.8¢/kWh · 5.2h sun NY New York 22.4¢/kWh · 4.3h sun MA Massachusetts 24.5¢/kWh · 4.2h sun CO Colorado 14.2¢/kWh · 5.5h sun
View all 50 states →

Popular utility companies

Solar rules and net metering vary by utility — not just by state.

PG&E California Duke Energy NC · FL · Midwest Florida Power & Light Florida Oncor Texas APS Arizona Georgia Power Georgia

Methodology & data sources

Calculation method: System size uses NREL PVWatts derate factor (0.82). Costs based on SEIA 2026 installed cost ($2.75–$3.20/W). Payback uses net cost after 30% federal ITC (IRC Section 25D). Savings assume full-retail net metering unless noted.

Official sources: EIA state electricity rates · NREL PVWatts · Energy.gov ITC guide · DSIRE incentives · SEIA market data · IRS Publication 5695.

All figures are estimates for educational purposes — not tax, legal, or investment advice. Consult a licensed installer and CPA for your situation.

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