How solar payback works
Simple payback vs a 25-year model, what IRR and NPV mean in plain words, and which assumptions move a solar payback the most.
5 min read · Updated 2026-10-30
Payback is the number most people ask about first. It answers one question: how many years until the money you saved on power equals what you paid for the system? It's a useful number, but how you calculate it changes the answer by years.
Simple payback
The quick version divides the cost by the first-year savings.
Take our Toronto sample home. In our model, a 7.3 kW system costs about $20,000 after rebates and saves about $1,470 in year one. Divide one by the other and you get about 13.6 years.
Simple payback is easy to check on the back of a quote. It also leaves out three things that matter over 25 years.
What our 25-year model adds
Our model runs the numbers year by year for 25 years, using the assumptions on our methodology page:
- Panel degradation of 0.5% a year. Panels slowly produce a little less each year, so savings shrink slightly. See solar panel lifespan and degradation.
- Electricity prices rising 3% a year. Every kWh your panels make saves a bit more each year as rates rise.
- One inverter replacement. String inverters often don't last as long as the panels. We subtract $2,500 in year 13.
With those included, the same Toronto system pays back in about 11.9 years. Rising rates do most of the work: they outweigh both degradation and the inverter cost.
The 25-year total
Over 25 years in our model, that Toronto system saves about $47,600, or about $27,600 more than it cost. That figure isn't adjusted for inflation or for what else you could have done with the money. That's where IRR and NPV come in.
IRR and NPV in plain words
IRR (internal rate of return) expresses solar as an interest rate. It's the yearly return that would turn your upfront cost into the same stream of savings. The Toronto sample works out to about 7.2% a year. You can compare that with what you might earn elsewhere, keeping in mind that solar savings aren't guaranteed and aren't taxed like investment income. Ask an accountant about your own situation.
NPV (net present value) converts every future year of savings into today's dollars, then subtracts the cost. We use a 5% discount rate, meaning a dollar saved next year counts as about 95 cents today. A positive NPV means solar beats a 5% return over 25 years. The Toronto sample's NPV is about $5,200. A negative NPV means that, on these assumptions, the money would do better elsewhere.
What moves payback the most
Here is how the Toronto sample's payback changes when one assumption changes, using our model.
| Change | Payback | 25-year IRR |
|---|---|---|
| Our base case | 11.9 years | 7.2% |
| Electricity prices flat (0% a year) | 15.9 years | 4.2% |
| Electricity prices rise 5% a year | 10.9 years | 9.2% |
| System costs 15% less | 10.3 years | 8.9% |
| First-year savings 15% higher | 10.5 years | 8.8% |
| No inverter replacement | 11.9 years | 7.7% |
A few lessons stand out:
- Price per watt matters a lot. A quote at the low end of the range can take years off payback. Check yours against typical prices on our costs page or with the quote checker.
- Rate escalation is the biggest unknown. Nobody knows future electricity prices. We use 3% as a middle assumption. If prices stay flat, payback stretches by about four years.
- Savings depend on how your power is credited. Net metering, net billing and rebate rules change how much each kWh is worth. See net metering in Canada.
- The inverter barely moves payback because it's replaced after the system has already paid for itself. It does trim lifetime savings.
Other things that move the number
- Shade and orientation. Less sunlight means fewer kWh and smaller savings every year.
- Your rate plan. In Ontario, Time-of-Use, Ultra-Low Overnight and Tiered value solar differently. See Ontario rate plans.
- Financing. Loan interest adds to the total cost. See buying, leasing or financing.
- How long you stay. If you might sell within a few years, read selling a home with solar.
How to read a payback claim
Ask what assumptions sit behind any payback figure in a quote: the price escalation rate, degradation, whether rebates are included, and whether inverter replacement is counted. A payback that assumes 6% yearly rate increases will look much better than one that assumes 3%, and the system is the same.
Next step
See your own payback, IRR and NPV: check your roof.
Common questions
- What is a good payback period for solar in Canada?
- Panels typically carry 25-year performance warranties, so a payback well under that leaves years of savings afterwards. In our model, Ontario's sample home pays back in about 12 years, while low-rate provinces run past 20 years.
- Why is your payback shorter than cost divided by savings?
- Simple payback assumes electricity prices never rise. Our model assumes 3% yearly increases, which makes later years' savings larger and brings payback forward, even after allowing for panel degradation and an inverter replacement.
- What is the difference between IRR and NPV?
- IRR expresses solar as a yearly rate of return. NPV converts all future savings into today's dollars at a set discount rate and subtracts the cost, so a positive NPV means solar beats that rate.
- Does financing change the payback?
- Yes. Interest adds to what you pay, so a loan lengthens payback compared with paying cash. Compare the total cost of the loan, not just the monthly payment.
Sources
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