Solar Panel ROI: Is Solar a Good Investment in 2026?
The average US solar installation delivers a 10–14% IRR — better than most stock indexes on a risk-adjusted basis. High electricity rates and strong sun hours are the key drivers.
Photo by American Public Power Association / Unsplash
Solar produces average returns of 10–14% IRR (internal rate of return) for US homeowners who pay cash, according to multiple analyses using NREL data. That compares favorably to the S&P 500's 10–11% historical average on a pre-tax basis — and solar returns are effectively tax-free since electricity savings are not taxable income.
Why solar ROI is high
Three factors drive solar ROI:
1. The 30% ITC subsidy: A dollar-for-dollar reduction in federal taxes creates an immediate 30% return on the first year's investment.
2. Electricity inflation: US electricity rates have increased ~2.5%/yr over the past decade. Solar locks in your electricity cost — every year rates rise, your solar savings grow.
3. Net metering: Most states still compensate solar owners for excess electricity sent to the grid, further improving returns. California's NEM 3.0 reduced this benefit, but states like Massachusetts, New Jersey, and New York maintain strong net metering.
Where ROI is highest
States with both high electricity rates and good sun: California, Hawaii, Massachusetts, New Jersey. These routinely produce 12–16% IRR.
States with moderate rates and good sun: Texas, Arizona, Florida. Returns run 8–12%.
States with low rates and moderate sun: Midwest, Pacific Northwest. Returns run 5–9%. Solar still makes sense but with longer payback periods.
Important context
Solar ROI figures assume you pay cash and claim the full ITC. Solar loan ROI is somewhat lower (you pay interest). Lease and PPA owners receive no ownership benefit — all financial upside goes to the installer.
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