Payback period of a PV system

Posted by Jeroen van Agt in Solar energy 1 Comment»

Grafiek besparing PV systeemWith the rising oil prices having an impact on the electricity price it would be interesting to see what the payback period is for a Photovoltaics (PV) system. The result, even for individuals without subsidy it is already interesting to invest in a PV system. A PV system will payback itself way before its guaranteed lifetime and its long-term savings in electricity costs can be 7 times as high as the investment cost (based on Dutch prices). For my own PV system of 2500 Wp, I would have a net cost saving of more than € 68,000 on electricity costs after 25 years.

Rising electricity price

In the recent years, the yearly increasing electricity price in the Netherlands was on average 7%

Year Price per 1000  kWh Increase
1996 € 100,50
1997 € 102,25 2%
1998 € 103,25 1%
1999 € 110,00 7%
2000 € 125,50 14%
2001 € 158,25 26%
2002 € 162,25 3%
2003 € 167,25 3%
2004 € 175,00 5%
2005 € 188,50 8%
2006 € 199,00 6%


It is expected that the due to upcoming peak-oil problem, the price of oil will continue to increase sharply. The price of gas, which is coupled to the price of oil, will therefore also strongly increase.

Booming economies in Asia and the high oil price will cause an increasing demand for coal. This will result in the increase of the price of coal. Since most of our electricity is still produced by gas and coal powered plants this will result in a rising electricity price.

So it makes sense to check how these rising electricity prices impact the ROI for a PV system. Let see first how much electricity a PV system produces.

Watt peak

The maximum capacity of a PV system is often expressed in watts peak (Wp). This is the maximum capacity which the PV system can generate under optimal circumstances. To compare PV systems the price / Wp is often used.

Year yield

As a rule of thumb you can multiply the Watt peak power with a fixed solar factor to get the average yearly yield in kWh. The factor depends on the type of solar panels, inverters and the annual amount of sunshine in the area where the PV panels are located. The solar factor that is often used in the Netherlands is between 0.8 to 0.9. I have experienced a solar factor of 0.9 for my PV system.

Example: a PV system of 1000 Wp with a solar factor of 0.9 provides an annual yield of 900 kWh.

Long term

At this moment it is unclear how fast the electricity price will increase due to the upcoming peak-oil problem. Therefore I describe two different scenarios:

Scenario 1

The electricity price will continue to grow with the normal trend of 7% per year, as seen in the last 10 years. This scenario will come true if we suddenly find enough oil and gas to satisfy the growing demand and compensate for the declining oil / gas production for the existing wells or when we are able to become independent of fossil fuels for our electricity production.

Scenario 2

The electricity price will grow faster due to fast rising oil prices and associated gas / coal price. This increase is mainly caused by the peak-oil problem and will have very long lasting effects. The calculation in scenario 2 uses an average yearly increase of 14% for the electricity price.

Payback period

For the calculations of the payback period for a PV system I will make the following assumptions:

Price / Wp € 5
Sun factor 0,9
PV Systeem 2500 Wp
Yield kWh 2250 kWh
Investment € 12500
Current electricity price (consumer) € 0,20

Savings of 2500 Wp PV system
Savings of 2500 Wp PV system in 25 years

As you can see in the graph, there is a big difference between scenario 1 and 2 in the long term

The long term saving on electricity costs in scenario 1 is 2 times higher than the investment. In scenario 2 it is even 7 times higher.

From the graph it is also clearly visible that the PV systems pay itself back way before the guaranteed lifespan of 25 years.

  Annual electricity price increase

Payback Net cost savings after 25 years
Scenario: 1 7% 16 Years € 15.962
Scenario: 2 14% 12 Years € 68.933

Calculate yourself

For those who want to calculate the payback period of their (future) PV system can use the spreadsheet below

The original spreadsheet is in OpenDocument format and can be read using the free office softweare.

For those who cannot install the spreadsheet is also available in Microsoft Excel format.

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