TL;DR: A 7.2 kW residential solar system at $2.60 per watt costs $18,720 installed and offsets about $1,859 of electricity a year at the US average residential rate of 18.44 cents per kWh. That is a 10.1 year simple payback with no federal tax credit left in the math. Installed price per watt is the strongest lever: at the $3.50 per watt national median the same array takes 13.6 years. Degradation at 0.5% per year costs about three months.
Solar payback is five numbers multiplied together, and nearly every argument about return on investment (ROI) is really an argument about one of them. I build the 2026 base case below out of sourced figures, then move each assumption on its own to see how far the answer travels. Two of them move it by years. One moves it by weeks.
What Does the 2026 Base Case Look Like?
Every payback estimate is just five assumptions multiplied together. Here are mine, each one sourced:
| Assumption | Base value | Source |
|---|---|---|
| System size | 7.2 kW DC | Typical US residential install |
| Installed cost | $2.60/W ($18,720) | EnergySage marketplace data, June 2026 |
| Federal credit | $0 (Section 25D expired) | SEIA on the One Big Beautiful Bill |
| Annual production | 1,400 kWh per kW | Mid-range US yield; spans about 900 (Alaska) to 1,750 (Arizona) |
| Electricity rate | 18.44 cents/kWh | EIA Electric Power Monthly, May 2026 |
The arithmetic: 7.2 kW x 1,400 kWh = 10,080 kWh per year. At the 18.44 cents per kWh that the US Energy Information Administration (EIA) reported for May 2026, that's $1,859 of avoided purchases if every kWh offsets retail. Divide $18,720 by $1,859 and you get 10.1 years.
Note what's gone. The 30% Section 25D residential clean energy credit ended for systems placed in service after December 31, 2025, under the One Big Beautiful Bill signed in July 2025. In 2024 this same system would've netted out around $13,100 after credit and paid back in about 7 years. The credit's death added three years to the base case on its own, which makes state and utility programs the only incentives left to hunt for; our 2026 solar incentives guide tracks what survived.
One federal door is still open, just not to owners. The Solar Energy Industries Association (SEIA) reads the same bill as leaving residential leases and power purchase agreements (PPAs) access to the Section 48E clean electricity investment credit through the end of 2027, with the leasing company claiming it rather than the household. Whether that discount reaches you in the contract price is the whole question, and our PPA versus ownership comparison works through it.
How Much Does Price per Watt Move the Result?
Installed price per watt moves payback further than any other assumption a buyer controls. EnergySage's marketplace average sits at $2.60 per watt before incentives, while Lawrence Berkeley National Laboratory (LBNL) put the national median for cash purchases at $3.50 per watt in October 2025. Same panels. Same roof. Wildly different outcome.
At $3.50/W the system costs $25,200 and payback stretches to 13.6 years. That single spread, $2.60 versus $3.50, is worth three and a half years. No equipment upgrade comes close.
The first thing I do with any quote is divide the gross price by the DC watts before reading a word of the proposal. Installers present lifetime savings, monthly payments, anything but $/W, because $/W is the one number that makes quotes comparable. If it starts with a 4, keep shopping.
What Happens When Electricity Rates Change?
Hold the $18,720 system and 10,080 kWh of annual production constant, swap in real state residential rates from the EIA's May 2026 data, and the payback spread is enormous:
| State | Residential rate | Annual offset value | Simple payback |
|---|---|---|---|
| Texas | 16.44 c/kWh | $1,657 | 11.3 years |
| US average | 18.44 c/kWh | $1,859 | 10.1 years |
| Massachusetts | 28.82 c/kWh | $2,905 | 6.4 years |
| California | 33.25 c/kWh | $3,352 | 5.6 years |
| Hawaii | 52.00 c/kWh | $5,242 | 3.6 years |
To be fair, holding production constant flatters some rows; a kW in Boston yields less than one in Phoenix. But the direction is right, and rates are the assumption moving fastest. US residential prices rose 6.2% between May 2025 and May 2026. Rerun the base case with rates escalating just 3% annually and cumulative savings hit $18,720 near year 8.9 instead of 10.1. Every rate hike your utility announces is, perversely, a raise for your roof.
Why Do Net Metering Rules Matter More Than Panel Specs?
Export compensation sets the price of most kWh a rooftop array makes, which is why a state's retail rate alone can badly mislead you. Under California's Net Energy Metering 3.0 (NEM 3.0) net billing tariff, a new system earns roughly 5 to 8 cents per kWh for exported energy while imported power costs 33.25 cents. Which number applies to your production? Depends entirely on when you use power.
Run the split: a home that self-consumes 40% of production offsets 4,032 kWh at 33.25 cents ($1,341) and exports 6,048 kWh at about 7 cents ($423). Total: $1,764 per year. Payback lands at 10.6 years, worse than the national average, in the state with some of the highest retail rates in the country.
Honestly, this is why agonizing over a half point of module efficiency is wasted effort. Your export tariff decides more than your panel brand ever will. The lever that responds is shifting the self-consumption share, either behaviorally or with storage like the Tesla Powerwall 3, which arbitrages 7 cent exports into 33 cent offsets. How many kWh you actually need for that is its own calculation, covered in our home battery sizing guide, and whether the battery's price tag survives the math is worked through in the Powerwall 3 vs IQ 5P comparison.
How Much Does Degradation Actually Cost You?
Degradation is the assumption that barely registers, and that surprises people. Field studies from the National Renewable Energy Laboratory (NREL), covering thousands of systems, put median crystalline silicon degradation near 0.5% per year, leaving about 88% of original output at year 25.
Over a 10 year window, average output runs about 97.8% of year one. The base case payback slips from 10.1 years to roughly 10.3. Three months. Even doubling the assumption to 1% per year, a genuinely bad outcome, costs under six months.
So when a salesperson pitches a premium module on its degradation warranty, I'd translate the difference into dollars before paying for it. It's usually a rounding error against a 30 cent/W price gap. For the deeper year-by-year model including maintenance and inverter replacement, see our solar panel payback period breakdown.
Summary
A 7.2 kW residential system at 2026 pricing pays back in about 10.1 years at the US average electricity rate of 18.44 cents per kWh, now that the Section 25D federal credit is gone. Installed price per watt is the strongest lever a buyer controls: the gap between a $2.60/W quote and LBNL's $3.50/W national median is worth 3.5 years. Electricity rates and export compensation set the ceiling, with full-retail offset states beating NEM 3.0-style net billing by years. Degradation, at NREL's median 0.5% per year, moves payback by months and deserves far less attention than it gets.