Solar overview:
One question we are sometimes asked is "What is the payback period on solar?" To give some ballpark numbers, we made the following simplistic assumptions:
 
Assumptions for payback numbers:
Assume the Federal tax credit of 30% (capped at $2,000 residential), is the only subsidy available. (Renewable Energy Credits may be an additional credit available at some point for PV electricity.)
Assume the system has infinite life.
Assume the system is professionally installed.
Assume fossil fuel prices do not increase.
Assume any environmental benefits are not counted in the payback.
 
There are obviously some shortcomings in the above assumptions, but with them we can start to estimate and compare paybacks on the different types of solar.
 
System type System application Ball park payback period
Commercial size solar 
domestic hot water		 Preheating domestic hot water (tap water) before it enters the conventional water heater, for apartment buildings, hotels, etc. 4 - 8 years
Residential solar domestic 
hot water		 Same as above but on a scale for single family homes. 8 -15 years
Residential space heating Supplemental heating systems that add solar heat 
into a house on sunny days during the heating season.		 15 - 30 years
Commercial PV Generating electricity from sunlight - commercial scale. 30 - 35 years
Residential PV Same as above, but on a single family house scale. 40 - 50 years
 
Commercial Solar Domestic Hot Water:
Solar hot water systems do not generate electricity, but SAVE electricity, or gas, or oil by using solar energy to heat domestic hot water (DHW). Solar hot water collectors can operate at up to about 70% efficiency, which is 3 or 4 times the efficieny of PV panels. The general idea is to capture solar heat to preheat at least one day's worth of hot water that is stored in tank beside the conventional hot water heater. The conventional heater is then fed with preheated water instead of cold water, thereby requiring less conventional fuel. When you take proven solar domestic hot water technology, and then add the economies of scale available on larger commercial installations, the payback period can be as little as 4 to 6 years. From the perspective of increased building value, one can make a case that these systems offer an immediate payback. The owner of our installation at right estimates that for every $1 increase in Net Operating Income, the building value increases $14 (7.1% cap rate). The owner estimates that the reduced gas expenses, led to a corresponding increase in building value that was over twice the cost of the solar hot water system. An additional benefit is that the owner now has less exposure to energy price spikes. A bonus benefit is that the rental manager reports the solar hot water appeals to prospective tenants.

Residential Solar Domestic Hot Water:
These systems may typically take 8 - 15 years to recover their installed cost including the 30% federal tax credit capped at $2,000. A typical residential solar domestic hot water system for a family of 3 or 4 might cost around $7,000 to $9,000 installed (less the $2,000 tax credit) and might generate annual savings in the vicinity of $250 to $500 (gas) to $400 to $800 (electric) per year. In addition, occupants get the satisfaction of taking showers and hot baths with pollution free solar heated water. 
 
Residential Solar Space Heating:
Professionally installed solar space heating systems may take 15 to 30 years or more to recover their installed cost . Solar space heating overlaps into passive solar design (which can have much quicker paybacks). Some do-it-yourself solar hot air installations can have quicker paybacks, but in general, water based solar space heating systems will take about twice as long to pay back than similar size DHW systems. This is because space-heating systems are only generating savings about half the year, while DHW systems are generating savings year round.
 
Photo Voltaics:
PV may require 40 to 50 years to recover the installed cost counting the 30% federal tax credit (capped at $2,000 for residential - not capped for commercial): PV panels generate electricity directly from sunlight. Their efficiency typically is around 15%. (Roof shingle PV systems may be closer to 8% efficient. Some of the newest silicon panels may be as high as about 21% efficient.) An example of a professionally installed residential size 5 KW grid tied PV system without battery backup, could be the one pictured at right, that cost in the ballpark of $34,000 and (in the Philadelphia area) generates about $730 or so worth of electricity over the course of each year (before subsidies or special green energy credits). $34,000 installed cost / $730/year savings = 44 year simple payback. Clean quiet energy generation on site is great, but currently is expensive. To make PV electricity competitive against grid electricity in 2008, large subsidies (bigger than the 30% Federal credit) and/or renewable energy credits (RECs) are typically required.