Solar Panel Degradation Impact
Solar panels lose a small amount of output every year, and that slow decline compounds over a long ownership horizon. This shows exactly how much degradation costs a system's lifetime economics.
At your inputs, the system has an NPV of $2,371 over 20 years once panel degradation is included, with a discounted payback of 16.2 years.
| Net cost after confirmed incentives | $18,000 |
|---|---|
| Year-one annual savings (full output) | $1,700 |
| Final-year annual savings (degraded output) | $1,546 |
| Net present value | $2,371 |
- This uses planning estimates you entered, not a contractor quote or guaranteed savings.
- Actual panel degradation varies by manufacturer; use your panel's warranty-stated degradation curve if available.
What this also tells you: Your annual savings shrink from $1,700 in year one to $1,546 by the final year of your horizon, purely from panel degradation, before any change in electricity rates.
This is a planning estimate based on your entries. It does not size equipment, determine electrical or building-code compliance, verify incentive eligibility, or replace a contractor quote or professional energy audit.
Why this decision comes up
A homeowner evaluating solar over a full 20-year or longer horizon benefits from seeing the slow compounding effect of panel degradation, not just a flat year-one savings figure.
How this is calculated
Annual savings shrink year over year at your entered degradation rate, are discounted back to today's dollars, and summed against net cost to produce an NPV and, if it occurs, a discounted payback year.
A worked example
With the defaults ($18,000 net cost, $0 confirmed incentive, $1,700 year-one savings, 0.5% annual degradation, 20-year horizon, 5% discount rate), annual savings shrink from $1,700 in year one to about $1,545.57 by year twenty, and the system's NPV comes out positive at about $2,371, with a discounted payback around 16.2 years.
Common mistakes
A common mistake is ignoring degradation entirely and assuming year-one savings hold flat for the system's full life, which overstates long-horizon returns.
Limitations
Actual panel degradation varies by manufacturer and conditions. Use your specific panel's warranty-stated curve if available rather than a generic assumption.
Common questions
What degradation rate should I use?
Check your panel's warranty documentation for a manufacturer-stated annual degradation rate. 0.5% per year is a common industry planning default if you don't have that figure yet.
Does a premium panel tier degrade more slowly?
Often yes, many higher-efficiency panel lines carry a slower stated degradation rate and longer warranty. See the system cost class comparison tool to weigh that against the higher upfront cost.
Why does the NPV come out positive here when the plain NPV tool shows negative?
The two tools use different default assumptions for cost and savings. Always run your own numbers in both to see how sensitive your specific case is to each assumption.
Does cleaning or maintenance affect degradation?
Regular cleaning helps panels perform closer to their rated output, but it doesn't slow the underlying physical degradation of the cells themselves over time. The two are related but distinct factors.
Does inverter lifespan factor into this?
No, this models panel output degradation specifically. A string or microinverter's own expected lifespan and replacement cost, often shorter than the panels', is a separate cost this tool doesn't include.