How long until it pays for itself? Why that figure says less than it seems

Hardly any conversation about solar panels reaches the second coffee without it: how long until it pays for itself? It is a legitimate question and it organises the decision, because nobody commits a meaningful sum of money without knowing when they get it back.

The problem is not the question but the shape of the answer: a single figure. “Seven years.” “Four and a half.” Put like that it sounds like a measured quantity, of the same kind as the inverter's power rating or the weight of a module. It is not. It is the result of a division whose two terms were chosen by the person selling you the system.

This implies no bad faith. A spreadsheet with reasonable assumptions produces a reasonable figure, and one with optimistic assumptions produces a figure that also looks reasonable. From the outside they are indistinguishable, because what you are handed is the result, not the sum.

So the useful conversation is not whether it is seven years or nine. It is asking for the sum. And to ask for it you need to know what it contains.

Simple payback is a division: total investment over one year's saving. Two terms and, underneath them, four assumptions that can be moved without anybody lying.

The first is the installed price, which only means something alongside the list of what it excludes. Mounting structure, electrical protections, civil works if needed, transport, commissioning and handling the process with the grid operator may be in or out. A quote that leaves items out produces the best payback on the market, right up until those items appear.

The second is the tariff. The frequent mistake here is using the base unit cost instead of what you actually pay per kilowatt-hour: in Colombia the subsidy or the solidarity contribution, depending on your estrato or user type, shift that effective price by no small amount. A payback calculated on the wrong tariff is wrong from its first line.

The third is the estimated annual generation, which depends on the irradiation at the specific site, on the orientation and tilt of the roof, on the shade it receives and on the system's own losses. It is the most technical of the four assumptions and the easiest to stretch unnoticed.

The fourth is the self-consumption rate and the value given to what you export. Valuing all generation at the full tariff is the most common shortcut and the one that shortens a payback most on paper, because it assumes you consume everything you produce at the moment you produce it.

None of the four needs exaggerating for the result to change. It is enough to take the favourable end of four defensible ranges, and since all four are chosen by whoever is paid to close the sale, they tend to push in the same direction.

The formula takes the first year's saving and repeats it identically until the investment is covered. It is convenient, it explains itself in one sentence, and that is why it circulates. But it takes three things for granted that do not hold.

The first is that the tariff stands still. It has not stood still: the price of the energy you buy from the grid has risen, and that rise works in the system's favour, because every kilowatt-hour you stop buying is worth more with each year that passes. On this point the simple calculation is conservative, which is worth knowing so you do not dismiss a project from the wrong side.

The second is that the system always produces the same. Modules lose performance slowly and predictably over their life; it is a normal phenomenon, documented in the manufacturer's production warranty, and it pushes in the opposite direction to the tariff.

The third is that no money is spent across all those years. Some is, however modest: cleaning depending on the setting, the occasional inspection and, above all, components whose service life is shorter than the system's. The inverter is the typical case and it almost never appears in the sum you are shown.

Individually none of the three effects is dramatic, and in part they offset one another. The problem is not their size: it is presenting them as zero. A proposal that names them and explains which way each one pushes is, nearly always, a proposal written by somebody who has installed systems and seen the third bill.

The comparison arrives on its own: I have the money, I can leave it earning interest at the bank or I can put it on the roof. It is a sensible way to think about an investment, but it mixes two objects of different natures.

A financial return is money coming in, with its own liquidity and its own tax treatment. Solar saving is money that does not go out: it is not received, it stops being paid. That makes it neither better nor worse, but it does mean comparing them peso for peso is a sum worth reviewing with your accountant rather than on a napkin.

There are two further differences, rarely mentioned, that point in opposite directions. One against: the investment is illiquid and attached to the property, so if you sell early the system stops being a stream of savings and becomes a selling point, with all the uncertainty that carries. One in favour: the “return” on a solar system is indexed to something very concrete, the price of energy, so it works as a hedge against a cost you already have and will not stop having.

And one technical detail tidies things up considerably: the payback period is not a rate. Two projects that cross zero in the same year can be worth very different amounts if one keeps producing well afterwards and the other does not.

The payback figure focuses all attention on one point in the calendar, and that point is not the interesting one. The interesting part starts right after: a system that has already paid for itself and keeps producing energy you do not buy.

The service life of a well-installed photovoltaic system is measured in decades, well beyond the year in which zero is crossed. Everything produced from then on enters the account at a very low marginal cost, and that part of the story does not fit inside the figure you were given.

From which follows an uncomfortable conclusion for anyone optimising payback as if it were the only variable: cutting price to shorten payback is expensive when what gets cut is precisely what makes the system reach the end intact. The structure, the protections, the quality of the inverter, the workmanship and even the odds of the installer still existing in ten years are part of the outcome, even though they never appear in the formula.

Put differently: a somewhat longer payback on a system that lasts, from an installer who answers the phone, is usually the better deal than a short payback on paper. The formula cannot tell those two apart; you can.

Paybacks that drift rarely drift because of an arithmetic error. They drift because of things that happen after signing and that nobody put in the spreadsheet.

The most common is the paperwork. The project does not end when the panels are on the roof, but when the bidirectional meter is operating: until then, the energy going out to the grid is recorded by nobody. Every month of delay in legalisation is a month of surpluses given away, and that time appears in no projection.

Next comes the shade nobody assessed during the site visit: a tree that grows, a water tank, the neighbour's gable in mid-afternoon. Shade over part of the array can penalise considerably more than the affected surface suggests, and the effect shows up in real production, not in the design.

Then there is oversizing. A system larger than your consumption justifies adds investment today in exchange for energy that is exported and credited on terms that rarely match what you save by self-consuming. It raises the numerator of the division without raising the denominator in the same proportion.

For a household, payback is above all a way of knowing whether the decision is sensible. For a company it is something else: the project competes for capital against everything else that money could do, and whoever approves it needs to compare it on the same terms as the rest of the investments.

There, simple payback falls short for a concrete reason: the tax benefits of Ley 1715 de 2014, amended by Ley 2099 de 2021, do not spread their effect evenly across the years. The income tax deduction and accelerated depreciation change the cash profile of the early years, and that moves the result in a way a division between two numbers cannot capture. They also require certifying the project with the UPME, a process with timelines of its own.

The other difference is the consumption pattern. A shop, an office or a plant consumes mostly during the day, which is when the system produces, so they start with a naturally high self-consumption rate. Add commercial tariffs, which tend to be higher and include the solidarity contribution. Every kilowatt-hour avoided is worth more.

Practical conclusion: if you are evaluating a commercial project, ask for the full cash flow rather than only the crossing year, and make sure the tax effect appears in the year it actually materialises, with the UPME process built into the schedule.

There is no need to argue about the figure or to redo anyone's sums. It is enough to ask for the assumptions in writing, and a serious proposal hands them over without discomfort, because it had to choose them in order to do the calculation at all.

The item that tidies the conversation most is the last on the list: asking for the same payback recalculated on conservative assumptions. A tariff that does not rise, a lower self-consumption rate, generation at the bottom of the range. If the project still makes sense in that scenario, you have a solid decision. If it only works in the optimistic one, you have also learned something important about what you are buying.

And a final warning about figures that circulate loose. Any general payback — “solar pays for itself in X years in Colombia” — is advertising, not information: it knows nothing about your tariff, your consumption, your roof or your routine. The only number that serves you is the one that comes out of your four assumptions, and the least you can demand is to see them.