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Short answer, reviewed October 2026
Solar panels lose about 0.25% to 0.5% of their output a year, so a typical panel still makes 85% to 92% of its original power after 25 years. For taxes, commercial systems are depreciated over 5 years under MACRS; that applies to businesses, not typical homeowners. Market value falls faster, which makes lease and PPA buyouts cheaper over time.
In brief: Solar panels depreciate in two ways: their energy production declines gradually (about 0.5% per year), and their financial value decreases as equipment ages and newer, more efficient technology becomes available. For homeowners with a PPA or lease, depreciation works in your favor when it comes to buyouts. The older the system, the cheaper it typically is to purchase. Understanding depreciation is essential for timing your exit strategy effectively.
Two Types of Solar Panel Depreciation
When we talk about solar panel "depreciation," we're actually referring to two distinct concepts that are often conflated:
1. Production Degradation (Performance Decline)
Solar panels gradually produce less electricity over time due to physical degradation of the photovoltaic cells. This is a normal and expected process. Most modern solar panels degrade at approximately 0.25-0.5% per year. After 25 years, a typical panel is still producing approximately 85-92% of its original output.
Typical Solar Panel Production Over Time
Based on 0.5% annual degradation rate. Actual degradation varies by panel manufacturer, quality, installation, climate, and maintenance. Premium panels may degrade slower (0.25%/year).
2. Financial Depreciation (Market Value Decline)
Like any piece of equipment, solar panels lose financial value over time. A 10-year-old solar system is worth less than a new one because: the equipment has aged, newer and more efficient panels are available, the remaining useful life is shorter, and the warranty period may be partially or fully expired.
Financial depreciation is what drives the buyout cost of a PPA or lease. Because the system is worth less each year, buying it out becomes progressively cheaper as the contract ages.
How Depreciation Affects PPA and Lease Buyouts
For homeowners with solar PPAs, the buyout price is typically based on the system's "fair market value" at the time of purchase. Determined by an independent appraiser. As the system depreciates, this fair market value decreases, making later buyouts cheaper than earlier ones.
For solar leases, buyout pricing may follow either a predetermined schedule in the contract or a fair market value assessment. Either way, the trend is the same: buyouts become cheaper as the system ages.
| Contract Year | Estimated Fair Market Value | Notes |
|---|---|---|
| Year 1-5 | 60-85% of original cost | Buyout typically not available (ITC recapture period) |
| Year 6-10 | 40-60% of original cost | First buyout window opens; still relatively expensive |
| Year 11-15 | 25-40% of original cost | Often the sweet spot for buyout timing |
| Year 16-20 | 10-25% of original cost | Significant depreciation; buyout may be very attractive |
| Year 21-25 | 5-15% of original cost | Nearing end of warranty; minimal remaining value |
Rough estimates for illustrative purposes only. Actual fair market values depend on system size, condition, panel technology, local market, and remaining production capacity. A 6 kW system originally costing $18,000 installed might have a fair market value of $7,200-$10,800 at year 7 and $2,700-$4,500 at year 15.
Strategic timing: If you're considering a PPA buyout, the optimal timing balances the depreciated buyout price against the cumulative savings (or cost) of continuing to make PPA payments. In many cases, year 10-15 represents a sweet spot where the system is significantly depreciated but still has 10-15 years of productive life remaining. PPA exit guide →
Ready to explore buying out your solar system? Get matched with an exit company to understand your buyout options.
Depreciation and Home Value
How solar panels affect your home's value depends heavily on whether you own them or have a PPA/lease:
- Owned solar panels: Research generally suggests that owned solar panels add value to a home. Studies indicate a premium of roughly $4 per watt of capacity, though this varies by market. However, the premium decreases as the system ages because older panels are worth less and have shorter remaining life.
- PPA/Lease panels: Third-party owned systems may add little to no value, and can actually complicate the sale. The buyer is taking on a contractual obligation, not gaining an asset. In some markets, a PPA or lease is perceived as a liability rather than a benefit. Selling with solar guide →
Tax Depreciation (For System Owners)
If you own your solar system (purchased via cash or loan), you may be eligible for tax depreciation benefits. This is distinct from the physical or market depreciation discussed above. Tax depreciation is an accounting tool that reduces your tax liability:
- Federal ITC (Investment Tax Credit): Reduces your federal tax liability by a percentage of the system cost. The residential ITC was 30% under the Inflation Reduction Act for systems completed on or before December 31, 2025. The federal residential credit under Section 25D was repealed for expenditures made after December 31, 2025. The IRS treats an expenditure as made when the original installation is completed, so systems finished in 2026 or later generally do not qualify. The commercial credit under Section 48 is a separate provision and is not affected in the same way.
- MACRS (Modified Accelerated Cost Recovery System): For commercial solar installations, MACRS allows you to depreciate the system over 5 years for tax purposes, providing accelerated tax benefits. This is primarily relevant for businesses, not residential homeowners.
- Bonus Depreciation: Commercial installations may also qualify for bonus depreciation, allowing a significant portion of the cost to be deducted in the first year.
Note that if you have a PPA or lease, the solar company, not you, claims these tax benefits. This is one of the key financial trade-offs of third-party ownership. Compare financing options →
Factors That Affect Depreciation Rate
- Panel quality and brand: Premium panels (e.g., SunPower, LG) tend to degrade slower and retain value better than economy panels
- Installation quality: Proper installation with good ventilation extends panel life; poor installation accelerates degradation
- Climate: Extreme heat, humidity, and hail exposure can accelerate physical degradation
- Maintenance: Regular cleaning and monitoring helps maintain production and catch issues early
- Technology evolution: As newer, more efficient panels become available, older technology depreciates faster in market value
- Warranty remaining: A system with 15 years of warranty remaining is worth more than one with 5 years
Frequently Asked Questions
What is the depreciable life of solar panels?
For tax purposes, commercial solar installations are depreciated over 5 years under MACRS, and may also qualify for bonus depreciation. This is relevant to businesses, not typical residential homeowners. Physically, most panels are warrantied for 25 years.
How much do solar panels depreciate per year?
Output drops about 0.25% to 0.5% a year. Market value drops faster: our estimate is 60% to 85% of original cost in years 1 to 5, 40% to 60% in years 6 to 10. That decline is why a PPA or lease buyout usually costs less later in the contract.
What is the solar panel depreciation rate?
At the common 0.5% yearly degradation rate, a panel produces about 97.5% of its original output in year 5, 95% in year 10 and 87.5% in year 25. Premium panels may degrade at 0.25% a year.
Do solar panels lose value over time?
Yes, solar panels lose both production capacity and financial value over time. Production typically degrades about 0.5% per year, meaning a 25-year-old panel produces approximately 87.5% of its original output. Financial value declines faster due to aging equipment, newer technology availability, and shorter remaining useful life. This depreciation works in your favor if you're planning a PPA or lease buyout. The older the system, the cheaper the buyout. PPA exit guide →
How does depreciation affect my PPA buyout cost?
PPA buyouts are typically based on fair market value, which decreases as the system depreciates. A system that cost $20,000 to install might have a fair market value of $8,000-$12,000 at year 7, and $3,000-$5,000 at year 15. This means waiting longer to buy out generally results in a lower price, but you continue making escalating PPA payments in the meantime. The optimal timing depends on your specific contract terms and escalator rate. Exit options →
How long do solar panels actually last?
Most solar panels are warrantied for 25 years and can continue producing electricity for 30-40+ years, though at reduced efficiency. The panels don't simply stop working after 25 years. They continue to produce electricity but at a diminished rate. Inverters, however, typically need replacement after 10-15 years. The long lifespan means that even a depreciated system has significant remaining value in terms of electricity production.
Do solar panels increase or decrease home value?
Owned solar panels generally increase home value. Research suggests a premium of roughly $4 per watt. However, panels under a PPA or lease may add little value or may actually complicate the sale, since the buyer must assume a contractual obligation. The age of the system also matters. Newer panels add more value than older ones. Selling with solar guide →
What is the ITC recapture period?
The Investment Tax Credit (ITC) recapture period is typically 5 years. If the solar system is sold or the ownership changes within this period, the original owner (the solar company in a PPA) may have to "recapture" (pay back) a portion of the tax credit. This is why most PPA contracts don't allow buyouts until year 6 or 7. The company wants to avoid recapture. After the recapture period, buyouts become available.
Get matched with an exit company to understand your buyout options and the estimated fair market value of your system.
Disclaimer: This guide is for informational purposes only and is not legal advice. Solar panel depreciation rates, buyout costs, and tax implications vary by system, contract, and jurisdiction. Results vary by individual situation. We do not advise homeowners to stop making payments or breach contractual obligations. Consult a qualified attorney or tax professional before taking action. See our Ownership Disclosure and Advertiser Disclosure.