Solar vs. the S&P 500: Which Investment Actually Wins?

Solar installers love to say “solar is a great investment.” Stock market bulls love to say “just put it in an index fund.” Almost nobody does the honest comparison with stated assumptions.

Here it is.

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The Setup

We’re comparing two uses of the same capital: installing a solar system versus investing that money in the stock market.

Solar scenario:

• System cost: $24,000
• Federal ITC (30%): −$7,200
• Net out-of-pocket: $16,800
• Starting electric bill: $150/month ($1,800/year)
• Utility rate escalation: 3.5%/year (EIA historical average)
• System life: 25 years
• Annual production degradation: 0.5%/year (NREL median)

Stock market scenario:

• Investment: $16,800 (same net cost as solar after ITC)
• Expected return: 10%/year nominal (approximate S&P 500 historical average)
• Tax treatment: Long-term capital gains at 15% (assumed)

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The Solar Return

Year 1 savings: $1,800 (first-year electric bill eliminated) Year 25 savings: ~$4,212 (at 3.5% escalation — but adjusted for 0.5% annual production decline)

25-year total electricity savings: approximately $72,000–$76,000

Net gain (savings minus net cost): approximately $55,000–$59,000

Additional home value: Lawrence Berkeley National Laboratory research documents an average premium of approximately $15,000 on home sale prices for solar-equipped homes (varies by market, system size, local rates).

Total 25-year return on $16,800 investment: approximately $70,000–$74,000

Solar IRR (internal rate of return): approximately 10–15% depending on local rates, escalation, and financing

Source: NREL system cost benchmarks Q4 2024; Lawrence Berkeley National Lab “Selling Into the Sun” research; EIA rate escalation data.

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The Stock Market Return

$16,800 invested in a low-cost S&P 500 index fund at 10% nominal annual return:

After 25 years: approximately $182,000 (pre-tax)

After long-term capital gains tax (15% on gains): approximately $156,000

Net gain: approximately $139,000

The S&P 500’s actual 10% historical average is widely cited but includes significant variation by starting and ending date. Some 25-year periods have returned significantly more or less. Past performance does not guarantee future results.

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The Honest Comparison

	Solar	S&P 500 Index
Net investment	$16,800	$16,800
25-year return	~$70,000–74,000	~$139,000–$182,000
Risk	Low (known savings)	Moderate-high (market dependent)
Correlation to income	Yes — you need electricity	No
Inflation hedge	Strong (rates rise with inflation)	Moderate
Liquidity	Illiquid (home equity)	Liquid
Tax treatment	ITC upfront; savings tax-free	Capital gains on exit
Sequence risk	None	High if poor timing

The stock market wins on absolute return — in the average case.

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What the Comparison Misses

1. Risk profile: The solar return is essentially locked in. You know your electricity usage. You know the system production estimates. The main variable is rate escalation — and the historical trend is clear. The stock market can deliver 10% on average while giving you -40% in year 1 and 30% in year 2. That matters if you might need the money.

2. Solar is a hedge, not just an investment: If energy prices spike dramatically (as they did in 2021–2022), solar returns look even better. Stocks don’t hedge your electricity bill.

3. They’re not mutually exclusive: Most homeowners finance solar at 5–7% interest rates rather than cash. If you can borrow at 6% and earn 10–15% on the investment, you profit on the spread — while keeping your stock market investment intact.

4. The ITC changes the math dramatically: Without the ITC, solar economics are significantly weaker. With the ITC, you’re starting with a 30% government subsidy. That’s a head start no stock market investment gets.

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The Bottom Line

If you’re choosing between solar and the stock market as pure financial optimization: the stock market has historically outperformed solar on total return, assuming average market conditions.

Solar still makes sense when:

• You value a guaranteed, low-risk return over a volatile higher-average return
• Your electricity rates are high and escalating
• You’re buying American-made panels and qualifying for the 40% combined credit
• You plan to stay in your home 10+ years
• You want an inflation hedge built into your home

Run your own numbers. Don’t let anyone — solar salesman or stock broker — do it for you without showing their assumptions.