Solar panel degradation explained

Solar panels do not wear out suddenly. They fade. Each year a typical panel produces slightly less electricity than it did the year before under the same sunshine. This slow decline is called degradation, and it is one of the inputs to any honest estimate of solar savings. The good news is that, for most systems, it is small. The less good news is that it compounds over decades and varies from one system to another. This guide explains what degradation is, what the research says about typical rates, how to read the warranty on a datasheet and how much degradation really changes payback.

What degradation means

Degradation is usually given as a percentage of output lost per year. A rate of 0.5% a year means that a panel producing 1,000 kWh this year would produce about 995 kWh next year in identical weather. It is a long-term trend measured over years, not a prediction of any single year: real output also swings with the weather, so one cloudy year is not a sign of fast degradation.

Researchers measure it in two main ways. Some take panels out of the field and test them indoors under standard conditions, comparing the result with the original rating. Others analyze years of output data from working systems, adjusting for weather to reveal the underlying trend. The second method captures everything that affects a real system, including wiring and inverters, which is why system-level rates can be higher than rates for the panels alone.

What the research says

The most widely cited summary is a review by Dirk Jordan and Sarah Kurtz of the National Renewable Energy Laboratory, “Photovoltaic Degradation Rates — An Analytical Review”. The authors gathered nearly 2,000 degradation rates reported in studies of individual panels and whole systems. Their headline findings:

• The median reported rate was 0.5% a year.
• The average was higher, at 0.8% a year, because a minority of results showed much faster decline.
• 78% of all the reported rates were below 1% a year.
• Studies that watched systems for less than 10 years tended to report higher rates than studies that ran for 10 years or more.

Two cautions apply. First, the authors note that their compilation is a survey of published results, not a scientific sample of all panels in use. Second, the review was published in 2012, so it describes panels built over earlier decades. It remains a useful benchmark, and its median is the starting value in our calculator, but treat it as a reference point rather than a promise about any particular product.

Why panels degrade

Panels spend decades outdoors, heating up every day and cooling every night, under ultraviolet light, rain, humidity, snow and wind. Several slow processes add up:

• Light-induced changes in the cells. Some silicon cells lose a little efficiency during their first exposure to sunlight. This is one reason many warranties allow a bigger drop in year one.
• Encapsulant aging. The clear layers that bond and protect the cells can yellow or brown over time, letting slightly less light through.
• Moisture getting in. Water vapor that works its way past the seals can corrode metal contacts and raise electrical resistance.
• Thermal cycling. Daily heating and cooling stresses solder joints and can grow tiny cracks in cells.
• Voltage-related effects. In some system designs, the voltage between cells and the frame can draw charge away from the cells and cut output.

Hot climates generally speed these processes up, and installation quality matters: panels that were cracked in handling or poorly sealed tend to decline faster.

Small rates, compounded

Our calculator treats degradation as a fixed percentage of the previous year’s output, so it compounds:

output(year y) = first-year output × (1 − rate)^(y − 1)

At small rates, compounding and a simple straight-line decline give almost the same answer over 25 years. What matters more is the rate itself. The table shows how much of its first-year output a system keeps at different rates:

At the median rate of 0.5% a year, a system still makes about 89% of its first-year output in year 25. At 1% a year it is about 79%. That gap is real, but it builds slowly, and most of it arrives after the typical payback period.

How to read a performance warranty

Panel datasheets usually include a performance warranty: a promise that output will not fall below a stated share of the original rating after a stated number of years. Some state a single end figure; others state a maximum loss in year one followed by a maximum loss each year after. You can turn either into an implied yearly rate to compare products on the same basis:

implied yearly rate = 1 − (guaranteed share)^(1 ÷ years)

For example, a warranty promising 85% of rated output after 25 years implies an average loss of no more than about 0.65% a year. (These are round numbers to show the arithmetic, not figures from any product.) Remember that a warranty is a floor, not a forecast. Most panels are expected to do better than their guarantee, and the warranty only helps if you can show the panels fell short, so keep your monitoring data.

If you want a cautious estimate, enter the warranty’s implied rate in the calculator. If you want a typical estimate, the 0.5% starting value is a reasonable choice.

How much degradation changes payback

Here is the effect on the worked example from our payback guide: a home using the US average amount of electricity in Dallas, TX, paying the US average residential price, with an illustrative installed price of $3.00 per watt. Only the degradation rate changes:

Going from no degradation at all to 1% a year moves payback by only 0.4 years, but cuts 25-year savings by $8,931. That pattern holds generally. Payback happens early in a system’s life, before degradation has had much time to compound, so it is not very sensitive to the rate. Lifetime savings are more sensitive, because the losses pile up in the later years.

So if you are deciding whether solar pays off at all, degradation is rarely the deciding factor: price per watt, sunshine and your electricity rate matter far more. If you are comparing the long-run value of two panel brands, the warranty terms and expected degradation deserve more weight.

When lower output is not degradation

If your system is producing noticeably less than expected, degradation is rarely the main cause. It is slow and gradual. Sudden or large drops usually have other explanations:

• Weather. Compare the same month across years, and expect a few percent of natural variation from year to year.
• Dirt, pollen and snow. Soiling can cut output, especially in dry, dusty areas with little rain.
• New shade. A tree that has grown or a new building nearby can shade part of an array, and shading one part can reduce the output of more than that part.
• Equipment faults. An inverter that has tripped or failed can take part or all of a system offline. Monitoring apps usually flag this quickly.

Checking your monitoring data a few times a year and comparing it with the same months in earlier years is the best way to catch real problems early and to have evidence ready if you need to make a warranty claim.

Using degradation in the calculator

Open “Assumptions you can change” in the calculator and edit “Panel output loss”. Try the 0.5% starting value, your panel warranty’s implied rate, and 1% as a pessimistic case. If the system still pays back within a time you are comfortable with in the pessimistic case, degradation is not a reason to hesitate.