The annual degradation rate is the percentage by which a solar panel’s energy output decreases each year due to natural aging, material wear, and environmental exposure. All photovoltaic modules—whether monocrystalline, polycrystalline, bifacial, or thin-film—experience gradual performance decline over time.

Solar designers, EPCs, financiers, and asset managers rely on degradation rate assumptions when modeling future production, calculating financial returns, determining warranty coverage, and evaluating long-term project viability. Even small variations (e.g., 0.4% vs. 0.8%) significantly impact LCOE, P50/P90 estimates, ROI, and energy yield forecasts.

Typically, modern Tier-1 mono-PERC and N-type panels degrade around 0.3%–0.5% per year, while older technologies degrade faster.

• Annual degradation rate is the yearly decline in solar panel performance.
• Modern panels degrade more slowly due to advances in cell and encapsulation technologies.
• It affects energy yield, warranty expectations, and all long-term financial models.
• Proper degradation assumptions are essential for accurate LCOE, ROI, P50/P90, and asset management.
• Climate, quality of materials, and installation practices significantly influence degradation rates.

What Is Annual Degradation Rate?

Annual degradation rate is a year-over-year percentage reduction in a solar panel’s ability to convert sunlight into usable electricity. It represents how much performance the module loses annually due to:

• UV exposure
• Temperature cycles
• Moisture intrusion
• Material fatigue
• Solder bond weakening
• Microcracks
• Encapsulant discoloration
• PID (Potential-Induced Degradation)

Manufacturers provide both:

• First-year degradation rate (higher due to initial stabilization effects), and
• Annual linear degradation rate (applied from year 2 to 25+).

To see how degradation impacts energy production, compare with:

• P50 / P90
• Performance Ratio (PR)
• Yield Assessment

How Annual Degradation Rate Works

Most solar module warranties follow this standard pattern:

1. Year 1 Degradation

Panels may lose 1%–3% in the first year due to material settling and light-induced degradation (LID).

2. Linear Annual Degradation

From year 2 to year 25, performance typically falls by 0.25% to 0.6% annually.

3. End-of-Warranty Output Guarantee

By year 25, most Tier-1 manufacturers guarantee 80%–88% of original nameplate power.

Example:

A panel with 0.5% annual degradation retains:

• Year 1: 98.5%
• Year 10: ~95%
• Year 25: ~88%

Performance degradation directly influences modeling tools such as:

• Performance Simulation
• Energy Production Forecasting

Types / Causes of Solar Degradation

1. LID (Light-Induced Degradation)

Occurs in the first weeks of operation—common in PERC panels.

2. PID (Potential-Induced Degradation)

Caused by high voltage stress and humidity; reduces module output significantly.

3. LeTID (Light and Elevated Temperature Degradation)

Affects PERC technologies at high temperatures.

4. Mechanical Degradation

Snow load, wind load, microcracks, and cell stress can accelerate long-term decline.

5. UV & Weather Degradation

Encapsulant yellowing, glass aging, moisture ingress.

6. Thermal Cycling Fatigue

Solder joints weaken over decades of temperature swings.

This connects to:

• Snow Load Calculation
• Wind Load Calculation

How Annual Degradation Rate Is Measured

1. Manufacturer Testing (IEC Standards)

IEC 61215, IEC 61730 accelerated aging tests simulate real-world conditions.

2. Field Data Analysis

Large solar farms track long-term performance using SCADA and monitoring systems.

See: SCADA

3. Regression Modeling

Performance ratio over time reveals the annual decline trend.

4. Independent Lab Testing

Labs apply thermal cycling, humidity freeze, and mechanical stress tests.

Typical Values / Ranges

Higher quality panels degrade slower and maintain higher lifetime energy yield.

For related topics:

• Bifacial Solar Panel
• Cell Efficiency

Practical Guidance for Solar Professionals

1. Use accurate degradation assumptions in financial models

Overestimating or underestimating degradation skews:

• LCOE
• Payback period
• IRR
• P50/P90 bankability studies

For financial tools, see: Solar Finanical Software

2. Choose higher-quality modules for long-term projects

Utility-scale and C&I systems demand lower degradation rates for strong lifetime returns.

3. Always consider climate conditions

High heat, humidity, and salty environments accelerate degradation.

For site analysis tools: Solar Design Software

4. Compare warranties carefully

Some manufacturers now offer 30-year performance warranties with low linear degradation.

5. Validate degradation in performance simulations

Include degradation curves within:

• Performance Modeling Engine
• Loss Analysis

Real-World Examples

1. Residential Rooftop System

A Tier-1 6.5 kW system degrades at 0.45%/year, producing ~88% of original output after 25 years.

2. Commercial Warehouse Solar System

A 500 kW installation uses modules with 0.35% annual degradation, improving long-term ROI and supporting PPA contracts.

3. Utility-Scale Solar Farm

A 100 MW plant in a high-temperature region uses N-type TOPCon modules (0.3%/year) to maximize P50 energy yield and reduce financing risk.

• Performance Ratio (PR)
• P50 / P90
• Loss Analysis
• Module Degradation
• Energy Production Forecasting