Prima facie solar is a good investment. Investing in a reliable grid-connected Solar Power Plant can potentially deliver returns of more than 18% every year, and will pay back the investment in less than five years.
Is Solar Energy reliable? How long will it take for me to get my money back? Is a Solar Power Plant better investment compared to a mutual fund?
Unfortunately, the answer to these questions is not very simple. It depends on multiple factors ranging from your power tariff, utilities solar policy and the quality of the Solar Plant. In this blog, we will try and answer a few of these questions.
(If you are not familiar with Solar Power, we would recommend that you read our blog on Different Types of Solar Plant).
A reliable grid-connected Solar Power Plant will produce 4 to 5 units of energy per day per kWp on an average based on your locality (local weather and irradiation level). Now let's assume that you have invested in a good quality solar plant, and is maintaining it properly. Then the key factors which will determine your return on investment are :
You can find out your utility tariff from your electricity bill by dividing (energy charges)/(number of units consumed in a month). We also have to add taxes or duty applied on energy charges, to arrive at the final per unit utility tariff to be considered for solar savings calculation. (Different utilities use different names (sometimes no name) for the Energy Charges in their bill. Typically it's not that difficult to spot). Please note that fixed charges or connected load charges cannot be reduced by installing a Solar Power Plant (in most of the cases). Typically, the utility tariff will be highest for commercial properties, and lowest for residential properties. Let's say you have a utility tariff of 9.3 Rs + 10% duty, then a 1 kW Solar Plant has the potential to save (4 units x 9.3 Rs per unit x 1.1 duty per unit = 40.92) Rs in a day.
Utility Solar Policy
In India, the utilities' Solar Policy varies from state to state. Different states have different policies ranging from net-metering, gross-metering to the feed-in tariff. The solar policy decides the compensation which the customer will get for the solar energy produced from the plant. We will evaluate different policies starting with net-metering.
(You may skip this section on net-metering, and instead read our new comprehensive blog on different metering policies here. If you have already read this blog, please continue reading from the sub-heading 'Initial Investment')
With net-metering your utility energy meter will read the energy you consume (as IMPORT) and the excess solar energy you send back to utility grid as EXPORT. The customer electricity bill will reflect the net or difference between the IMPORT and EXPORT at the end of the month. For example, let's say your export is 200 units and import is 250 units, you have to pay only for 50 units of consumption.
What happens if your export is 300 units, which is more than import (250 units)? Many utilities such as Kerala Electricity Board also allows the consumer to bank the excess power for a duration of one year. In such cases, the excess solar energy will be adjusted in next months energy bill.
Please watch below video, if you want to understand net-metering a bit-more in detail:
A few utilities such as BESCOM have a monthly settlement, in which the customer will be compensated for the excess solar energy or Export every month at a pooled tariff of ~ INR 3 Rs per unit. In our case customer will get a compensation of (300-250) units X 3 Rs, 150 Rs. from BESCOM. One important thing to notice here is that Export is not equal to Solar Production. After self-consumption at the property, only the excess solar energy is exported to the grid. It is illustrated in the diagram below.
In gross-metering, the utility pays the customer a fixed charge for the solar energy produced from the Solar Power Plant. It is not a good option compared to net-metering for most of the customers, because of the low tariff decided by utilities for gross-metering. However, for residential property owners with low monthly consumption, who consider Solar as green investment, it may be a better option. The tariff for gross-metering ranges from 3.5 to 5 Rs. In India, many utilities are now moving from net-metering to gross-metering or feed-in tariff.
In feed-in tariff regime, the customer can use the solar power for self-consumption at their utility tariff. But for the exported power the customer is compensated at a different tariff called a feed-in tariff, which is low compared to the customer's utility tariff. The feed-in tariff is approximately 3 to 4 Rs. In India, TamilNadu has implemented feed-in tariff for a certain category of consumers. In the example depicted in the picture above, of the total 120 W of power produced at that instant, for the excess 20 W of power customer will be compensated at feed-in tariff. In such cases, it would be better to design the Solar Power Plant and operate loads in such a way that you can maximize self-consumption. Complementing Solar with some storage, to maximize self-consumption, is another option, once Lithium-based batteries cost becomes competitive.
Unfortunately in many parts of India, net-metering is not given to all customers. In such cases, the customer may prefer what Industry terms as a zero-export-option. The zero-export grid-tied system design has additional CTs' (current transformers) monitoring customers consumption, and the solar production will be reduced to the value of the consumption by adjusting MPPT (Maximum Power Point Tracking). This will minimize export to the grid. It is important to minimize export in such cases, as normal energy meter will read exported solar power also as consumption.
The attractiveness of the Solar Power Plant as an investment will also depend on the initial investment required for the Solar Power Plant. Investment for a Solar Power Plant is typically specified as Investment Required per kWp of Solar Installation. The investment for a Solar Power Plant will vary based on the size of the plant and quality of components used in the Solar Plant. It varies from
40,000 to 70,000 Rs per kWp for installation capacity below 10 kWp
35,000 to 60,000 Rs per kWp for installations above 10 kWp
The operations cost of a Solar Power Plant will depend on the reliability of the components used in the Solar Power Plant. Typically, if all components are reliable, we have to factor in at least the following costs in Operations Cost:
Cost for Cleaning the Solar Modules: Cleaning frequency will depend on the operating environment and the accumulation of dust in Solar Panels. A solar plant with web monitoring at a module level will also help us monitor solar production closely, and reduce the cleaning cost
Cost for Maintenance Check-ups: It is recommended to do maintenance checks on all joints on DC and AC Side at least once every year to check whether connections are strong, and no localised heating is present at any joints. These include joints in DC Distribution Box and AC Distribution Box. This is very much required for conventional Solar Power Plants where high-voltage DC is present (a fire hazard).
Cost for Inverter Replacement: Conventional string inverters have a design life of 5 to 10 years depending on their quality. You will have to factor in the cost of replacement of inverter as well.
The reliability of a Solar Power Plant is possibly the most ignored factor in India's Solar Market today. To understand the importance of reliability lets look at a simplified cashflow of returns from a 20 kWp Solar Power Plant:
The initial investment for the Solar Power Plant is approximately 11 lacs. From the cumulative savings calculation, we can notice that the customer's break even is less than 4 years. You would have also noticed that the cumulative savings at the end of 25 years is a whopping 81.8 lacs. What many may miss is, most of the savings from a Solar Power Plant come after the fifth year of operation. That is why it is very important for a Solar Power Plant to be reliable. The reliability of a Solar Power Plant will depend on how you choose the different components in a Solar Power Plant. Please read our blog on Risks and Benefits of Solar Power Plant to understand how to choose reliable components for a Solar Power Plant.
You can contact us for a free evaluation of your Energy Bill, and return on investment calculation.