Commercial Solar is more attractive for small entrepreneurs in India

The basic survival law of any enterprise is to minimize the cost and maximize the returns. ​I am not saying maximizing the returns only in monetary terms but considering every aspect of the real profitable business-like 

better-quality products, good after-sales service, customer satisfaction, building trust for your brand.

Recurring cost

​It is very important for the small entrepreneurs, especially who are starting afresh, to think of the innovative ways to cut down the cost in every possible manner (it should not be at the cost of the quality). Because the money saved can be further utilized in building the quality products at right price and improving the after sales services which is very important in boosting their business in the initial years of the operation. The right priced quality products keep churning the rotor of the economy.
If for some reasons, the setup cost or the recurring cost is high then the entrepreneur devises, I can say to an extent, the unethical ways to keep his business floating like increasing the cost of the product above its actual value and compromising in the after-sales services, affecting the customer satisfaction, leading to the half-baked trust of your brand in the mind of the customers.

Solar electricity: The solution

​The Solar electricity solutions for their businesses is one of the innovative ways to cut down the recurring electricity cost to the great extent. If the Solar electricity and the grid electricity portfolio is rightly designed then one can easily offset the grid electricity bill to zero.
Everyone knows that the cost of the commercial electricity in any part of the world is higher or almost double than the cost of the residential electricity, while the cost of installing solar either for the residential purpose or for the commercial purpose is the same.
Moreover, the government offers many rebates, incentives and tax benefits to the owners for installing solar in their places. Well, I will not discuss these incentives and rebates. I will only take into consideration the electricity rates to evaluate the feasibility or the attractiveness of the commercial solar power system.

The example

​The commercial rate of electricity in Delhi/NCR (India) starts at around Rs. 8.5 per unit for the first slab and subsequently it increases for the higher slabs. It means that if the units consumed are within the first slab then the cost of the electricity is Rs. 8 /unit and if the consumption goes above the first slab then excess units above the first slab will fall into the second slab and the higher rate will be applicable to those excess units.
Let us understand the feasibility of commercial solar with the help of an example:
The average electricity consumption of a small enterprise is 800 units per month. The owner is paying Rs. 7,200 (800 x 9 = Rs. 7,200) as the monthly electricity bill.
(I have taken the average cost of the electricity as Rs.9/unit. Although it is more than this, I am taking a pessimistic view. If we get great feasibility at this rate then obviously it will be more attractive at higher rates.)
On further evaluation, the owner found that the electricity consumption in the daytime (when the sun is there in the sky) is 60% (60% of 800 = 480 units) of the total consumption. Somebody suggested switching to solar to meet his daytime electricity requirements. As this will not only cut his overall electricity bill (a recurring cost) but also reduce his dependence on the grid electricity.
The solar insolation of the region where the enterprise is located is 5.35 KW/m²/day. The monthly solar insolation data is as follows:

• The solar intensity is the maximum in the month of April while it is the lowest in the month of January.

He decided to install 5KW solar power system at the rooftop of his office, costing him around Rs. 3,50,000/- or around Rs. 70 per watt. The 5KW system is able to generate on an average 560 - 580 units per month, almost meeting his daytime electricity need.
Before evaluating the feasibility of the 5KW system, the following facts and assumptions are considered:

• Average annual growth the grid rate: 4% per year (The rate electricity will grow at the rate of 4% per year. If for example, today’s rate is Rs.9 per unit then in the next year it will be Rs.9.36/ unit)
• Maintenance rate: 0.5% of the system cost per year
• Cost of capital: 6.9% (The cost of capital is that return which you most likely to get if you would have invested in some other instrument. Or it is the minimum return that you want from your investment. I have taken 20 years bond yield in India as the cost of capital)
• The life of the project is 25 years 

The electricity cost per unit follows the following pattern over the next 25 years:

​You can see that at the end of the 25th year the rate per unit will be around Rs. 23 per unit. It means that in the 25th year he will be paying 480 units x Rs. 23 = Rs. 11,040 for the 480 units consumed.

The feasibility

​The cash-flows of the 5 KW solar power system would be as follows:

The total units generated in its lifetime of 25 years is 1,38,000 or an average of 460 units in a month.​
 The solar feasibility spread-sheet displayed the following results:

• Internal rate of return: 17.63%
• Solar electricity cost per unit: Rs.3.52/unit while the grid rate is Rs.9/unit, saving Rs. 5.48 per unit. It means that solar electricity is 155.5% more profitable than the grid electricity
• Net savings in 25 years: Rs.15,99,862
• Net Present Value of the project: Rs.4,77,213 and you purchased this project at Rs.3,50,000

Electricity Portfolio

• Electricity bill when 100% electricity is taken from grid: 800 x Rs.9 = Rs.7,200
• Electricity bill when 60% solar and 40% grid: 320 x Rs.9 = Rs.2880 (A saving of Rs.4,320 per month. This saving amount will keep on increasing every year with the increase in the grid rates)

Conclusion

​The right designing of the electricity portfolio is going to give you a profit in the coming years. The money saved per month can be utilized in serving your customer better and creating the brand value of your enterprise. The good decisions taken in the initial years of your entrepreneurship will benefit you in the future. Be a smart entrepreneur and reduce your recurring cost and invest the saved amount in growing your business and the product. I am sure with solar, you can shine brighter than ever before.

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