With the decline in the average cost per watt of the solar power system, the demand for solar installations is gradually increasing in the residential sector and people are inquiring about it.
However, there is a lack of knowledge about its financial benefits among people which is preventing them from taking a step further.
The cost is a very important factor in the success of any product.
The benefits have to be substantial enough to justify its cost.
The cost of the solar power system depends on:
Let us take the cost of 5 kW system as a reference under different configurations.
Cost of On-Grid System
We all know that an On-Grid system is connected to the grid supply but it has no battery back-up.
One can enjoy solar electricity in the daytime when sunlight is good but during night or under bad weather conditions, one has to rely on grid supply because there is no battery backup.
The on-grid system is preferable in locations with good sunlight and where grid supply is regular.
What is the use of solar electricity when the grid supply is regular?
In many metropolitan and other major cities where grid supply is regular but is very costly.
Installing the solar power system and using it in the day time can save you money and is an attractive proposition.
If you are living in such places as mentioned above then the Grid-tied system configuration is suitable for you.
The average cost of 5 kW grid-tied solar power system is around 3,10,000, making it an average price of Rs. 62 per watt
Net-Metering is another feature that can be utilized under this configuration.
In Net-Metering, you have an option to feed the extra units generated by the solar power system to the Grid and you are monetary compensated by the Grid for those extra units.
Cost of Off-Grid System
As the name suggests, the Off-Grid system is not connected to the grid-supply.
So, it depends on solar electricity and the battery backup when there is no sunlight.
This kind of system is suitable in remote locations like mountainous terrain where it is difficult to provide electricity through grid-supply.
You need a strong battery backup in this kind of configuration.
This makes the configuration costly.
The average rate of 5 kW off-grid solar power system is Rs. 4,75,000 with 2 days of battery backup, making it an average of Rs. 95 per watt.
The price will go up when your backup (days) increases.
The batteries not only increase the overall cost of the system but also require good maintenance.
It is better to keep optimum days as the battery backup.
Cost of Hybrid System
The system in this configuration is connected to the grid supply and also has a battery backup.
In this configuration, one can switch among 3 options namely Solar Electricity, Battery Backup, and Grid supply any time according to her/his convenience.
It is preferred to use solar electricity during the day and in the night when the grid supply goes down, the battery backup takes the lead.
This type of configuration is suitable where Grid-supply is erratic.
One can also utilize the Net-Metering feature in this type of configuration.
The average cost of 5 kW Hybrid system with 1 day as the battery backup is 4,20,000, an average of Rs. 84 per watt.
The Cost Summary
(*The cost can further vary depending on the quality and the brand of the components)
The average cost per watt is summarized below:
The Average Annual Return of the System
Let us evaluate the feasibility of the system under different configurations.
But before doing so, let me tell you that the feasibility depends on the following factors:
It is the amount of sunlight falling in a particular place.
If the sunlight is good then your system will produce more electricity and you will get better returns.
The high cost deteriorates the feasibility of the solar power system.
If you know the specifications of the components according to your energy demand then you can buy them yourself from the market and can negotiate better.
Don’t leave all the things on the installer, keep some component of the cost with yourself.
Usually, the panels, inverter in the solar power system require little maintenance.
But with the addition of the batteries, the maintenance cost increases.
If you want to keep the maintenance on the lower side then keep the battery use to the minimum.
An On-grid system generally has 1% of the total cost of the system as the annual maintenance cost.
While a system with battery backup, the maintenance cost can go up to 2% of its total cost.
The solar panels do degrade with time and their output decreases gradually.
In general, the annual degradation in the panel output can be between 0.3% to 0.8% of its total capacity, depending on its quality.
In short, the degradation in the performance decreases the annual return of the solar power system.
The 5 kW system produces an average of 23 units per day.
The production of the units depends on the amount of sunlight and the efficiency of the solar panels.
A system producing more units is offering you the better return than the one producing fewer units.
It is the average rate at which grid charges for every unit consumed by you.
When the grid rate is higher and you are using solar electricity, it means you are saving more money which in turn means that your solar power system is offering better returns.
So, the higher grid rate positively impacts the feasibility of the solar power system. The average grid rate is Rs. 6.5/ watt
If the grid prices are increasing at higher rate, it means you will be paying more money every year for the same units consumed.
The average escalation in the house-hold electricity prices is close to 2% per year.
It is the minimum return that you expect from your solar power system.
For example, you have borrowed an amount at the rate of 7% per year for the purchase of the home solar power system.
You expect that at least the system should provide 7% per year so that you can cover the interest cost.
Hence, the cost of capital in this case is 7%.
One can also take the cost of capital as the inflation rate or the long-term bond yield.
A system with long life is going to provide electricity for decades.
The life of the system is taken as 25 years.
Let us see the returns offered by the systems of different configurations:
The price of the system can vary from installer to installer.
It is important to do your homework first. When you know your energy needs, the size of the components, and the type configuration you need then you would have more control over the system.
You can negotiate better and can ask for multiple quotes.
Keep the following things in mind:
Many installers give 1-year of free maintenance of the solar power system. Check out that in your area.
I hope you got an idea about the cost and the feasibility of the solar power system.
If you have any queries, please write in the comment section below.