What is the solar feasibility in Andhra Pradesh?

Andhra Pradesh is the eight-largest state in India and is located in the south-eastern part of the country with coordinates 16.5°N and 80.64°E.

It also has the second largest coastline of 974 km in east among the states of India.

It receives a good amount of solar insolation throughout the year with an average of 5.87 kW/m²/day.

Therefore, it is a good place for solar power installation.

The average cost of a solar power system without a battery backup in India is Rs. 75/watt.

Therefore, the average cost of a 5kW system is Rs. 3,75,000. This cost is exclusive of subsidy.

This system will generate an average of 590 units per month for the next 25 years.

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Cost of 590 units from grid in AP

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When the sanctioned load is 5 kW load and it is 3 phase meter, the average rate is Rs. 6.8 per unit.
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The average electricity bill when you are consuming 590 units per month from the grid, is 590units x Rs. 6.8/unit = Rs. 4,012

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The escalation in the grid prices

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Electricity prices will rise in the future. Although you will consume the same number of units but will pay more price every year.
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If I assume a 2% escalation in electricity prices, the average grid price will escalate to Rs. 10.94 in the 25th year.

It means you will pay Rs. 6,455 every month in the 25 year for the same number of units you are consuming now and paying Rs. 4,012.

If I draw a chart, the extra amount paid in Rs. every year is shown below:

​You will pay a total of Rs. 3,38,470 as an extra amount in 25 years.

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The criterion for installing a system

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Apart from the initial investment of Rs. 3,75,000 for installing the 5 kW solar power system and the yearly maintenance of 1% of the cost of the system, you will not pay anything.
Because the source of energy that is sunlight is available free of cost.

It means, no electricity bills and no extra escalation cost for decades when you are using the solar power system.

Moreover, the electricity is clean and smooth, increasing the life of your electrical appliances.

What is the minimum return that you want from your solar power system?

If somebody asks me the minimum guaranteed risk-free return that you want from any investment.

I would say that it is the long term govt bond yield of that country.

As Andhra Pradesh is in India, therefore the risk-free return of 30-year govt. bond yield is around 7%.

I would say that my investment in a solar power system should give at least 7% annual return.

So, 7% per year is my feasibility criterion.

If my return from the solar power system is more than 7% then installing this would be a feasible option for me otherwise it is not.

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Calculating the feasibility

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Before calculating the feasibility of the solar power system through my solar feasibility spreadsheet, the following facts and assumptions are considered:

1. Cost of 5 kW system: Rs. 3,75,000
2. Maintenance cost: 1% of the cost of the system
3. Average solar Insolation: 5.87 kW/m²/day
4. Units produced per month: 590 units
5. Average grid electricity cost per unit: Rs. 6.8 per unit
6. Annual escalation in grid prices: 2%
7. Life of the project: 25 years
8. Risk-free rate of return: 7%

After getting all the above variables as an input, my solar feasibility spreadsheet calculated the feasibility of the 5 kW system as follows: 

Let me highlight the findings:

• The internal rate of return (IRR) of 13.23% is well above my risk-free rate of return 7%.
• The cost of solar electricity is Rs. 3.60 per unit as compared to the grid rate of Rs. 6.8 per unit.
• The NPV of the project is Rs. 240600. It means that the net future earnings from this project when discounted at the rate of 7% (my risk-free rate) will give me Rs. 2,40,600.
• You can also see in the payback period chart that I will get my investment back in 8th year and after that, I will start getting profit from the project till the 25th year.
• You can also see the break-even cost of the project is Rs. 5,77,520.

What is the break-even cost of the system?

It is the cost of the system at which the annual return from it equals the risk-free rate of return. In this case, it is 7%.

Finally, it is concluded that solar electricity in Andhra Pradesh is 89% more profitable than grid electricity.

If you live in Andhra Pradesh and are interested in installing a solar power system on your roof-top then why not get my solar feasibility spreadsheet and see the detailed feasibility report based on your energy requirement.

It is worth spending a few bucks to know before-hand the feasibility of your investment.

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