In the previous article, What is the average cost of solar roof in India ?, we learned that the average cost of the solar roof in India is Rs. 83 /watt to Rs. 91 / watt (without battery back up).
Now let us determine the Payback period and the financial feasibility of the project.
The Payback period is the time required to cover your initial investment made in purchasing and installing the solar roof at your residence. We will determine the financial feasibility of the project through Net Present Value method, which is done by summing all the future savings after discounting them to the present value and subtracting the initial investment.
The following is the step-by-step procedure, which tells on how to determine the payback period and the feasibility of the solar roof:
(1) Determine the average cost of your solar roof
Here we are assuming that you have installed 1 KW system at your roof top which costs you in between Rs. 83,000 to Rs. 91,000. You can get the cost for the higher wattage like 2 KW or 3 KW by simply multiplying it by average cost per watt, which is Rs. 83/watt â€“ Rs. 91/watt
(2) Determine the daily average number of sun hours
You can find this data from the official website of renewable energy of your state. The average number of daily sun hours in Delhi/NCR is 5.5, therefore I am taking this value in the calculation.
(3) Calculate the units generated by your solar roof
Your 1 KW system will generate 1 KW x 5.5 hours = 5.5 KW-Hr or 5.5 units in a day under ideal conditions, that is when we assume that there will be no energy conversion losses and heating losses. But in actual conditions, there are certain losses which reduce your output power. Here we assume that our system is 85% efficient, which means that it will generate 5.5 units x 0.85 = 4.675 units in a day. The 15% of the energy will be lost as:
Understanding the performance of your solar panel
When you purchase the good quality solar panel, the manufacturer provides you the performance warranty on it. It states that the solar panel will perform at 90% in first 10 years and then 80% from 11th to 25th year. Therefore,
Find the average rate of electricity per unit in your area
The electricity that you receive from the grid comes at a cost, which is generally expressed as the rate per unit consumed. The rate of the unitsâ€™ consumption is divided into slabs, for first 200 units consumed, the rate of units consumed is less and for higher consumption, the slab rate increases accordingly. You can find this by simply dividing your monthly bill by the number of units consumed in a particular month. You will get the more accurate average value if you divide the total bill of a year by the number of units consumed in that particular year. Anyhow, I am taking the average rate of Rs. 4.5 / unit.
Include the maintenance cost of the system
Your system will need maintenance, after installation, on regular basis. The maintenance process will involve the following activities:
During initial years of operation, the cost of maintenance will be less and afterwards it will start increasing with the age of the system. We assume that it will cost us around 2% per annum of the cost of the system or you can take 10 % per annum of your yearly savings as your maintenance cost. I am taking the latter assumption in this example.
The electricity from grid will not remain at Rs. 4.5 / unit forever
By looking at the past trend, the rate of the electricity is growing at an average rate of 8% per annum. In order to get the realistic picture, we need to consider this in our accounting to evaluate the payback period. Here, we assume that the rate of electricity will grow at the rate of 8% per annum till the life of the system which is 25 years.
Summarizing all the details in the form of the table to get the Payback period
The payback period
Now to get the Payback period, you can see in the table in between 10th and the 11th year, the cumulative cost exceeds the total cost of the system, which is Rs. 91,000. Therefore, the Payback period of the system is in between 10 and 11 years, that is your solar roof will recover your initial investment in approximately 11 years. Your solar roof will give Rs. 3, 62,564.20 in 25 years. Your net savings will be Rs. 3, 62,564.20 minus your initial investment (Rs. 91,000) = Rs. 2, 71,564 in 25 years.
The main disadvantage of the Payback period method is that it does not take in to consideration the time value of money. The yearly savings or income that your solar roof will generate in future, when discounted, say by the rate of inflation, will have less purchase value in present.
Therefore, to get the more realistic value of your solar roof, we need to calculate the Net Present Value of the future savings or income generated by the solar roof.
The Net Present value
The Indian residential solar roof of 1 KW has a payback period of 10 â€“ 11 years and it is a financially feasible project.
As you increase the wattage of the solar roof: