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Is rooftop solar power for homes a worthy investment?

Meera Siva | Updated on July 07, 2020 Published on July 07, 2020

As temperatures go higher outside, the thoughts of many home owners turn to solar power. While the idea seems green and great at the outset, it helps to drill into the financial and other aspects to evaluate if it is a worthwhile investment, for your specific situation.

Investment needed

The first issue to consider is the amount of capital expenditure you need to set up the unit. Typically, the cost of 1 kW unit (which requires about 220 sq ft of space and can generate about 5 units a day) is about ₹54,000, as per the Ministry of Renewable Energy (MNRE) benchmark rate for 2019-20. The cost includes the system, installation, commissioning, transportation, insurance, five-year AMC and taxes.

There is government subsidy available – it is 40 percent for units of up to 3 kW. So, a 1 kW unit only requires ₹32,400 of investment. The subsidy reduces to 20 percent for 3 kW to 10 kW. But the cost per kW also reduces as the unit size increases. Also, benchmark cost is also higher – ₹59,000 per kW in some States and Union Territories such as Uttarakhand, Sikkim, Himachal Pradesh and the North Eastern States.

Your costs will be higher for off-grid solar - where the unit is not connected to the power grid. The benchmark cost from MNRE for 2020-21 per kW is ₹94,000 for off-grid systems, due to the addition of battery storage (about 6 hours).

You can get priority sector loans of up to ₹10 lakh from nationalised banks, under the category of home loan or home improvement loan. There are also new players who offer residential rooftop installations on a monthly payment model. For example, Zunroof charges ₹10,000 per kW and 660 per month for seven years.

The return math

The other side of the equation is the savings you get from the investment. This requires understanding how much power you can generate and the price of the electricity. For example, at ₹8 per unit, a 1 kW unit would save you about ₹9,600 per year (assuming eight months of operation, generating 5W per day). With subsidy, you can get your investment of ₹32,400 in under four years and continue to reap the benefits for 20 years afterwards (as the life of the installation is about 25 years). If the power costs are lower, the return period would be longer.

Net metering – where you pay for the net power consumed after subtracting the units generated and exported – should ideally work in favour of the customer and aid returns. But if the rules are complicated, it could depress the return math. For example, in Tamil Nadu, the maximum power you can export is 90 per cent of the usage.

Other States such as Andhra Pradesh are considering moving to gross metering – you pay the existing progressive higher tariff on consumption and get a lower fixed amount per unit for generation. This can significantly worsen the return.

Other factors

There are also different use cases that alter the math. For example, if you face frequent power-cuts, a rooftop plant may be a great solution as your alternative power sources such as diesel have a much higher per unit cost. Also, if you live in an apartment complex and want to set up the unit for common usage, the math would differ. For instance, the subsidy is limited to 20 percent for Group Housing Societies/Residential Welfare Associations, for supply of power to common facilities.

It is also possible to look beyond the ownership model. One example is in Kerala, where you can let the utility own the unit that will be installed at your rooftop. In return for the space, you get 10 percent of the electricity produced for free or the option to buy certain quantity of electricity at a fixed rate.

While finance is one bottom line, there are huge environmental benefits that must be factored in the decision. Solar is a clean source of energy, with 1 kWh of solar power reducing about 800 g of CO2 emission versus a coal-fired plant. There are also additional savings due to cutting out transmission power loss (which can be up to 20 percent of the generated power at a far-off location).

That said, the practical aspects of the policy are not very owner friendly. For one, getting subsidy takes time as rules and procedures vary by State. For instance, you may also find that State utilities have long waiting periods to inspect the unit and install net meters. Also the allocated solar power capacity limits may be restrictive. For example, the allocation for Puducherry is 5 MW and is the same for Tamil Nadu, a much larger State.

Green power

Solar power reduces about 800 g of CO2 emission per kWh generated, compared to a coal-fired plant

Dampeners

Upfront costs

Unfavourable price

Delays in process

The author is an independent financial consultant

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Published on July 07, 2020
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