As rooftop solar unit costs dip, recovery time shrinks to 5 yrs

  • Aman Malik, Hindustan Times, Delhi
  • Updated: Aug 07, 2015 16:20 IST

Sunny days could be here for rooftop solar units. If you invest in such a power plant on top of your business establishment today, and connect it to a grid, you could recover its cost in just four to five years, developers say.

For a residential unit, the wait would be just a little longer — six to seven years — as commercial ones enjoy higher tariffs and tax benefits.

Given that rooftop solar units run for no less than 25 years, they look more appealing than ever, thanks to a sharp fall in the price of equipment. Earlier, it would take seven to eight years for a business establishment and nine to 10 years for a residential unit to recover the cost of rooftop solar.

Some 20 states, including Delhi, allow net metering, with which you can generate solar power for your own use and feed the extra to the network of distribution companies. At present, India has an installed rooftop solar capacity of about 235MW. The government wants this to go up to 40,000MW by 2022. For that it subsidises domestic installations.

The proposition has become attractive after a steep fall in the price of equipment which comprises panels, each consisting of either 60 or 72 photovoltaic cells, and inverters. The fall has led to a drop of nearly 40% in overall cost of the equipment over the last three years.

The price fall started as manufacturers, first in Germany and later in Canada and China, gained economies of scale and slashed their costs. Those in India followed suit. The process started seven years ago, but picked up pace in the last three years and has reached a point where, companies say, an average sized system operating at commercial tariffs would turn cash-positive after just four years of operation.

Industry data show that a grid-connected 40KW installation, set up at a cost of just over Rs 27 lakh, paid upfront without a loan, would break even in just four years.

An average commercial installation is typically about 50KW, though sizes vary. The larger the size, the sooner the unit pays for itself. Moreover, size matters. Data show that unit cost on account of components like inverters comes down as the system size goes beyond 20KW. And, it takes only between 30 and 45 days to get a system running from scratch.

Since domestic electricity tariffs are lower than commercial tariffs, it would take a few years longer for a rooftop solar system set up over your home to break even. Further, if such a system is financed partly using loans, the break-even time would be longer, as interest costs would add up.

“Commercial establishments take advantage of accelerated depreciation, which domestic buyers cannot. So it takes longer for such systems to break-even,” says Sunil Jain, chief executive officer of Hero Future Energies. Accelerated depreciation refers to a financial method of accounting that effectively allows a company tax breaks. India allows tax breaks as an incentive to companies setting up solar installations.So, for a domestic installation, break-even period for a 40KW system would be between six to seven years.

Also, if the system is not connected to the grid, it could cost you up to 30% more. “Off-grid systems require batteries, which adds to the cost,” explains Tanya Batra, a senior marketing manager with New Delhi based SunKalp Energy.

Further, location matters. Jain says break-even tenures in states like Rajasthan, Karnataka and Tamil Nadu are better than in Delhi, Haryana and Punjab, as the generation is better there, bringing down per unit costs of installation. Jain also cites real-estate cost as a challenge in Tier I cities like Delhi.

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