roi of a rooftop solar plant

Does Solar Energy Reduce Electricity Bill?

Has it ever crossed your mind that, as time flows, generations change and science advances; the questions looming over humanity keep evolving?

Two centuries ago, humans wondered if it was possible to produce electricity from sunlight.

A few decades ago, scientists wondered if it would be possible to use this solar energy to fulfill a portion of mankind’s enormous electricity and energy demands.

And now in 2021, we as a society have started a discussion on whether this clean energy from solar power is more cost-efficient and beneficial than the fossil-derived electricity that we’ve been using for years now.

Such has been the progress of this essential commodities industry.

Experts predicted solar energy to account for a majority mix in the future of energy production, and now with the sudden decline in the prices of renewable energy and solar energy equipment, it is safe to say that solar has finally entered the Energy market with its disruptive potential.  

Everyone is aware of the fact that solar power reduces the carbon footprint of the earth and is a clean and inexhaustible source of energy, thus the term Renewable Energy.

But only few of us realize that electricity produced from solar energy installed at our house’s rooftop is much cheaper than what most of us are paying right now to our power supply companies, governments.

YES, Solar Energy can reduce our electricity bills and that too by a huge margin.

Let us analyze how!

With modern billing techniques like net metering, government incentives like subsidies and various loans, reduction in installation cost and low maintenance costs, solar panels have now not only become a way to produce cheap electricity but also a reliable source of investment with high returns.

In this article, each component contributing to cheap solar electricity is explained in brief.

Net Metering

A net meter is basically an instrument that credits the solar power plant owners or solar energy producers for the amount of electricity they generate and feed into or consume from the grid.

This works on the principle of measuring the inflow and outflow of electricity from your premises to the utility electricity supply company. With net metering, a consumer is billed only for the net amount of electricity that it consumes over time.

Let us see how this works.

Many times, electricity produced by the solar panels is more than what the building consumes during the month. For example, if a building consumes 300 units of electricity in June and the solar panels produce 500 units (kWh) of electricity due to the sunny month, the net effective electricity would be -ve 200 units (300-500).

This means the solar plant supplied a net of 200 units to the grid.

Thus, it will be given the effective price of 200 net extra units that it produced.

You’ll be given credits by the distribution company instead of paying for electricity in this case.

Amazing right?

This is very similar to the concept of profit and loss.

Now let us consider another scenario.

If the building consumed 250 units of electricity in the month of July but due to rains at regular intervals, the rooftop solar powerplant is only able to produce 200 units of electricity.

Hereby the owner will have to pay only for the net effective units of electricity i.e. +50 units (250-200).

Not only does this reduce the amount of units to pay for, but also 50 units fall in a lower price slab than 250 units which is the amount of units the owner would have paid for without the solar panels.

This is how it also reduces the electricity bill by a great deal as electricity billing is done on the basis of different price slabs for different groups of units consumed. Therefore, net metering is one of the most essential parts of cheap electricity.

Government Subsidies and Loans

Many of us have a notion that solar installation cost is very high and is not affordable.

To eradicate this Myth, governments across the world have decided to introduce many cost-effective schemes.

One of many attractive things about investing in solar is the incentives the Indian Government offers on the installment of rooftop solar energy.

Currently, the Ministry of New and Renewable Energy, Government of India offers 40% subsidy for the first 3kW installed and then 20% subsidy beyond 3kW up to 10 kW.

Not only this, but many states also provide separate subsidies under their schemes for renewable energy implementation which varies from state to state.

But these large amounts of subsidies are only offered for residential solar energy (not commercial). Also, these are provided only for the grid-connected systems of solar energy. And these subsidies are capped for 10KW systems only.  

The government provides these subsidies to meet its goal of achieving 175 GW of renewable energy by 2022.

And residential rooftop solar installments are a vital part of this goal (40 GW).

A large number of financing options are also available if anyone requires a loan to pay for the rooftop solar power plant installation.

These include loans provided by various national banks such as Canara Bank, SBI, Indian Bank, PNB, IDBI Bank, Yes bank, etc.

These loans provided by the bank do not have a separate category but fall under home loans or home improvement loans.

And the best part of these loans are – they are declared as Priority Sector Lending

These loans are also offered by non-banking financial institutions (NBFCs) such as Bajaj Finserv, Lending Kart, Gromor Finance, etc which have a much higher interest rate than those provided by the banks, but these don’t demand collateral.

Not only this, but the Indian Renewable Energy Development Agency (IREDA) also provides loans to building owners at a concessional rate to help them achieve energy independence.

Certain tax incentives are also provided to Power Distribution Companies (DISCOMs) which buy power produced from solar panels from the state and central government to help them advocate for a clean, cheap, decentralized, and independent source of energy i.e. Solar Energy.

Installation and Maintenance Cost

The installation costs for rooftop solar power plants have dropped significantly during the past decade due to the advancements in Photovoltaic and Solar Energy and Solar Cell technology in the 21st century.

With these sudden cost declines and ever-increasing electricity prices, now may be the best time to invest in a rooftop solar power plant – an asset for energy.

Currently, the price for off-grid rooftop solar plant installation which is inclusive of panels, inverter, Lead-acid batteries, wires, structure, connectors, etc ranges somewhere between Rs 70,000 – Rs 1,20,000 per kW (+taxes).

On the other hand, the prices for a grid-connected rooftop solar plant installation which is inclusive of panels, inverter, wires, structure, connectors, etc ranges between Rs 45,000 – Rs 80,000 per kW (+taxes).

The difference between the two is the battery component.

In an off-grid rooftop solar plant, the surplus electricity produced by the solar panels is stored in batteries.

On the other hand, a grid-connected rooftop solar power plant sends this surplus amount of electricity to the city grid which is credited off later in our electricity bills.

Now, to get a rough estimate on how many solar panels are required to be installed for your energy needs, we can calculate approximately the amount of electricity the solar panel generates.

Generally, 1 kWp solar panel generates 4 to 6 units of electricity per day. According to this, a 1kWp panel will produce about 120 to 180 units of electricity in a month, which accounts to roughly 1400 to 2100 units of electricity generated annually.

So, a 3kWp system would generate roughly 360 to 540 units of electricity monthly and  4200 to 6300 units annually.

And a 5 kWp system would generate roughly 600 to 900 units of electricity monthly and 7000 to 10000 units annually.

Now that we have a basic idea about the cost of installation, amount of electricity generated by various systems, and electricity consumption of our premises, we can easily estimate the total costing of rooftop solar installation for our house.

Simple Right?

When this solar power system is installed successfully, our focus will shift to the maintenance part of this rooftop solar system.

Here, Solar Energy is a clear winner.

Solar panels require very little maintenance which only includes dusting them off in about 10-15 days.

These solar panels are very durable and strong.

Moreover, manufacturers also offer 25 years of warranty that includes replacement and repair costs.

Payback Period and Return on Investment

To get a clearer image, let us understand with the help of a simple case study.

Sooraj owns a house in UP and decides to install a 5kWp grid-tied solar power plant on his roof based on his electricity consumption.

It costs him Rs 2,75,000 + gst . i.e INR 55,000 per KWp.

After receiving subsidies worth Rs 50,000 from Central and State Govt., his installation cost is reduced to Rs 2,25,000.

The rooftop solar panels at his house generate about 600 to 750 units of electricity monthly on average. On the other, hand his household consumes 700 units.

So effectively, he only pays for a net of 100 units of electricity for a month and saves money worth more ( as his electricity usage now falls in the lower slab now ) than 600 units of electricity.

These 700 units of electricity would cost him Rs 4550 (700*Rs 6.5) but now he pays only Rs 550 (100*Rs 5.5).

Therefore he saves Rs 4000 (Rs 4550-550) monthly which accounts for Rs 48000 per year.

Dividing his initial installation cost (Rs 2,25,000) by his yearly savings (Rs 48,000)

His payback period comes out to be about just more than 4 years (~4 years 6 months)

Now all the money he saves post this period will be his Return on Investment lasting for over 20+ years.

Assuming the price for Electricity remains constant for the next 25 years at 6.5 rs per KWh (unit), which is most likely not to be because every year electricity price is hiked by 6% to 8% by our Governing bodies, but still for easy calculation let us consider it to be constant for the next 25 years.  

Savings collected for the lifetime of this 5kw on-grid rooftop solar power plant would be

48,000 * 25 = INR 12,00,000

That is a 533% return on investment – 5.3X the money spend is recovered.

Well, this is the power of this amazing green, clean technology of Solar photovoltaics, and this is the reason this whole world is opting for solar power plants so rapidly to meet its global energy demands in an environment-friendly manner, where you don’t have to burn coal every day, use nuclear fuel every day or even mine every day.

Because, there is a day somewhere in some part of this planet, while the other half planet sleeps.

This is the reason, you hear or read about large conglomerates, big banks, and governments investing heavily in large solar power plants.
Because there is huge monetary saving, this Asset Class has returns higher than any other available right now, (leave crypto aside) this asset is Clean, Green, and makes human lives better.

This is the reason, we are writing this blog,

To provide you with a clean review about whether solar power makes sense?

Produce your own electricity while the sun shines.

We wish to see the dream of one sun, one world, one grid become a reality soon by 2035.

So the whole planet, regardless of boundaries of countries, exchange clean energy and provide better habitat to all life forms.

*We hope the title of the article has now been answered.*

this blog is written in collaboration with Tanishq Sachdeva, an Undergrad Student of EEE at Delhi Technical University.

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