Why Rooftop Solar is a Smart Investment

Like most good things in life, going solar costs money. If you have been following the solar-space over the last few years, you’ve probably heard about the falling cost of PV panels. While a lot of articles cover the environmental benefits of Solar energy, we would like to talk about how it also makes sense from a financial perspective for the average home or business owner. In this article we will highlight some incentives that are worth considering.

The aim of this article is to help you as a home/business owner evaluate and make a more informed decision if solar is a good fit for your property (or not). 

These are the five highlights that you want to keep an eye out for:

  1. Tax Benefits via Accelerated Depreciation
  2. Net Metering
  3. Operation and Maintenance
  4. Property Appreciation
  5. Electricity Generation

Let’s dive in.

Tax Benefits via Accelerated Depreciation: 

The government of India has set an ambitious target to deploy over 175 GW of capacity solely from renewable energy sources by 2022. Whilst a large chunk of this target will be attained by large utility-scale solar deployments, the government has recognised that they can get there much faster by bringing the average citizen into the game. In return for becoming players, the Ministry of New and Renewable Energy have designed a simple yet powerful tax benefit scheme in the form Accelerated Depreciation. Through this scheme, a business can 

a. Treat their solar system as a depreciating asset 

b. Depreciate the value of the solar power plant at a rate of 40% every year. 

So within 3 years of commissioning, the asset can be written off, while you reduce your tax liability and make up 30% of the project cost.

Net Metering: 

Given India’s aggressive renewable energy goals, the urgency to stay on par with and even exceed these targets is trickling down to state DISCOM’s and Electricity Boards as their incentives begin to align to the national cause. 

One of the disruptive models that has been proposed at a global level to promote solar is underpinned by a concept called net metering. Net metering is a clean energy incentive that allows your solar system to feed energy back to the local grid in a scenario where your solar panels generate more energy than you consume at a given time. In this arrangement your local electricity board becomes a customer to you, the solar energy generator. you will be compensated with credits for every unit of generation that is exported to the grid. 

Every state has its own net metering model. Whilst some states offer a 1:1 compensation ratio, i.e. the credit for every unit (kWh) generated is equivalent to the per unit tariff, other states compensate with a lower, “export fee”. This model is subject to frequent change, and will depend on the prevailing context at the time of installation in your state.

At the end of the day, the principle to take back is that no watt of energy will be wasted – your solar system is either working towards meeting your electricity demands or reducing your overall electricity bill when you are not at home. 

Operation and Maintenance Costs:

One of the best features of PV technology is the longevity that is built into it. These silent power generators are designed to operate at high efficiency levels for more than 25-30 years which makes it a durable out-performer. There are few to no consumer electronics that can boast this level of endurance. The secret to it’s long life is the absence of moving parts, and its ability to withstand harsh weather with a little cleaning and maintenance. In fact, solar panels can hum along nicely even past the three decade mark, but at lower energy yield rates factoring-in an annual degradation rate of 0.3 to 1% depending on the class of panels you opt for and how often they are cleaned (typically cleaning of the panels can be carried out once or twice in a month). While this gives comfort from a system manufacturer’s perspective, going with a trusted system integrator is crucial to ensuring every technical aspect of system design. Crucial engineering factors such as string, wire sizing, use of quality components, optimising for shading, tilt, etc must be considered in full while doing the installation.

Property Appreciation: 

Although it may still be too early to draw out substantive figures in India given the lack of market research, studies in the United States demonstrate a trend where properties with rooftop solar panel systems are valued and sold at higher prices than similar properties without them. One such study sponsored by the U.S Department of Energy and conducted by Lawrence Berkeley Lab analysed 22,822 homes across 8 states. Upon examination the study observed that home buyers were consistently willing to pay PV home premiums. The average premium across the sample set amounts to approximately $4/Watt of installed capacity – so for instance, applying the reported finding to a 10kW solar system equates to $40,000 that is typically added in resale value. As more solar comes online in India and adoption grows, we can expect to see a proliferation of country-specific data to corroborate these findings but until then we have good evidence to strengthen the case for factoring the value of clean energy features in our property appraisals. 

Savings in Electricity Generated: 

At the end of the day, the engine of a solar investment lies in the amount of electricity generated by your rooftop solar panels overtime. Relative to the majority of the developed world, India inherits high irradiation levels (Intensity of sunlight) which in turn favours photovoltaic power potential. As an example, the city of Chennai has a daily PV output potential of between 4.2 and 4.4 kWh/kWp without factoring in panel inefficiencies and other system losses. This puts city dwellers in a strong position to capitalise on a dormant energy goldmine. 

Adding up all incentives with the energy generated by your system, you can expect an Annual IRR (Internal Rate of Return) ranging between 17% and 28% per year depending on on your location and system configuration. You can expect to break-even (payback) somewhere between years 3 and year 5 – which is significantly more aggressive than most traditional financial products in the market. (e.g. A Fixed deposit at today’s rates [6% p.a] breaks-even in year 12! )

All in all, if there is one thing you should take away, it is that the goals of promoting the environment and financial growth are not mutually exclusive. As we continue to innovate with better technology, business models and incentives, climate Progress becomes not only achievable, but inevitable.

The Swan Energy Team

To see if you qualify for solar or if you would like a FREE savings projection contact us on 9884025888/9841010888 or send us an email – info@swanenergy.in.

References and Further Reading:

  1. “Photovoltaic Degradation Rates — An Analytical … – Greendipity.” https://www.greendipity.co/wp-content/uploads/2016/11/tasa-de-degradacin-fotovoltaica.pdf
  4.  Varun Sivaram, “Taming the Sun | The MIT Press.” https://mitpress.mit.edu/books/taming-sun
  5.  “Photovoltaics Report – Fraunhofer ISE.” 14 Nov. 2019, https://www.ise.fraunhofer.de/content/dam/ise/de/documents/publications/studies/Photovoltaics-Report.pdf


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