It’s smarter to invest in solar

Renewable energy is one of the fastest growing sectors and solar is being considered as a sunrise sector. Here’s an analysis on why one should invest in green energy right now.

India’s renewable energy journey has come a long way since it set its ambitious target of 175 GW by 2022. According to a statement released by the Ministry of New and Renewable Energy (MNRE), the prices of solar and wind have dramatically reduced to 3-4 cents per Kwh as against 9-12 per unit in 2013, even as capacities have scaled up to 47.5 GW. Policymakers and industry are now confident of accelerating this growth trajectory to provide electricity, along with storage, at an estimated Rs 5 per unit before 2025.

Provides healthy return
While responding to a question on why invest in solar energy, Amol Garad, CEO, AFM Solar System Pvt Ltd said, “With solar costs rapidly declining, solar has become a very inexpensive and practical option. Since solar energy provides a healthy return financially for companies, it is quickly moving mainstream and growing worldwide at 40-50 per cent annually.”

More and more businesses are concluding that photovoltaic installations make sense financially – from low maintenance costs, lower energy bills and a short payback period, solar energy is becoming a popular option to incorporate into business plans. Businesses also are able to obtain added benefits as part of the photovoltaic installations. These benefits could range from shaded parking to outdoor shaded work and education areas.

Garad further explains the benefits of investing in solar as:
To save money: Once installed, solar energy is completely free. Using solar panels as a source of energy saves money on energy bills. One can cover most or even all of his/her energy needs with solar panels, therefore saving a lot in energy bills.

To make money: Although it is commonly argued that solar panels are expensive, it is also true (and not frequently highlighted) that one can actually make money after some years of installing the solar system. Due to the feed-in-tariff, if your solar system is connected to the grid, you will get paid for every unit of electricity it generates. The tariff is free of tax and is guaranteed for 15 years (considering that the lifespan of solar panels is greater than 30 years). For this reason, it is true that you can actually make money out of your solar panels.

Lucrative and economically viable
The demand for electricity is ever increasing. In India, most of the electricity is produced by burning coal, causing huge emission of carbon dioxide in the atmosphere. Almost one kilogram of coal has to be burnt to produce just one unit of electricity. Each Kilogram of coal burnt produces 2.5 kgs of carbon dioxide. The carbon dioxide absorbs and retains the heat energy and prevents it from escaping into space from Earth’s surface thereby raising the temperature of Earth. This greenhouse effect is causing serious issue of global warming. Thus producing electricity by burning coal is a serious threat to the environment and is not less than a sin, opines Dhirendra Kannao, Director, NSOLAR Pvt Ltd.

India boasts of receiving ample sunlight throughout the year, and showcases a great opportunity to use the clean and sustainable source of energy. The solar energy can be easily harnessed to produce electricity by using photovoltaic cells. These cells are combined in panels and the panels can be combined to produce electricity on Megawatt scale. The solar power plant uses the free sunlight and the running raw material cost is zero also the maintenance cost is quite small. “The total cost of the plant can be recovered in just 4 to 5 years. The plant continues to produce electricity for more than 25 years. Also per unit cost of solar power has come down than that of thermal power. Thus investing in solar power plants is quite lucrative and is economically viable,” observes Kannao.

The ‘efficient’ green power
India is witnessing huge increase in air pollution across the country. We have recently seen major disruption of life in metros especially Delhi and Mumbai with pollution reaching alarming levels. India is the world’s third-largest carbon polluter, with emissions forecast to at least double as it seeks to develop its economy and lift hundreds of millions of citizens out of poverty.

Solar energy, being available abundantly across most parts of our country, can be a key contributor to reduce pollution, help generate electricity for captive consumption. We have huge untapped potential in our country to exploit solar energy for generating electricity, thereby not only reducing our dependency on fast depleting and highly pollutant fossil fuels, but also save on electricity bills which are rising each day. Many states have woken up to this reality and have mandated deployment of solar plants on rooftops of residential complexes so that end users get significant electricity bill savings and also help in reducing pollution. This is the need for the day and investments into solar technologies should be speeded up for a brighter and pollution free environment which can be passed onto our next generation, said Sitapathy Chavali, Founder and CEO, Greenrays Enersol Pvt Ltd. He adds, “To protect investors’ concern on safety of investment into large solar projects, the government has recently allowed Solar Energy Corporation of India (SECI) to act as a guarantor in agreements between energy developers and India’s debt-ridden power distribution companies.”

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Analysing Return on Investment
According to Dhirendra Kannao from NSOLAR Pvt Ltd, return on investment of a solar power plant is recovered by selling the electricity generated by the plant to potential buyer. The returns largely depend on the rate at which the power is sold. In general, in Kannao’s opinion, the return on investment starts from the fourth year staggering each year. The total investment on the plant, including the interest on investment is totally recovered in 8th to 10th year. “The solar power plant continue to generate electricity for more than 25 years, also the maintenance cost over the years is quite low. Hence after 8 to 10 years, the total income is accounted for as a profit. Thus return on investment of solar power plant is very good,” he added.

The price of solar system has dropped considerably and it is much cheaper than thermal power today. It is only one time investment and the minimum life of the solar system is 25 years. Anuj Nigam of Startling Solar feels that the initial cost is the only deterrent factor. He adds, “The advent of Net Metering has made the system financials more attractive. The payback when compared to grid is normally 4 to 5 years and then access of free electricity for around another 20 years. If compared to diesel, the payback can be less than 2 years.”

Sitapathy Chavali of Greenrays Enersol informs that the solar plant capital costs have declined by over 100 times over last 30 years, primarily due to multi-fold increase in volume demand for solar modules and accessories and also technological advancements in solar field. This, coupled with favourable government incentives to solar end users in the form of Tax holidays, AD benefits and property tax rebates, have made solar plants affordable to all types of consumers in industrial, residential and commercial segments. He said, “ROI for solar plants now looks quite attractive and many investors are investing into solar projects as one of their key portfolio component for investment. But we should not just look at ROI as a tool for investment decision, because there are many intangible benefits to society which accrue with solar and renewable energy deployments, mainly reduction in global warming and pollution, cleaner environment which leads to healthier life for everyone.”

Situation is likely to improve from January 2018
According to Soumyen Mukherjee, President, Sova Solar Ltd, “In India, the core industrial sectors are going through a slump for the past one and a half year primarily due to lack of large infrastructural projects coming up. The solar PV sector is the only area where the growth has doubled driven by the government’s focus on JNNSM, making India one of the largest markets in solar PV after China.”

Simultaneously, employment opportunities have grown in solar PV industries. This apart there has been steady decrease in solar module price since last year, except for the past 3 months where the price has stabilised due to large intake in China. Mukherjee further explains, “The solar developers in MW scale, were operating with a decent project IRR of 14 – 16 per cent earlier whereas the rooftop projects have had an equity IRR of more than 22 per cent and project IRR of as high as 18 per cent. This was primarily possible due to declining solar module prices, lower cost of capital, strengthening of Rupee, and incentives provided by Indian government. Off late, there has been some very aggressive bidding with assumptions of further declining of module prices. Unfortunately, the module prices have not fallen to the anticipated level of 23 – 24 US cents. This has been aggravated by anti-dumping investigations and China’s internal market expansion to 50 GW. Eventually, the developers are hit with their IRRs falling below 12 per cent and solar module manufacturers are hit due to rise in not only input raw material cost but also due to shortage of supplies from China. However, this could be a passing phase and the situation is likely to improve from January 2018 as India will still be having an annual market 7 – 8 GW in the coming year.”

Amol Garad, CEO, AFM Solar System Pvt Ltd

Dhirendra Kannao, Director, NSOLAR Pvt Ltd

Anuj Nigam, Director, Startling Solar Pvt Ltd

Sitapathy Chavali, Founder and CEO, Greenrays Enersol Pvt Ltd

Soumyen Mukherjee, President, Sova Solar Ltd