Tamil Nadu recently announced its solar policy. Madhavan Nampoothiri, Director of RESolve, had covered the highlights of the policy in an earlier blog post. While the policy is quite ambitious, there are several issues that need to be addressed. In this post, we examine the attractiveness of the Generation Based Incentive(GBI) for rooftop PV system, specifically for the residential rooftop owners.
For evaluating the incentives for the rooftop system, we have taken the following assumptions.
Capital costs – The average cost of the rooftop PV system(including PV modules, inverters, mounting structures and cables) without battery comes to about Rs. 1.5Lakhs per kWp. Adding a battery backup to this system would increase the cost by about 30% to 40%. Please note that the capital subsidy offered by MNRE (30%) has not been taken into consideration because the MNRE subsidy is available only for off-grid systems, and we are not sure if these grid-connected rooftop PV systems quality for the MNRE subsidy.
Life of the system – The PV system is expected to have a life of about 25 years. In this case, we have taken it as 20 years. We have not considered the degradation of the system over its lifetime.
Energy generation – We have taken a conservative estimate of 4 kWh/kWp of electricity generation per day and Tamil Nadu enjoys about 300 days of bright sunshine. This would then translate to an annual energy generation of about 1200 units per year from the 1 kW rooftop solar system. (A typical 1 kWp system would require about 8 sq.m. of rooftop space).
Tariff – The tariff paid by the residential consumer in the first year is taken as Rs.5/kWh, with an escalation of 5% every year for the lifecycle of the PV system.
Payment Security– It is assumed that payment security is not a concern as it is assumed that the government would set up a separate fund to pay for these projects (much like how a separate funding was allocated under JNNSM for the projects coming up under Phase 1 of the mission).
Revenue and Payback – It is not very clear at the moment how the GBI offered for rooftop systems under the TN solar policy works. The primary question is whether the GBI applies to ALL the energy generated by the solar system or only the excess energy (net energy exported after consumption is taken into account i.e. net metering).
For the sake of simplicity, we have not gone into detailed financial modelling to get into project IRRs and to evaluate the impact of financing costs. In any case, we can consider the following scenarios.
- 100% of the energy generated is consumed by the household annually – In this case, the revenue generated would be equal to the cost of the electricity saved. So assuming a cost of Rs. 5 per unit with an annual escalation in tariff of 5%, this translates to an annual savings of about Rs. 6000 per year (1200 units * Rs. 5 per unit) for the first year. The cumulative savings at the end of project life (20 years) would then amount to Rs. 1.98 Lakhs. The system would pay for itself after about 17 years, which means the net profit (read: savings) would be about Rs. 48,000 at the end of project life.
- 50% of the electricity is consumed by the household and 50% is exported to the grid – Here, the cumulative savings at the end of project life would be about Rs. 1.03 lakhs. This means that the individual who invested in the system would never break even and incur a loss (about Rs. 47,000) though the magnitude of loss is small.
- 100% of the electricity is exported to the grid – The revenue for the user would be only from the GBI benefits offered. In this scenario, the individual would generate a cummulative revenue of Rs. 8,400 at the end of the state policy control period (6 years) incuring a loss of Rs. 1.42 lakhs as the system would never break even. However, if the project owner can sell it at the prevalent tariffs after 6 years, the pay back period could get shorter.
Note: A summary of the above scenarios is available in the table below. (If you are not able to see the image clearly, click on it to open a bigger sized image)
If one were to do a more detailed scenario analysis considering the NPV of the project, performance degradation of the system, interest rates (note: even considering soft loans @ 5% per annum makes the project completely unviable) etc. the viability of the project would only drop even further.
- The GBI offered by the government should be applicable to ALL electricity generated for the system to have some semblance of viability
- The GBI offered per unit would have to be reworked. At the very least the GBI should be double to about Rs. 4 to Rs. 5 per unit. This would greatly help reduce the payback periods (cut it by half)
- A possibility to offer a higher capital subsidy (50% or higher)
- As it stands, the GBI system tends to favour heavy electricity consumers (>500 units per month) as opposed to low-medium scale consumers as the tiered tariff system makes it such that the cost per unit is high only for high consumption users as opposed to low-medium consumption users.
Please feel free to share your views on the same.
Note : We have started a LinkedIn Forum for sharing news,insights and perspectives on solar specific to Tamil Nadu. The group is updated every day and several stakeholders have already joined the group. I invite you to join the group and share your views there. The link to the group is http://www.linkedin.com/groups/Tamil-Nadu-Solar-4681107