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.
Way Forward
- 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
Hi Hari
Just a couple of quick observations
1) I have heard that the capex for a rooftop solar pv system is at Rs 1.9 lakhs/kW and with a 3-4 hr battery backup, this will rise to Rs 2.5 lakh/kW (Apparently this is the industry thumbrule, as per a rooftop pv salesperson)
2) I find that even the customers in the highest power usage bracket(>600) pay only Rs 4.05/kWh. So dont think you should be using Rs 5/kWh for your calculation
3) Coming to the MNRE subsidy, it looks extremely doubtful if the normal consumer would be able to wriggle through the complexities of this scheme, not to mention the fact that there seems to be no visibility as to the type of process being followed by MNRE. Even the salesperson I spoke to ruled out the possibility of his company helping me out in any way to negotiate this process(His is a multinational module manufacturing company. So you can imagine the small consumer`s fate)
I guess the Tamil Nadu government is quite aware of the fallacy of this scheme and hence has set the cap for the same at 50 MW.
Try decreasing the tariff number to Rs 3/kWh and increase capex to Rs 1.9 lakh/MW and you will find the breakeven shooting upto 30 years even without including an NPV estimate
Governments probably need to sit back and allow rooftop capex to fall further before doling out any further subsidies to this segment. Anyway considering the scenario TNEB is in currently, it seems unlikely that they would be able to prop up this market any further
Arun
It can be cost effective, ndpneeidg on where you live.An abundance of clear, sunny days, or strong, steady winds helps your case, as do high local electricity prices.When solar pays back, it’s generally over a period of 10, maybe 20 years. And maybe never.We have solar electric on our house. It supplies essentially 100% of our electric power. It’s only break-even over the long term, not a savings over the electric company. I’m quite happy with the system. I can send you a link to more information, if you’re really that interested. My email is in my profile.The best way for you to price out a solar system is to ask a solar installer in your area to give you a free quote. You can always say no. If it looks good, then get other quotes to compare before you buy.
Hari,
A few comments. First of all good effort on the comparison.
First the number of units generated in 1 year seems very very conservative. The thumbrule for the industry (backed with field data from my experience – for grid based utility systems) is around 4.5 hrs/day (or more) for 365 days (the average has the rainy days etc built in) and not 300 days.
Second – I have heard from different people with quotes ranging from 1.2-2 Lakhs/KW including battery (the warranties might differ). With recent panel prices of around Rs. 38/W, I feel 1.2-1.5L/KW should be feasible for roof top systems. Of course the price goes on the higher side with premium panels and inverters.
Third – The inverter does not have a warranty for 25 years (typical on a grid scale is 5 years). That cost needs to be built in.
I agree with Arun on the fact that getting subsidy from any form of Govt (State or Central) is not very easy and should not be taken into account until proven otherwise. I also agree with Arun that only high end users will benefit more. Actually I feel the ones using DG (for most part) will benefit more.
Rama
Thank you for you replies, I shall address the queries you raised as best as I can.
Arun,
1. With regards to the capex, we are in touch with numerous vendors in the industry and I can say with a fair bit of confidence that the a cost of Rs. 1.5 lakhs per kW is accurate. This applies to batteries too. In some cases, it might be even lower!
2. I do agree, that the tariff is actually lower. This was a rough comparison done to highlight the fact that the policy framework is not very conducive to the growth of the distributed power sector.
3. The process of procuring subsidy can be done through the channel partners (usually integrators who install the system are channel partners and they might factor this subsidy into their costing). If the subsidy is not factored into their costing, then most of the vendors procure the subsidy through their respective state nodal agencies. The whole process though takes about 6 to 8 months (this again is based on interactions with vendors in the industry). In any case, we have not taken the capital subsidy into account for the purposes of this evaluation.
Rama,
The thumb rule is based on information we have seen for small scale systems. I believe that 4 units per day is somewhat generous. What I’ve based this on is information I have seen from solar systems used in small systems such as telecom towers for example. It would be unwise to assume that we would get the same sort of performance from a small scale systems as with (purpose built) utility scale systems.
I do agree perhaps that the additional 65 days should be included (as the number is annualized), this is an oversight on my part and do apologize for the same. Including this, the payback period will decrease. However the effect might not be very pronounced (as it is a small percentage of the overall generation)
Hi Hari
Thanks for that.Would you be willing to give me the details of some companies that are ready to sell rooftop PV systems at Rs 1.5 lakhs/MW?
Know some people who are looking to buy the same and hence the info could be very useful
Thanks
Arun
Hi Hari,
In the third scenario ‘100% of the electricity is exported to the grid’ you have assumed that the revenue for the user would be only from the GBI benefits offered. I am not sure if this will really be the case. GBI is ideally an incentive apart from the main revenue source. Assuming that payment is secured, the developer should be able to sell the electricity generated to TNEB as we are assuming it to be grid-connected rooftop PV system. The developer should qualify for REC also.
Please let me know if i am missing something.
Regards,
Sumeet
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