In the previous blog post, we had done a preliminary analysis of the feasibility of putting up residential rooftop projects under Tamil Nadu’s new solar policy. Over the course of the evaluation, we had assumed that the GBI offered would be only for the quantum of electricity that was fed into the grid AFTER consumption. As the policy does not state clearly as to how many units of the generated electricity are eligible for the GBI, we felt the need to consider the possibility to do a secondary evaluation considering the fact that all the electricity generated may be eligible for GBI.
Net Metering – Before we delve into the analysis as such, I would like to introduce the concept to net metering. Net metering, as the name suggests meters only the net amount of electricity consumed/generated. Simply put, the final reading shown on the energy meter is the difference between the energy generated (fed into the grid) and the energy consumed (drawn from the grid). As per the TN solar policy, residential and commercial consumers are eligible for net metering.
Why is Net Metering Beneficial? – The generation based incentive offered by the government is valid only for a period of 6 years. Under traditional metering methods, beyond this break point, the only “revenue” for the consumer would be from the savings accrued as a result of not using electricity from the grid. However, going for a net meter would mean that an individual would get an additional “revenue stream”. This is because, the solar policy clearly states that the excess energy generated through net metering would make the individual eligible for “power credits” (refer point 22.1 in the TN solar policy) which we speculate would be equal to the electricity tariff prevelant at that point in time. This thus means that the individual not only earns through the savings made from not using grid electricity, but also gets an additional revenue per unit of electricity pumped into the grid the price of which is equivalent to the prevelant tariff.
The following assumptions were made for the purposes of this analysis
- Residential tariff assumed to be Rs. 4.06 per unit, with an annual escalation of 5%
- Annualized solar electricity generation – 4 kWh/kWp (which means for a year, we would generated 365*4 units)
- GBI is applicable for ALL units generated (for the first 6 years)
- Net metering shall be employed at the generating station
- Useful project life – 20 years
Please click on the image above to get a bigger image which should provide additional clarity.
A look at the revenue streams suggests that the cummulative revenue at the end of the useful life of the project is about Rs. 2.06 lakhs. This would mean that the investor gets a profit of about Rs. 56,000. The payback with net metering is slightly better at about 16 years as opposed to the 17+ years seen in our previous analysis. In a realstic scenario, a payback of 16 years is still not convincing enough (especially considering various factors such as NPV has not been taken into account) to make the shift to a rooftop solar PV system.
The profitability of the system can be greatly improved if the tariff is going to be hiked significantly or if the GBI offered is much higher for the first few years. For instance, if the GBI is increased to Rs. 4 per unit for the first 6 years, then the payback period drops to about 14 years. Again it should be noted that this is a very simple estimation as various factors such as system degradation, interest rates, NPV etc. have not been taken into consideration.
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