Savings from Rooftop Solar Can be a Healthy Revenue Stream for C&I Entities
This feature is part of a rooftop educational series by Mercom focused on costs and savings
As the cost of technology and installations have come down over the years, rooftop solar has undoubtedly emerged as a viable option to cut electricity bills for Commercial and Industrial (C&I) consumers.
However, smaller C&I entities must fully understand the extent of savings and the cash outgo toward loan repayment on the installation to make informed decisions.
Installation Costs and Savings, Loan Repayment Window
Consumers must assess their capacity requirement based on the operations, then choose developers with experience installing rooftop solar systems.
A typical 200 kW system requires an investment on average of about ₹8.5 million (~$103,681), which can vary based on regional factors. Lenders usually calculate the monthly loan installments based on the customers’ electricity bill savings.
The monthly installments against the loan are designed to ensure the businesses don’t have to divert their cash flow meant for core operations.
For instance, about four years ago, Shantilal of Cotseeds Corporation in Hubli installed a 450 kW rooftop solar system at a cost of ₹27.5 million ($335,117).
“Since cotton production is power intensive, we have reaped immense benefits from the rooftop system in our Hubli production unit. The loan repayment installments were equivalent to the savings on power bills. I am already free from the loan while we consume all the energy produced from the system here.”
However, Shantilal said the solar system was more rewarding when the Hubli power distribution company purchased the excess energy produced from the rooftop system at ₹5.6 (~$0.068)/kWh, which has now come down to ₹2.6 (~$0.031)/kWh.
He added that low prices affected the overall business and took away the attraction of supplying excess energy to the grid.
Below is a chart representing the savings realized from a 100 kW rooftop solar project on a monthly and annual basis and over the project’s lifetime (25 years).
Co-founder and COO of Orb Energy N.P. Ramesh said, “The amount invested in installing solar usually pays for itself in approximately 3-3.5 years for the C&I segment, effectively making electricity free after this period. The savings over 25 years after considering all costs would translate to approximately ₹44 million (~$534,902) for a 100-kW rooftop solar system.”
Orb’s customers in Karnataka who have installed over 1 MW and up to 2.5 MW of rooftop solar systems typically save ₹5 million (~$60,804)-₹36 million (~$437,802) annually.
Orb commissioned a 2.5 MW rooftop solar system for Sipani Fibres, a Bengaluru-based manufacturer of woven fabrics and sacks, in 2018. The fabric maker has already realized the investment made on the system in less than three years and is saving around ₹35 million (~$425,692) on annual energy bills.
However, the upfront cost for small C&I entities remains one of the biggest hurdles in adopting solar. The consumers must first assess their capacity requirement based on the operations, then choose developers with experience installing rooftop solar systems. For instance, the current loan repayment time provided by the financing institutions in India for industrial consumers is 5-7 years, and it is lower for commercial customers who wish to install rooftop solar.
For C&I customers, an accelerated depreciation benefit of 40% per annum serves as a subsidy as it helps the customers in their decisions while buying, said Ramesh.
Industry insiders said that most small and medium businesses are used to paying electricity bills monthly, and rooftop is not their priority.
Another developer told Mercom, “Given that installing a rooftop solar system is an upfront capital cost, the consumers paying monthly electricity bills must plan the investment. From the time required by the customer to make this investment to the arrangement of the money to match their spending bandwidth, there are several issues the Indian rooftop solar segment is reeling under.”
Rooftop solar allows consumers to install small systems and consume the power generated on-site. The Parliamentary Standing Committee on Energy report recently isolated underwhelming progress on rooftop solar and wind energy projects as the primary reason India fell short of achieving its renewable energy capacity target of 175 GW by 2022.
Vikas Agarwal, the co-founder of non-banking financial company Credit Fair told Mercom in an interview, “We have found that medium enterprises with turnover above ₹500 million (~$6 million) usually know the benefits of bringing solar into their energy mix. But smaller units are reluctant about the upfront investment. However, installers and financial companies like us have a substantial role in convincing these businesses to adopt solar.”
Further, the government has allowed C&I entities to claim 40% accelerated depreciation of the fixed assets associated with a rooftop solar system, a significant tax benefit.
For other assets, depreciation is usually spread out throughout the life of the asset. Hence, the yearly deduction is low, but in the case of rooftop solar, C&I entities can avail of a large reduction in applicable tax in the first year itself.
Mercom India will host the C&I Clean Energy Meet in Pune on June 23. Interested entities can register for upcoming events by sending an email to email@example.com.
To find out more about the upcoming events, click here.
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