How to Calculate ROI on Solar Panels: What You Need to Know 

Tired of skyrocketing electricity bills? Want to harness the sun and lower bills? Solar panels have become a popular choice for Indian homeowners and businesses because of their potential to reduce electricity bills and contribute to a greener future. However, before investing in solar panels, it’s important to understand the return on investment (ROI) to determine if it’s a financially viable decision. 

In this post, we’ll break down how to calculate your Return on Investment (ROI) on solar panels in India so you can make an informed decision that benefits not only the planet but also your wallet. 

1. What Is ROI on Solar Panels? 

ROI, or Return on Investment, is a calculation used to determine the efficiency of an investment. For solar panels, ROI measures the financial return you receive from the money invested in the solar power system. It is essentially the money you save on electricity bills compared to the amount you spend on purchasing and installing solar panels. 

Formula: 

ROI (%) = (Initial Cost of Solar System / Lifetime Savings from Solar) × 100 

To get an accurate ROI, you need to consider several factors, such as electricity savings, government subsidies, and maintenance costs. 

2. Key Factors to Consider in ROI Calculation for Solar Panels 

a. Initial Cost of the Solar System 

This includes the total cost of purchasing solar panels, inverters, batteries (if needed), and installation charges. In India, the cost of solar panels has been decreasing due to advancements in technology and government initiatives promoting renewable energy. 

The typical cost of installing a solar panel system in India varies, but on average, for a 1 kW system, it can range between ₹40,000 and ₹60,000. A 3 kW or 5 kW system may cost between ₹1.2 lakhs to ₹2.5 lakhs, depending on the quality of the components. 

b. Government Subsidies and Incentives 

The Government of India offers several incentives for solar energy adoption, both at the central and state levels. These incentives can significantly reduce the upfront costs and improve the ROI. For residential solar panels, the Ministry of New and Renewable Energy (MNRE) provides subsidies, which can be up to 30-40% of the cost, depending on the location. 

For example, under the Grid-Connected Rooftop Solar Scheme, a 40% subsidy is offered for systems up to 3 kW, and 20% for systems between 3 kW and 10 kW.  

c. Electricity Bill Savings 

One of the most noteworthy benefits of solar panels is the reduction in electricity bills. In most parts of India, where sunlight is abundant, a solar panel system can provide enough electricity to meet a large portion of your household or business needs. 

To calculate how much you’ll save, you need to consider your current electricity consumption and tariff rates. For instance, if you’re paying ₹8 per unit of electricity and your solar system generates 500 units per month, you’re saving ₹4,000 per month. 

d. Net Metering 

Net metering is a billing mechanism where the excess electricity generated by your solar panel system is sent back to the grid. You are credited for the surplus energy, which reduces your electricity bill even further. 

Net metering policies differ from state to state in India. For instance, in Maharashtra and Tamil Nadu, consumers can benefit from net metering, allowing them to significantly improve the ROI on their solar panel investment. 

e. Maintenance Costs 

Solar panels generally require minimal maintenance, but you should factor in occasional cleaning and servicing. In India, dust and pollution can reduce the efficiency of your solar panels, so regular cleaning is important to maintain optimal performance. 

On average, maintenance costs can range between ₹2,000 to ₹5,000 annually, which is relatively low compared to the savings generated. 

f. System Lifespan 

In general, solar panels have a lifespan of 25 years. During this time, they can continue to generate electricity at a declining rate. Most solar panels degrade at a rate of 0.5% to 1% per year, meaning after 25 years, they may still operate at 80-90% efficiency. This long lifespan ensures that your savings continue for decades, increasing the overall ROI. 

3. Step-by-Step Calculation of ROI on Solar Panels 

Let’s walk through an example to calculate the ROI on a solar panel installation in India: 

Example: 

     

      • Initial Cost of Solar System: ₹1,50,000 for a 3 kW system 

       

        • Electricity Bill Before Solar: ₹5,000 per month 

         

          • Solar Electricity Generation: 400 units per month 

           

            • Current Electricity Tariff: ₹8 per unit 

             

              • Government Subsidy: ₹50,000 (assumed) 

               

                • Annual Maintenance Costs: ₹3,000 

                 

                  • Lifespan of System: 25 years 

                Step 1: Calculate Net Initial Cost 

                Initial cost after subsidy: 

                ₹1,50,000 – ₹50,000 = ₹1,00,000 

                Step 2: Calculate Annual Savings on Electricity  

                If the solar system generates 400 units per month, you save: 

                400 units × ₹8 = ₹3,200 per month 

                ₹3,200 × 12 = ₹38,400 per year 

                Step 3: Subtract Maintenance Costs 

                Subtract the annual maintenance costs from the yearly savings: 

                ₹38,400 – ₹3,000 = ₹35,400 net savings per year 

                Step 4: Calculate ROI over the System’s Lifespan 

                Now, calculate the total savings over the 25-year lifespan: 

                ₹35,400 × 25 = ₹8,85,000 lifetime savings 

                Finally, use the ROI formula: 

                ROI(%) = (8,85,000 / 1,00,000) ×100 = 885% 

                This means that over 25 years, you can expect a return of 885% on your solar panel investment. 

                4. Payback Period for Solar Panels in India 

                The payback period is the amount of time it takes to recover your initial investment. Using the example above: 

                Payback Period = ₹1,00,000 / ₹35,400 = 2.8 years 

                 

                5. Conclusion: Is Solar a Good Investment in India? 
                 

                In most cases, the answer is Yes. The declining cost of solar panels, combined with government subsidies and rising electricity tariffs, makes solar energy a sound financial investment. Not only will you save significantly on electricity bills, but you’ll also help reduce the country’s dependence on non-renewable energy sources.  

                So, if you’re considering installing solar panels, now is the time to start planning for a greener and more cost-efficient future! With the support of experts like M&Y Solar, you can ensure a seamless and successful transition to solar energy. 

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