How financing your rooftop solar installation will pay for itself ?

Let's revisit Mr. Patel's scenario for financing his rooftop solar installation and how it can pay for itself over time:

Mr. Patel's Scenario:

  • Location: Gwalior, India
  • Solar Panel System Size: 5 kW
  • Installation Cost: INR 2,85,000 (including subsidy)
  • Annual Electricity Consumption: 10,000 kWh
  • Average Electricity Tariff Rate: INR 8 per kWh

Financing Options:

  • Upfront Payment:
    • Mr. Patel decides to pay the full installation cost of INR 2,85,000 upfront.
  • Loan Financing:

    • Mr. Patel opts for a solar loan with a fixed interest rate over a certain term (let's assume 5 years) to cover the installation cost.

Calculations:

1. Upfront Payment:

  • Mr. Patel pays INR 2,85,000 upfront for the solar panel installation.
  • Over the years, he saves on electricity bills due to solar energy generation.

2. Loan Financing:

  • Let's assume Mr. Patel secures a loan for the full installation cost of INR 2,85,000 at an interest rate of 8% per annum for 5 years.

Monthly Loan Payment:

  • Using a loan calculator, the monthly loan payment for a 5-year term at 8% interest rate is approximately INR 5,818.

Electricity Savings:

  • With a 5 kW solar panel system, Mr. Patel can generate approximately 9,125 kWh of electricity annually.

Annual Electricity Savings:

  • Mr. Patel's annual electricity bill savings can be calculated based on the electricity tariff rate of INR 8 per kWh and the annual solar energy generation.
  • Annual Electricity Savings = 9,125 kWh/year × INR 8/kWh = INR 73,000.

Analysis:

1. Upfront Payment:

  • Mr. Patel pays INR 2,85,000 upfront for the solar installation.
  • Over the years, he enjoys electricity bill savings of INR 73,000 annually.
  • Therefore, Mr. Patel's rooftop solar installation will pay for itself in approximately 3.9 years (2,85,000 / 73,000).

2. Loan Financing:

  • Mr. Patel makes monthly loan payments of INR 5,818 for 5 years, totaling INR 3,49,080 over the loan term.
  • Additionally, he saves INR 73,000 annually on electricity bills.
  • Despite the loan payments, Mr. Patel still experiences net savings on his electricity bills.
  • Mr. Patel's rooftop solar installation will pay for itself during the loan term, and he continues to benefit from electricity bill savings beyond that.

Conclusion:

  • Financing a rooftop solar installation can pay for itself over time through electricity bill savings.
  • Whether paying upfront or through loan financing, Mr. Patel benefits from reduced electricity expenses and eventually achieves a return on his investment.
  • Investing in solar energy not only contributes to sustainability but also offers financial benefits in the long run.

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