Payback Period and ROI of commercial solar systems


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What are general payback period and return on investment on Commercial Solar System in Gujarat? What tax benefits are there? What are the financial benefits of having a commercial solar system?

If you are a business owner who wants to install a commercial solar system on your premises in Gujarat, you will want to know a few things first – what are the payback period and the return on investment? What’s the tax on solar, specifically GST?

Let’s begin with GST. The GST council levies a tax rate of 5% on solar panels, which is the lowest slab in GST.  So this has not made a lot of difference in the prices of solar PV systems – at the most, there has been an increase in prices of solar PV systems of 4%, but even this is expected to be temporary because as the technology improves the solar PV panels will only get cheaper.

 What is the payback period for commercial solar systems?

Payback period refers to the time needed for the initial investment to be recovered from the savings achieved on the solar PV system installation.

So if you have invested Rs. 5 lakhs in the installation of the solar system and it gives you a saving of Rs. 50,000 every year, then it will pay itself off in 10 years. The payback period is then 10 years.

 Generally, since a solar PV system comes with a warranty of 25 years, you can expect to get a payback period of 25 years at the most. There are 3 ways to calculate the payback period.

One, calculate the system costs. Two, calculate the system savings. Three, calculate the solar energy payback.

Calculating the system costs means considering the initial cost of the installation of the solar PV system. Without batteries, this will cost you Rs.80/W and you can avail of a subsidy of 15% in some cases. How much the commercial solar installation will cost will vary from case to case, contact us to know more on this.

 Calculating the system savings depends on the cost of the grid power. This takes into account how much you can save by using the solar power instead of power from the grid. The average cost of grid power is Rs. 7/kWh for industrial or commercial purposes. Remember, any excess solar power produced is fed back into the grid, which will give you savings at an average of Rs. 7/kWh. So if you send back 1500 units a month, that gives you a saving of Rs. 1.05 lakhs/month.

 The solar energy payback period based on the above considerations varies from 6.5 years to 9.5 years on commercial solar installations. This is true of commercial solar systems not just in India or Gujarat, but across the world.

Contact us if you would like to know more about the cost of a commercial solar installation. We will give you more specifics and send quotes from top 3 solar power installers for SMEs in Gujarat.