Solar Power Return On Investment: Timeline and Payback Period with Subsidy

Solar plant installation is a big step towards saving electricity bills and making a positive impact on the environment. But, the entire cost of solar panel setup might seem concerning for most of the people. And that’s right because the initial investment of solar power becomes high when you add up the solar panel price, inverter cost, installation charges, and cost of inverter batteries (if required). 
One of the most common questions about solar energy is: How long will it take to recoup my investment in a solar system? In this blog, we will explore the factors affecting the ROI of solar panels and provide a clear timeline for when you can expect to see returns on your investment.

What is the Return on Investment in Solar Panel Systems?

Return on Investment (ROI) in a solar panel system refers to how much money you save or earn over time compared to the initial amount you spent on the solar system.

Here’s a Simple Explanation:

Initial Investment: First, you spend money to buy and install the solar panels on your home or business.

Savings Over Time: Once the system is up and running, it starts generating electricity from sunlight. This reduces your electricity bill because you’re using less (or no) power from the grid. In some cases, if your system generates more electricity than you use, you can sell the extra power back to the grid and earn money.

ROI calculation: The return on investment for a solar system is calculated by evaluating the total savings and earnings it generates over its lifetime against the initial installation cost.

Example: If you spent ₹1,00,000 on a solar system and it saves you ₹20,000 per year on electricity bills, after 5 years, you would have saved ₹1,00,000. That means you’ve broken even, and after this point, any savings are essentially profit or your return on investment.

Positive ROI: After you’ve recovered your initial investment through savings, the additional savings over the remaining life of the solar system represent your positive ROI.

Example: Solar panels generally last for 25 years. If you save ₹10,000 every year, your total savings will be ₹2,50,000. Subtracting your initial investment of ₹1,00,000, your ROI would be ₹1,50,000.In simple terms, ROI in a solar panel system is the financial benefit you get from the savings on your electricity bill compared to what you originally spent on the system. The goal is to eventually save more money than you spent.

Factors Affecting the Solar Payback Period

1. Size of solar system installed at your home

Bigger size of solar systems typically means you are running heavy appliances and your power consumption is quite high. This also indicates that you are paying a higher amount as electricity bills every month. 

Homes with high energy consumption benefit more from larger solar systems. The greater the electricity usage, the more the system can offset, leading to faster savings accumulation. If your household uses energy-intensive appliances, investing in a larger system can accelerate the return on investment. Let’s understand this with an example.

For example, a 1kW solar system offers modest savings, reducing electricity bills by about Rs. 500 to Rs. 1,000 per month. On the other hand, a 10kW solar system can save nearly Rs. 20,000 to Rs. 25,000 each month. Over time, larger systems generate more substantial savings, significantly reducing the payback period and making the initial investment more cost-effective.

2. Electricity Cost per Unit in Your Area

The higher the cost of electricity in your area, the quicker you’ll recover your solar investment. This is because the savings from generating your own power will be more significant.For Instance: If electricity costs ₹8 per unit in your area and your solar system generates 1,000 units per year, you’ll save ₹8,000 annually. In a place where electricity costs ₹4 per unit, the same system would only save ₹4,000 annually, leading to a longer payback period.

3. The Initial Investments/ Upfront costs

The total cost of purchasing and installing the solar system directly affects how long it will take to break even. Lower initial costs typically result in a shorter payback period.For Example: If your solar setup costs ₹1,00,000 and you save ₹10,000 per year on electricity bills, it would take you 10 years to recover your investment. If the setup costs ₹1,50,000, the payback time extends to 15 years, assuming the same annual savings.

4. Efficiency of the Solar System

The efficiency of your solar system is key to how quickly you can recoup your investment. A more efficient system produces more electricity from the same amount of sunlight, which means faster savings and a shorter payback period.

Let’s take the example of the Gamma Plus Solar Inverter with rMPPT technology, which is 30% more efficient than standard inverters. If both systems cost the same, the one with the Gamma Plus inverter will produce more electricity and offer greater savings. Imagine System A, with a standard inverter, generates 1,000 units per year and saves ₹8,000 annually. On the other hand, System B, equipped with the UTL Gamma Plus inverter, generates 1,300 units and saves ₹10,400 annually. Since Gamma plus can extract more power, System B will have a significantly shorter payback time, which makes it a smarter and more cost-effective choice in the long run.

5. Type of Solar System Installed on Your Rooftop

Different solar systems (on-grid, off-grid, hybrid) have varying costs and efficiencies, which influence payback time.

For Example: An on-grid solar system, which connects to the grid and allows you to sell excess power, might have a quicker payback time compared to an off-grid system. This is because you can offset more of your electricity costs or even earn from the excess power generated. If your on-grid system saves you ₹12,000 annually, compared to ₹8,000 for an off-grid system, the on-grid system would pay off sooner.

6. The Amount of Solar Government Subsidy Received

Government subsidies can significantly reduce the initial investment, thereby shortening the payback period. Under the PM Suryaghar Muft Bijli Yojna, residential rooftop solar panel systems are eligible for subsidies of up to ₹78,000. In some states like Uttar Pradesh, additional state subsidies are also available.

If your solar system costs ₹2,40,000 and you receive a ₹78,000 subsidy, your effective cost becomes ₹1,62,000. If your solar system saves you ₹20,000 annually on electricity bills, your payback time would be approximately 8 years with the subsidy. Without the subsidy, the payback period would extend to 12 years.

Conclusion

Solar power is a long term investment, and with government subsidies providing a helping hand, you can cover the solar system cost within a few years. On top of that, the solar panel price is going down at a significant rate. Once the initial costs are covered through savings, you will be getting free electricity for the entire lifespan of solar panels.