Monday, 26 February 2018

Solar Energy - Can it boost your Company's Profits?



Solar Energy installations in India have grown in the recent years with widespread acceptance due to fall in cost of project installation. The erstwhile target of 20 GW by 2022 set by the previous Government is already achieved in 2018 and we are now poised to achieve 100 GW (new target set by the incumbent Government) of Solar Power installation by 2022.

So far the installed Solar projects have been of utility scale with very few Captive Solar Projects. Another interesting point is out of 100 GW set Solar Energy target, 40 GW is for rooftop (or ground mounted) captive Solar Power Projects.  It is now estimated that a big number of Solar projects in 2018-19 would come up on Captive basis due to the following reasons :
  1. Solar Energy can boost a Company's profits.  (Really? Yes, read below.)
  2. Ease of project financing with a wide variety of financing options.
  3. Availability of net-metering in major States.
  4. Rising cost of conventional grid power.
  5. Improving business prospects.
While you would willingly agree on the other points., the point 1. above needs further detailing and explanation. Here is how Solar Energy can boost a Company's profits -


A. Direct savings by Solar BOOT / OPEX model 
(Recommended for immediate gains as a Company starts saving from first day of commercial operations of Solar Project)

BOOT OPEX SAVINGS CALCULATION
for a 500 kW PV Solar Project
Year
Solar Power Generation
Price Difference between Grid and Solar (INR per kWh)
Per Annum Savings
(INR per annum)
1
750000
2.50
1875000
2
749250
2.58
1929319
3
748501
2.65
1985211
4
747752
2.73
2042723
5
747004
2.81
2101900
6
746257
2.90
2162792
7
745511
2.99
2225449
8
744766
3.07
2289920
9
744021
3.17
2356259
10
743277
3.26
2424520
Total


21393092

Key points:
  1. A Company can save nearly INR 20 Lakhs (per Annum) by going Solar through BOOT / OPEX route., which translates into a savings of INR 2 Crores+ in 10 years WITHOUT any upfront investment.
  2. The projected savings are much higher as the grid power escalation is conservatively estimated at 3% whereas it is expected to shoot up much higher in the coming years.
  3. The above table is only considering 10 years but actual Power Purchase Agreements (PPAs) are for 15-20 years (or more) thereby more savings for the Company Year On Year.
  4. We have given the calculations for a 500 kWp PV Solar Power Project. For higher capacity installations savings could be much higher due to economies of scale.
These savings can directly and positively impact the Company's bottom line as the savings translate into reduced cost of production.

B. Revenue addition by hedging against power cost rise + asset creation (CAPEX)
(Recommended for medium to long-term gains as Company starts saving once the project has paid back -> typically in 3 to 5 years and then FREE Power for remaining 20+ years)



Key points :
  1. CAPEX Project with Capital investment from the Company wherein payback can be anywhere in 3-5 years and the asset then delivers FREE Power for 20+ years.
  2. In the real world payback would be much shorter as we have considered a nominal grid tariff of INR 6.0 per kWh but the tariff is much higher than this for Industrial and Commercial users. 
  3. Per annum escalation in grid tariff is considered at a nominal 3% which is conservative as grid tariff is expected to shoot up at a much higher rate in the coming few years as Government continues to shut-down conventional older generation power plants.
  4. A Company can also claim 40% Accelerated Depreciation (as per Indian IT rules) benefit for investment made in Solar Power Project thereby reducing the Company's tax liability.
We have only considered CAPEX (self-funded) and OPEX (100% 3rd party funded) financing models as they are the most popular ones in India. Additionally there are a variety of other financing options possible too. A customized financing option can work out in favor of all the stakeholders involved thereby providing maximum benefits to your Company.

If you have any comments / feedback / queries then please comment below. Alternatively you could also send a mail to ENERCO@YMAIL.COM    OR    SOLAR@ECONSERVE.IN  if you have any specific query pertaining to your requirements or in general.

Enerco Energy Solutions LLP (estd. in 2009) specializes in INDUSTRIAL & COMMERCIAL Solar Project Financing & Execution., we offer -
  1. Maximum possible financing options (OPEX / Low-cost EPC / EMI / Deferred CAPEX etc.) and assist you in choosing the most suitable financing option inline with your requirements.
  2. High-end Techno-Commercial solution to  ensure optimum project size and best output.
  3. Variety of Project Configurations including Captive / Open Access / Group Captive / 3rd Party  etc.
Do visit www.econserve.in to know more....














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