The cost of a rooftop solar PV system depends on the function it serves (to feed power into the grid, to support the load during a power failure, etc.) and incentives/subsidies available. It should be noted that all solar PV systems function by matching the voltage from some other source. Therefore the system has to be integrated with the grid, a battery backup, or a diesel generator.
Types of rooftop solar PV systems
Rooftop solar PV systems are of 3 types:
- Grid-tied – These rooftop systems are primarily designed to supply the generated power to the grid and also power the load. These systems will NOT generate power during a power failure as the inverter shuts down the system to stop sending power into the grid and avoids the risk of electrocuting utility personnel who are working to repair the grid
- Grid-interactive – This system works in conjunction with either a battery backup or diesel generator to support the load even during a power failure.
- Off-grid – This system does not work with the grid and is designed to work only with a battery backup or diesel generator in off-grid applications
The difference between the systems lies in the kind of inverter used, and the inclusion of batteries. As various vendors use different terminology for these systems we urge you to verify the functions of the offered system rather than going by the name alone.
Component cost of rooftop PV systems
A rooftop solar PV system costs approximately US$ 3000 per kWp (kilowatt peak) including installation charges but without batteries and without considering incentives (which are discussed further down). The typical cost breakup for a 1 kWp system is given below:
|Component||% of total cost|
|PV modules (Crystalline)||52%|
|Balance of System (cables, etc.)||17%|
The above prices are for components from Tier 1 manufacturers with 5-year manufacturer’s warranty. In addition the PV modules have output warranty of 90% of rated capacity for the first 10 years and 80% of rated capacity for the next 15 years.
We have not considered battery backup as that can alter the economics significantly depending on the extent of battery backup (autonomy) required. Not only do batteries add to the initial cost, recurring maintenance, and replacement expenditure, the energy loss on charging and drawing from the battery also adds to the cost of power. A battery backup could add significant costs to the above system.
We have not considered Thin-Film modules as they require more installation area for the same capacity as crystalline modules and are therefore not preferred for rooftop installations where space is usually a constraint.
Subsidies & Incentives
Several incentives are available for rooftop solar PV plants worldwide. While the specifics of the incentives could vary from country to another, these incentives broadly fall under the following categories:
- Accelerated Depreciation
- Capital Subsidy
- Income Tax Credits
Accelerated Depreciation (AD)
Accelerated depreciation of 80% is available under the Income Tax act for rooftop solar PV systems. This can provide significant savings to a solar plant developer who is a taxable assesse and has sufficient profits against which the depreciation can be charged. This is illustrated in this table:
|Tax savings from accelerated depreciation|
|Cost of a 100 kW rooftop solar plant (A)||3000|
|Accelerated depreciation @80%||2400|
|Corporate tax rate*||30%|
|Tax saved through depreciation (B)||720|
|Net cost of rooftop solar plant (A)-(B)||$2280|
Governments in many countries provide a capital subsidy for the investment made for rooftop solar power plants.
The subsidy calculation is illustrated in this table for an assumed capital subsidy of 30%
|Savings from capital subsidy|
|Cost of a 1 kW rooftop solar plant with battery backup||$3000|
|Subsidy @30% of actual cost||$900|
|Net cost after subsidy benefit||$2100|
Investment Tax Credits
Investment tax credits work similar to capital subsidies. Here, instead of a direct subsidy on the capital cost, your income tax is deducted by the amount of incentive.
The subsidy calculation is illustrated in this table for an assumed income tax of 30%:
|Savings from Investment Tax Credit|
|Cost of a 1 kW rooftop solar plant with battery backup||$3000|
|Amount deducted from your income||$3000|
|Tax amount saved @30% income tax||$900|
|Net capital cost to the installer||$2100|
Final cost of Rooftop PV system factoring in AD and Subsidies
Rooftop PV system cost after factoring in AD and Subsidy benefit
The final cost to setup the PV plant, after factoring in Accelerated Depreciation and Subsidy benefit will be: (for a plant without batteries)
This is for commercial sector with accelerated depreciation benefits. For residential sector, they can do a similar calculation, but with investment tax credits as the incentive in place of accelerated depreciation.
|Final cost of 1 kW rooftop PV plant|
|Cost of a 1 kW rooftop solar plant||3000|
|Subsidy @ 30%||900|
|Net cost after subsidy||2100|
|Accelerated depreciation @80%||1680|
|Tax saved through depreciation||504|
|Net cost after both AD and Subsidy||1596|
Prospects for further cost reduction
One of the questions we are regularly asked is if project cost is likely to reduce significantly in future, as the price of solar PV modules has seen a substantial decrease in recent years. This chart shows the proportion of the prices of each component (from the table above) to the total project cost:
Though PV modules have decreased in price they form only half the cost of the total project; further decrease, if any, will only affect that portion and therefore impact on total project cost will be limited. The prices of the other components have not decreased the way the price of PV modules has decreased. Therefore we do not expect to see much reduction in project cost in the near future.
Variations in pricing
Prices of solar PV systems offered by various vendors can differ significantly. There can be several reasons for the variations in price, such as
- Overstatement of capacity – Some vendors advertise a rooftop system with 1 KW modules (solar panels) and a 5 kW inverter as a 5 KW system. As the electricity is generated by the modules this system only has a 1 kW capacity and the price offered by the vendor should be compared with other 1 KW systems and not 5 kW plants
- Brands – Products from Tier I manufacturers are typically more expensive but offer much better performance and reliability
- Certifications/Standards – Products that are certified and meet quality standards are more expensive
- Warranties – The price of the system can depend on the warranties offered.
- PV Panels – Industry standard warranty is
- 5-year manufacturer warranty
- 0-10 years for 90% of the rated output power
- 10-25 years for 80% of the rated output power
- Other systems – Inverters, mounting structures, cables, junction boxes, etc. typically come with a 1 year manufacturer warranty which can be extended to 5 years
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