The question on payback period is one many prospective investors ask. What they usually mean by Payback Period is the amount of time by which their original equity investment has been paid back through savings or earnings from the solar power plant.
While such a question on payback period appears an easy one to answer, it is not actually so easy, as there’s no single answer.
This is because the payback period of solar power plants depends on many factors:
- Savings depend on the Grid Tariff You Pay – If the power plant is for captive use, the savings you make on each unit of power generated depends on the power tariff you are currently paying to the grid.
- Returns depend on the Tariff Paid to You – If you are selling the power generated to the government or to a third party, the payback depends on the tariff being paid, which varies from one case to another.
- Depends on Availability of Financial Incentives – In addition to the above variables, payback period also depends on availability of financial incentives, either in the form of capital subsidy or in the form of tax benefits such as accelerated depreciation.
- Depends on Use of Batteries – Finally, payback period also depends on the use of some components such as batteries for rooftop solar power plants and solar trackers for ground mounted solar power plants. Addition of these optional components can affect both costs and returns, and can thus change the payback period.
Depending on the answers for the above questions, payback period on solar power plants could vary from 3 years for a rooftop solar power plant with tax benefits and offsetting high tariffs, to 10 years for ground mounted power plants that have few financial incentives other than low-medium tariffs.