As the world is moving towards sustainable energy, Pakistan also contributes to this cause a lot. Awareness of the benefits of installing solar power systems has increased the rate of solar installation in Pakistan. Along with the benefits, the main reason is to achieve energy independence from WAPDA and also to save oneself from the increasing energy costs.
Payback and ROI of Solar Energy:
Although people can calculate their ROI many factors are skipped and simply are not in the minds of people while calculating the payback and ROI of solar energy for homes, farms, and businesses. For calculating any investment, doing a cost-benefit analysis is very important. Calculating its financial benefits is important as if the benefits are greater than the cost, only then it is advisable to invest in the project.
It needs a solar expert consultation and Bright Energy is more than happy to provide an overview of the payback and ROI of solar energy for homes, farms, and businesses in this blog. ROI and payback of any investment are the main factors that can help investors make any decision.
Solar Payback Period and Return on Investment:
Just like any other metric used to measure, the solar payback period measures the financial feasibility of the solar energy investment. The solar payback period is the time it takes for the savings generated from a solar energy system to equal the initial investment cost. In other words, it’s the duration required for the solar system to “payback” its own expense to investors through energy savings in utility bills and, government incentives like Net Metering.
For example, if you install an on-grid system that costs PKR 1,000,000 and save PKR 150,000 each year, the payback period would be 6.6 years. It means you will recover the initial investment after around six years. Since solar panels last up to 20 to 25 years, you can enjoy free electricity for another 19 to 20 years after recovering all the expenses and investment.
Payback period and Return on Investment (ROI) go hand in hand with each other in financial investments. Return on Investment (ROI) is a financial metric used to assess the profitability of an investment. It is calculated by dividing net profit by the initial investment and expressing it as a percentage. In the context of solar energy, the ROI is the ratio of the total energy savings (or earnings, considering any incentives or selling excess energy back to the grid) over the life of the system to the initial investment cost.
Let’s see how these two concepts are interconnected for solar energy.
- Initial Investment:
When you install a solar energy system, you make an initial investment. It includes the cost of solar panels, inverters, installation, and any other associated costs.
- Energy Savings:
After installation, the solar panels generate electricity, reducing your reliance on the WAPDA. It leads to savings on your electricity bills because you can generate your power.
- Payback Period:
The payback period is the time it takes for the cumulative energy savings (the money you save on electricity bills) to equal the initial investment. Once the payback period is over, the system has paid for itself.
In conclusion, the payback period represents the time it takes for the solar system to break even, covering its initial cost through energy savings. The ROI, on the other hand, quantifies the profitability of the investment by considering the total earnings or savings generated over the system’s lifetime compared to the initial investment.
Shorter vs. Longer Payback Period:
Shorter Payback Period:
Investments with a shorter payback period recoup their initial costs quickly. It means the investor can start enjoying profits or cost savings sooner. It also indicates lower risk because the investment pays off in a relatively brief timeframe.
For example, a solar energy system with a payback period of 6 years means it takes only six years to recover the initial investment through energy savings.
Longer Payback Period:
Investments with a longer payback period take more time to recoup the initial investment. It implies delayed profitability and a higher level of risk, especially if market conditions or other factors change during the extended payback period.
For example, a more complex renewable energy project might have a payback period of 10 years due to high initial costs or lower annual savings.
So, a shorter payback period and a higher ROI are generally more desirable in financial investments because they indicate a quicker return on the initial investment, provide higher profitability, and are less risky.
Solar Payback Period in Pakistan:
On average, solar installations in Pakistan typically have a payback period ranging from 3 to 10 years depending mainly on solar energy system size. Within this time, the energy savings generated by your solar system will offset the initial investment in solar power systems. The significant factors other than the system size that make the payback period are solar energy system size, location, electricity consumption, electricity rates, and the cost of solar equipment and installation.
With an average payback period of 3 to 10 years, solar energy systems in Pakistan offer a relatively quick return on investment than other countries. As the cost of solar equipment continues to decline, economies of scale, and reductions in import taxes, the average payback period in Pakistan is expected to decrease further, making solar energy a best-for-value-for-money option.
Electricity tariff rates are on a continuous rise in Pakistan, and the average payback period for solar systems is decreasing. Higher and ever-increasing electricity rates, energy blackouts, and energy independence increase the potential savings from solar energy, making it more economically advantageous for individuals and businesses in Pakistan to invest in solar power systems. Net metering policy in Pakistan also shortens the payback period in Pakistan as it also helps in earning a good income.
Payback and ROI of Solar Energy for Homes, Farms and
Businesses:
The solar power system varies from homes, farms, and businesses in terms of system capacity. Following are the different payback and ROI as per the usage.
Homes:
Homes usually require 3KW to 10 KW for solar energy systems. The following tables shows the different systems saving and payback period according to the system capacities.
| 3 KW Solar Panel | |
| Description | Value |
| Solar System Capacity (KW) | 3 |
| Annual Solar Unit Production (KWh) | 4,380 |
| Per Unit Charge (Off-peak) – (RS) | 20 |
| Savings (RS) | 87,600 |
| Payback Period | 5 Years |
| 5 KW Solar Panel | |
| Description | Value |
| Solar System Capacity (KW) | 5 |
| Annual Solar Unit Production (KWh) | 7,300 |
| Per Unit Charge (Off-peak) – (RS) | 20 |
| Savings (RS) | 146,600 |
| Payback Period | 5 Years |
| 10 KW Solar Panel | |
| Description | Value |
| Solar System Capacity (KW) | 10 |
| Annual Solar Unit Production (KWh) | 14,600 |
| Per Unit Charge (Off-peak) – (RS) | 20 |
| Savings (RS) | 292,600 |
| Payback Period | 4 Years |
Farms:
Farms usually require 40 KW and above for solar energy systems. The following tables shows the different systems saving and payback period according to the system capacities.
| 40 KW Solar Panel | |
| Description | Value |
| Solar System Capacity (KW) | 40 |
| Annual Solar Unit Production (KWh) | 58,400 |
| Per Unit Charge (Off-peak) – (RS) | 20 |
| Savings (RS) | 1,172,800 |
| Payback Period | 3 Years |
Businesses:
Businesses usually require 15 KW to 30 KW for solar energy systems. The following tables shows the different systems saving and payback period according to the system capacities.
| 15 KW Solar Panel | |
| Description | Value |
| Solar System Capacity (KW) | 15 |
| Annual Solar Unit Production (KWh) | 21,900 |
| Per Unit Charge (Off-peak) – (RS) | 20 |
| Savings (RS) | 439,800 |
| Payback Period | 4 Years |
| 20 KW Solar Panel | |
| Description | Value |
| Solar System Capacity (KW) | 20 |
| Annual Solar Unit Production (KWh) | 29,200 |
| Per Unit Charge (Off-peak) – (RS) | 20 |
| Savings (RS) | 586,400 |
| Payback Period | 3.5 Years |
| 25 KW Solar Panel | |
| Description | Value |
| Solar System Capacity (KW) | 25 |
| Annual Solar Unit Production (KWh) | 36,500 |
| Per Unit Charge (Off-peak) – (RS) | 20 |
| Savings (RS) | 733,000 |
| Payback Period | 3.5 Years |
| 30 KW Solar Panel | |
| Description | Value |
| Solar System Capacity (KW) | 30 |
| Annual Solar Unit Production (KWh) | 43,800 |
| Per Unit Charge (Off-peak) – (RS) | 20 |
| Savings (RS) | 879,600 |
| Payback Period | 3.5 Years |
It is to be noted that all the calculations are general and they can vary according to your needs and requirements as well as the system capacity you want to invest in. For more information, contact Bright Energy for a detailed payback and ROI breakdown. Our solar experts will recommend you tailor made suggestions.
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