Why Financial Feasibility matters

Why Financial Feasibility Matters

-Rikesh Mathew

Why Financial Feasibility matters

Putting aside other reasons like energy security or environmental impact, for any project, you want to ensure that it is profitable  because it’s your hard earned money – so you must make informed decisions. You have to remember there are just 3 important factors which determines the profitability of your investment in solar:

1. Cost from Solar Installers

The quotes you get from your local solar installer is inclusive of a consortium of costs – not just for major raw materials like Solar modules and inverters but even costs for installation and soft costs like system design, margins etc. Now, although you have no access to such data, general break up of costs can be found through market data analysis for world markets per kW of power output. It is mainly due to the soft costs and raw material selection that you get quotes with different installers. All the more reason to approach multiple installers. 

General Cost Breakdown for Solar PV, USA

2. Price of Electricity

Price of electricity is dependent on location, different states within the same country can be seen to have vastly different prices for electricity. For example, in the US, the price of electricity in Louisiana is 9.37 ¢/kWh (Apr 21) as opposed to Hawaii which stands at roughly three times the value – 32.76 ¢/kWh (Apr 21). When it comes to solar though, having a high electricity price is not a bad thing.

Why? 

This is the price you are going to be offsetting through your energy requirements by using solar. So more the price, the more money you didn’t have to spend paying your monthly electricity bills. In simple terms – High electricity price is good, Low electricity price is bad.

3. Energy Production

This is the amount of energy you are going to be producing using your Solar PV system. This can work for you or only slightly for you if you are not careful. You have to keep in mind that in most places, they apply a principle of ‘Net Metering’. What that means is that your utility company has to buy any excess energy produced by your panels.

Now why would that be so bad?

For the very simple reason that the price at which you buy electricity from the grid is not at the same price as when you sell the electricity produced by your panels. The price being larger for the former than latter. So sizing the system is key unless you want to oversize it for off-grid usage.

You don’t want to produce huge excesses of energy – this will yield poor economic metrics and make your investment worth lesser in terms of Return on Investment (ROI) and leads you to a higher Payback Time (PBT). 

Read my Blog on “6 Great Reasons to use PVsyst

Key Parameters to Look out for

Total Investment Costs

This will be the total costs for the whole system as quoted by your solar installer.

Operational Costs

This will be the yearly maintenance costs that you can expert to incur for your system

Return on Investment

This will be the cumulative cash return you get as a percentage of capital expenditure. Higher the ROI, better the project

Payback Time

Time taken to get back the money invested in the project.

Net Present Value (NPV)

The value of all future cashflows (negative and positive) over the entire life of the project.

Internal Rate of Return

The compound annual growth rate

The core for why financial feasibility matters is that you make informed decisions for investing in any project with your hard-earned cash. This blog details…The core for why financial feasibility matters is that you make informed decisions for investing in any project with your hard-earned cash. This blog details…

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  1. Pingback: A Case for Solar PV | Rikesh Mathew

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