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A Comprehensive Guide to Risks involved in selection of PV Installations and EPCs

With the enhanced environmental consciousness due to the fossil fuels use for power generation, the non-conventional energy sources are obtaining prominence. Solar photo-voltaic is gaining popularity in terms of a promising alternative and much more lucrative source of power generation, especially in the India power sector. Also, PV solar of­fers a profitable, long-term investment with comparatively low risk and hence the solar industry is thriving, but at the same time it is necessary to take into account the various  risks involved as well. This is an attempt to provide an overview of these key challenges and risks involved in the selection process of Solar PV installations and EPCs.

  1. System Efficiency & Equipment Warranties esp. solar panels & inverters

    Panels are guaranteed for 25 years and their efficiency (conversion capacity to convert sunlight to electricity) reduces on an average of 0.8% to 1 % per annum. Therefore typically, solar panels will degrade by 20 to 25 % by the end of the warranty period that manufacturers offer. It is important to note that most of the panels used in India for rooftop solar,  are imported from China due to cost.  Similarly inverters (the electrical equipment that converts the DC voltage produced by the Solar panels to AC voltage which we use) typically carry a warranty for 10 years. 

    Key risk: Ensure that panels and inverters are of reputed and well established brands, even if it results in slightly higher upfront costs. 25 years and 10 years is a long time and many fly by night companies who sell you the equipment may not exist when you may need to replace or service your equipment.
  2. Operations & Maintenance and Guaranteed Power Generation for the period of agreement

    Ensure that your contract with the supplier covers Operation and Maintenance and the installer warranties the Minimum Power units generated per annum. Many installers and companies may try to confuse with technical jargon about efficiency and plant load factor, and solar insolation, etc. but in the end it's all about how much power will be generated. Therefore, please ensure that you have an agreement based on per annum number of electricity units generated based on which you calculate savings and payback period. This assures that your installer will maintain your solar rooftop plant in good condition to ensure the generation.

    Key Risk:  Ensure that you don't get caught up in technical jargon but get a commitment on the number of units of electricity that your plant will generate per annum. Make sure your installer is a company that has been in business for at least 10 years, as your solar plant will operate for 25 years or more.
  1. Long term Performance

    The useful life of a typical Solar Power plant is considered to be 25 years. This is the duration for which long-term agreements are signed and financial models are built.  Solar Panel manufacturers guarantee an output of 90% at the end of 10 years and 80% at the end of 25 years. A regular Operation and Maintenance and monitoring schedule will ensure that all key performance parameters viz. cell temperature, power generated daily, monthly, and annually are as per the guaranteed values. 

    Key Risk:  Ensure MIS & Simulation reports of Power Generation are being recorded & shared on a monthly basis to track the actual plant performance. Insist for a Mobile Application based remote sensing system integrated with the Solar PV plant, so as to get a snapshot of the plant status at any point of time.
  1. Upfront Capital Investment & Payback period

    Typically, a rooftop solar PV system costs approximately Rs. 1,00,000 per kWp (kilowatt peak) including installation charges (without batteries). Accelerated depreciation (AD) of 80% is available under the Income Tax act which can provide significant savings. A ten year tax holiday is also provided by the Government. The average pay back period of a rooftop solar PV is between 5-6 years.

    Key Risk:  Ensure that the installer provides you the detailed breakup cost (panels, inverters, BOS, installation etc.) of the system, and calculation of the payback period, and approx. tax savings from AD in an exclusive sheet

The bottom line is it may be beneficial to replace the convention resources with solar but at the same the aforementioned needs to taken into account, while doing so.

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