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Economics of Replacing Diesel Gensets with Solar Power
The drive today in India for solar as a replacement/substitute for diesel gensets based power generation is mainly because one unit of power from diesel genset costs Rs 16-18/unit while the same from solar PV systems cost less than half.
That is, solar power costs less than half that of power from diesel gensets.
In some cases, cost of diesel genset-based power could be as high as Rs 40 per unit (yes Rs 40!), as in the case of niche sectors like telecom towers. Why is it so high for these sectors? When EAI did a study on the telecom sector along with Greenpeace, we found that this was owing to the difficulty remote towers had while procuring and transporting diesel, as well as because of the pilferage that happens at these towers.
While such economics is indeed enticing, it does not present the entire story when it comes to actual costs of solar power vis-a-vis that of diesel.
This blog post provides more details on how much a prospective user of solar power can expect to reduce diesel consumption, and as a consequence, benefit in terms of savings and payback.
Part of the content for this post was derived from Solar Mango – the Rooftop Solar resource.
The financial returns from substituting diesel with rooftop solar have to be calculated carefully because they have very different cost structures
- Diesel generator – The initial cost of the system is low but running cost (both fuel and maintenance) is high
- Rooftop solar PV –Initial investment is high but running cost is very low
In order to compare the costs involved with both options, we model the expenses involved in both cases in a cash flow statement over the life of the PV plant (25 years). Any savings in expenditure over diesel power is treated as ‘revenue’ for the solar plant. The resulting cash flow is then used to calculate financial metrics such as IRR and payback period.
|One of the factors to be considered when estimating the economics of rooftop solar as a substitute for diesel is the timing of load-shedding
RETURNS UNDER DIFFERENT SCENARIOS
Using specific assumptions, the team at EAI modelled the amount of diesel that could be saved by rooftop solar for three scenarios – Pessimistic, Likely and Optimistic.
With key factors taken into consideration for modelling different scenarios, we estimated the returns from partial substitution of diesel with rooftop solar for a 100 kWp system under varying proportions of diesel substitution (10% diesel substitution means 10% of solar power will substitute diesel, and the remaining 90% will substitute grid power), price, and diesel cost escalation. The results from our analysis are given below.
|Scenario||Capital cost(Rs. Lakhs)||Diesel price escalation (%)||Diesel substitution (%)||Project IRR
|Payback period (Years)|
Both the likely and optimistic scenario offer attractive returns; the pessimistic scenario offers a fairly good IRR but has a rather long payback period.
Please note that these calculations are only indicative in nature and are based on a number of assumptions. However, it should be quite clear to the reader that the payback periods might not be exceptionally great (such as less than a year) even for large users of diesel gensets.
The likely payback period for using solar power under current technological state is thus about 5 years. This payback period is almost certain to improve over the next 2 years as the costs of solar power systems come down and the effectiveness of solar inverters to more intelligently integrate with diesel gensets increases.
EAI’s Diesel to Solar Report – The one and only such report in the world
EAI has published a unique report to assist those keen on using solar power to offset their diesel consumption.
To know the detailed inputs and analysis of using rooftop solar to reduce diesel consumption, you can also refer to this comprehensive report EAI has published. The Diesel to Solar report is a comprehensive guide to implementing a rooftop solar system to reduce diesel consumption for power.
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