How to Create a Passive Income Stream by Investing in a 1 MW Solar Plant in Andhra Pradesh

Our article Why invest in Solar in India discusses in detail about the current opportunity in Solar sector in India and in leading solar states such as Andhra Pradesh

There are few business models that solar investors/developers could choose from when it comes to investing in Solar in India, our article Business models in Solar in India discusses these models in detail

REC is the preferred model because it is more profitable until 2017 as RECs are trading at ₹ 9.3/kWh, you could check the latest REC trading data at Indian Energy Exchange

For our business case let’s consider FIT(Feed-in-Tarif) model as this model is guaranteed income though it might not be as profitable as REC model

Andhra Pradesh has issued an open solar bid for procuring electricity at ₹ 6.49 per KWH(Unit) from Solar developers who are interested in setting up solar plants in AP

For simplicity sake lets analyze the economics involved in setting up and making a 1 MW Solar plant profitable in AP

Financial Facts

Cost of setting up a 1 MW Solar plant in AP ₹6.5 Crores
Equity Investment: 25% – ₹1.625 Crores
Term Loan: 75% – ₹4.875 Crores
Loan Tenure: 12 years
Interest Rate: 10% – From SBI
Yearly Interest and Financial Charges ₹48.75 Lakhs
Operations & Maintenance Cost ₹38.75 Lakhs
Insurance Charges 0.10% – ₹6.5 Lakhs

Source: CREC Tariff Regulations 2014 Adjusted for 1MW plant in AP

1 MW plant produces around 17.13 Lakh units per year, this number is arrived based on the fact that in AP conditions 1KW generates 5.71 units per day multiplied by 300 sunny days in an year

Total Revenue = 17.13 * ₹ 6.49 (FIT Rate) = ₹1.11 Crore
Total Expenses = ₹45.25 Lakhs (O&M + Insurance Cost)

PBIDT(Profit Before Interest, Depreciation and Taxes) = ₹65.75 Lakhs

Financial Charges = ₹48.75 Lakhs

PBIDT(Profit Before Depreciation and Taxes) = ₹17 Lakhs

Book Depreciation(3.6%) = ₹23.4 Lakhs
PBT(Profit Before Taxes) = (₹ 6.4 Lakhs)
Alternate Minimum Tax(20%) = ₹3.4 Lakhs

PAT(Profit after Tax) = ₹13.6 Lakhs*
Project IRR(Return on Investment) = 8.4%
Payback Period = 12 Years

*We haven’t added Accelerated depreciation benefits(80%), O&M escalation (5.72%) and Solar PV Output degradation of 0.8% per annum

Above financial analysis gives you a good idea on profitability of a solar plant, It is very lucrative if you have a large cash flow business and you can get a one time benefit of AD by setting up a solar plant

Solar plant provides an 8.5% guaranteed annual return for first 12 years, which is decent, considering the absence of risk as in other businesses and this model is immune to market conditions

From Year 12 – Year 20 cash flow increases by 400%

Also, see how you can earn up-to 15% by investing in Rooftop Solar Plants

Are you planning on setting up a solar plant in AP? We offer end-to-end solar plant services with Project management and EPC services for solar projects from KW to MW scale, Visit our end-to-end solar plant services for details

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One thought on “How to Create a Passive Income Stream by Investing in a 1 MW Solar Plant in Andhra Pradesh

  1. Myths about Solar Power in Indian Market – Maharshi Solar Powertech's Blog

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