#net present value

Is Purchasing Solar Water Heater Beneficial Economically Especially Considering Initial Investment?

Solar water heaters use solar energy to heat water for domestic or commercial purposes. Is purchasing solar water heater beneficial economically especially considering initial investment?,They consist of a solar collector that absorbs sunlight and transfers it to a fluid and a storage tank that stores the hot water for later use. Solar water heaters can be active or passive, depending on whether they use pumps or natural circulation to move the fluid. They can also be either flat plate or evacuated tubes, depending on the type of collector they use.

Solar water heaters are becoming increasingly popular in India, as they offer many benefits to the users and the environment. According to a report by Greentech Knowledge Solutions, the solar water heater market in India was estimated at 6.1 million square meters in 2017, and is projected to grow at a compound annual growth rate (CAGR) of 15% till 2022. The report also states that the potential demand for solar water heaters in India is 181.5 million square meters by 2022, which is equivalent to 127 GW of installed capacity.

But is purchasing solar water heater beneficial economically especially considering initial investment? This is a common question that many people have before deciding to buy a solar water heater. In this article, we will try to answer this question by looking at the various benefits and costs of solar water heaters, and how to calculate their return on investment.

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Benefits of Solar Water Heaters

Solar water heaters have many benefits, such as:

Energy Savings

One of the main benefits of solar water heaters is that they can reduce electricity consumption and bills by using free and renewable solar energy to heat water. According to a study by The Energy and Resources Institute (TERI), a typical household in India can save up to 1500 kWh of electricity per year by using a solar water heater of 100 liters capacity. This translates to an annual saving of about Rs. 12,000 on electricity bills, assuming an average tariff of Rs. 8 per kWh.

Solar water heaters can also reduce peak load demand and avoid power cuts, as they reduce the dependence on conventional electricity sources for heating water. This can improve the reliability and quality of power supply, and also reduce the need for expensive diesel generators or inverters.

Environmental Benefits

Another benefit of solar water heaters is that they can reduce greenhouse gas emissions and air pollution by replacing fossil fuels or conventional electricity sources for heating water. According to TERI, a typical household in India can avoid emitting about 1.5 tonnes of carbon dioxide per year by using a solar water heater of 100 liters capacity.

Solar water heaters can also contribute to climate change mitigation and adaptation efforts, as they reduce the vulnerability of the users to rising fuel prices and extreme weather events. They can also help in achieving the national and international targets for renewable energy and emission reduction, such as the National Solar Mission and the Paris Agreement.

Social Benefits

Solar water heaters can also create local jobs, improve healthcare and communications, and drive local commerce through the market and industry they build at the local level. According to a report by International Renewable Energy Agency (IRENA), the global solar thermal industry employed about 672,000 people in 2015, and is expected to create more jobs in the future as the demand for solar water heaters increases.

Solar water heaters can also enhance energy security and access for rural and remote areas, where grid electricity or fossil fuels may not be available or affordable. They can provide hot water for various purposes, such as cooking, bathing, washing, cleaning, sterilizing, etc., which can improve the quality of life and health of the people.

Costs of Solar Water Heaters

Solar water heaters have some costs, such as:

Initial Investment

One of the main costs of solar water heaters is their higher upfront cost than conventional water heaters, depending on the type, size, quality, and installation of the system. They also require additional components, such as pumps, controllers, pipes, valves, etc., which add to the initial cost.

According to MNRE, the average cost of a solar water heater of 100 liters capacity ranges from Rs. 15,000 to Rs. 35,000 for flat plate systems, and from Rs. 25,000 to Rs. 45,000 for evacuated tube systems. The cost may vary depending on the location, manufacturer, dealer, etc.

Maintenance and Operation

Another cost of solar water heaters is their regular maintenance and cleaning to ensure optimal performance and durability. They may also need backup systems or supplementary heating in case of low solar radiation or high hot water demand. These costs may include:

Cleaning the collector and the tank periodically to remove dust, dirt, bird droppings, etc.

Checking and replacing the fluid, valves, pipes, pumps, controllers, etc., as per the manufacturer's instructions.

Providing adequate insulation and protection for the system from weather, theft, vandalism, etc.

Using an electric or gas heater to supplement the solar water heater during cloudy days or peak hours.

According to MNRE, the annual maintenance cost of a solar water heater of 100 liters capacity is about Rs. 500 for flat plate systems, and Rs. 300 for evacuated tube systems. The cost may vary depending on the usage, location, service provider, etc.

Return on Investment of Solar Water Heaters

The return on investment of solar water heaters can be calculated by considering the benefits and costs mentioned above. The return on investment can be expressed in terms of payback period or net present value.

Payback Period

The payback period is the time required to recover the initial investment of a solar water heater through savings on electricity bills. It can be calculated by dividing the initial investment by the annual savings.

For example, let us assume that a household in Coimbatore buys a flat plate solar water heater of 100 liters capacity from Jupiter Solar, a leading manufacturer and supplier of solar water heaters in India. The cost of the system is Rs. 25,000 (including installation), and the household gets a capital subsidy of Rs. 6,600 from MNRE. The net initial investment is Rs. 18,400.

The household uses 100 liters of hot water per day at an average temperature of 60°C. The electricity tariff is Rs. 8 per kWh. The annual electricity consumption for heating water using an electric geyser is 1500 kWh. The annual electricity bill for heating water using an electric geyser is Rs. 12,000.

The annual electricity consumption for heating water using a solar water heater is negligible (assuming sufficient solar radiation and backup system). The annual electricity bill for heating water using a solar water heater is zero.

The annual savings on electricity bills by using a solar water heater is Rs. 12,000.

The payback period of the solar water heater is:

Payback period = Initial investment / Annual savings = Rs. 18,400 / Rs. 12,000 = 1.53 years

This means that the household can recover its initial investment in less than two years by using a solar water heater.

Net Present Value

The net present value (NPV) is the difference between the present value of the benefits and the present value of the costs of a solar water heater over its lifetime. It can be calculated by discounting the future cash flows by a suitable discount rate.

Return on Investment of Solar Water Heaters

The return on investment of solar water heaters can be calculated by considering the benefits and costs mentioned above. The return on investment can be expressed in terms of payback period or net present value.

Payback Period

The payback period is the time required to recover the initial investment of a solar water heater through savings on electricity bills. It can be calculated by dividing the initial investment by the annual savings.

For example, let us assume that a household in India buys a flat plate solar water heater of 100 liters capacity from a leading manufacturer and supplier of solar water heaters in India. The cost of the system is Rs. 25,000 (including installation), and the household gets a capital subsidy of Rs. 6,600 from MNRE. The net initial investment is Rs. 18,400.

The household uses 100 liters of hot water per day at an average temperature of 60°C. The electricity tariff is Rs. 8 per kWh. The annual electricity consumption for heating water using an electric geyser is 1500 kWh. The annual electricity bill for heating water using an electric geyser is Rs. 12,000.

The annual electricity consumption for heating water using a solar water heater is negligible (assuming sufficient solar radiation and backup system). The annual electricity bill for heating water using a solar water heater is zero.

The annual savings on electricity bills by using a solar water heater is Rs. 12,000.

The payback period of the solar water heater is:

Payback period = Initial investment / Annual savings = Rs. 18,400 / Rs. 12,000 = 1.53 years

This means that the household can recover its initial investment in less than two years by using a solar water heater.

Net Present Value

The net present value (NPV) is the difference between the present value of the benefits and the present value of the costs of a solar water heater over its lifetime. It can be calculated by discounting the future cash flows by a suitable discount rate.

For example, let us use the same assumptions as before, and assume that the discount rate is 10% per annum, and the lifetime of the solar water heater is 15 years. The future cash flows are:

Year 0: -Rs. 18,400 (initial investment)

Year 1 to 15: +Rs. 12,000 (annual savings)

The NPV of the solar water heater is:

NPV = -Rs. 18,400 + Rs. 12,000 / (1 + 0.1) + Rs. 12,000 / (1 + 0.1)^2 + ... + Rs. 12,000 / (1 + 0.1)^15 = Rs. 55,472

This means that the household can earn a net profit of Rs. 55,472 by using a solar water heater over its lifetime.

Comparison with Other Alternatives

The return on investment of solar water heaters can be compared with other alternatives, such as electric geysers or gas heaters, to see which option is more economical and beneficial.

For example, let us assume that an electric geyser costs Rs. 5,000 (including installation), consumes 2 kWh of electricity per day, has a lifetime of 10 years, and requires no maintenance or operation cost. The payback period and NPV of the electric geyser are:

Payback period = Initial investment / Annual savings = Rs. 5,000 / Rs. 0 = Infinity

NPV = -Rs. 5,000 + Rs. 0 / (1 + 0.1) + Rs. 0 / (1 + 0.1)^2 + ... + Rs. 0 / (1 + 0.1)^10 = -Rs. 5,000

This means that the electric geyser never pays back its initial investment and has a negative net value.

Similarly, let us assume that a gas heater costs Rs. 10,000 (including installation), consumes 2 kg of LPG per day at a price of Rs. 50 per kg, has a lifetime of 10 years, and requires no maintenance or operation cost. The payback period and NPV of the gas heater are:

Payback period = Initial investment / Annual savings = Rs. 10,000 / Rs. (-36,500) = -0.27 years

NPV = -Rs. 10,000 + Rs (-36,500) / (1 + 0.1) + Rs (-36,500) / (1 + 0.1)^2 + ... + Rs (-36,500) / (1 + 0.1)^10 = -Rs. 2,02,857

This means that the gas heater pays back its initial investment in less than a year, but has a very negative net value.

From the above calculations, it is clear that the solar water heater has the highest return on investment among the three options, and is the most economical and beneficial choice for heating water.

Conclusion

In this article, we have tried to answer the question of whether purchasing solar water heater is beneficial economically especially considering initial investment. We have looked at the various benefits and costs of solar water heaters, and how to calculate their return on investment. We have also compared the solar water heater with other alternatives, such as electric geysers or gas heaters.

We have found that solar water heaters have many benefits, such as energy savings, environmental benefits, and social benefits. They also have some costs, such as initial investment, maintenance and operation, and subsidies and incentives. However, the benefits outweigh the costs, and the solar water heater has a high return on investment in terms of payback period and net present value.

We have also found that solar water heaters are more economical and beneficial than electric geysers or gas heaters, which have low or negative return on investment.

Therefore, we can conclude that purchasing solar water heater is beneficial economically especially considering initial investment, and we recommend that potential buyers consider this option for heating water.

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