Renewable Energy 29 (2004) 319–332

www.elsevier.com/locate/renene

Techno-economic evaluation of domestic solar

water heating systems in India
B. Chandrasekar, T.C. Kandpal

Centre for Energy Studies, Indian Institute of Technology Delhi, Haus Khaz, New Delhi 110016, India
Received 19 May 2003; accepted 11 June 2003

Abstract

The most wide spread thermal use of solar energy, so far, has been for water heating.
Solar water heating systems have been commercialized in many counties in the world.
Though the technical feasibility of domestic solar water heating systems (DSWHS) has long
been established, their financial viability needs to be carefully examined, particularly in trop-
ical countries with relatively lower annual capacity utilization and poor purchasing power of
potential users.
The potential number of Indian households who can invest in DSWHS have been esti-
mated based on the income distribution in the country, the capital cost of solar water heat-
ing systems, interest rate charged on the loan provided for the purchase of DSWHS etc.
Using the seasonal and diurnal variation of ambient temperatures at many locations in the
country, the periods with annual hot water requirement have been identified. A simple
framework for financial evaluation of DSWHS has also been presented. The results of some
typical exemplifying calculations have been presented and discussed.
# 2003 Elsevier Ltd. All rights reserved.

Keywords: Potential users; Domestic solar water heating systems; Capacity utilization; Techno-
economics

1. Introduction

Significant efforts have been made towards the development and dissemination
of domestic solar water heating systems (DSWHS) in India for the past two dec-
ades. The Government of India launched a demonstration program during 1980s

Corresponding author. Tel.: +91-11-265-91262; fax: +91-11-265-82037.
E-mail address: tkandpal@yahoo.com (T.C. Kandpal).

0960-1481/$ - see front matter # 2003 Elsevier Ltd. All rights reserved.
doi:10.1016/S0960-1481(03)00198-8
320 B. Chandrasekar, T.C. Kandpal / Renewable Energy 29 (2004) 319–332

for promoting DSWHS in the country. In order to promote the use of DSWHS, a
variety of financial incentives have been offered to the end users [1]. These include
capital subsidy, low interest loan, accelerated depreciation related benefit etc. How-
ever, the total collector area of DSWHS reportedly installed in the country so far
(0.60 million square meters till December 2001) is below the expected levels of pen-
etration. It is therefore critically important to study and analyze the role of differ-
ent factors contributing to the dissemination and use of DSWHS in the country.
A preliminary attempt to study the possible relationship between the seasonal
and diurnal variations in ambient temperature at a place and the need of hot water
for bathing has been made in this paper. The results obtained can be used to esti-
mate the expected capacity utilization of DSWHS for different locations in the
country. The income levels of the households directly affect their capacity to pur-
chase DSWHS. Using the income distribution of households in the country, the
capital cost of typical DSWHS, and the rate of interest on the loans provided to
the users to purchase DSWHS, the potential number of households who can use
DSWHS have also been estimated. From the above inputs as well as the prevailing
estimates for the costs and benefits of DSWHS in India, a detailed financial evalu-
ation has also been undertaken. The results of some typical calculations based on
the above analysis are presented and briefly discussed.

2. Techno-economic evaluation

One of the most critical factors in the dissemination of DSWHS is their financial
viability. The monetary benefits accrued to the end users would depend on the
amount and cost of fuel saved through the use of DSWHS. The efficiency of the
DSWHS largely depends on the system design, the availability of solar radiation
and ambient conditions. Another dimension of complexity in the financial evalu-
ation of DSWHS is the seasonal variation in the hot water demand of the house-
hold for bathing purpose. In tropical areas, hot water may not be required during
certain periods of the year. In such a situation, the effective capacity utilization of
the water heating systems may be much lower resulting in increased unit cost of
useful energy delivered by the DSWHS.
2.1. Determination of unit cost of useful thermal energy

Unit cost of useful thermal energy provided by a DSWHS can be determined as

the ratio of the total annual cost to the annual useful thermal energy delivered by
the system, i.e.,
(" # )
d ð1 þ d ÞT
þ m C0
ð1 þ d ÞT 1
UCute;s ¼ ð1Þ
fV qCp ðTf  Ti ÞN
where q represents the density of water, C0 the capital cost of the DSWHS, Cp the
specific heat of water, N the number of days in a year when the hot water is
 B. Chandrasekar, T.C. Kandpal / Renewable Energy 29 (2004) 319–332 321

delivered and required by the user (usually this depends on the design of the system
and its use), V the volume of daily hot water requirement of the household, f the
fraction of total annual useful energy requirement for domestic water heating pro-
vided by the solar energy, Tf the outlet temperature of the hot water, Ti the tem-
perature of inlet water to the tank, T the useful life of DSWHS, d the discount
rate, and m the operation and maintenance cost as a fraction of the capital cost.
The annual amount of fuel saved can be determined as

fV qCp ðTf  Ti ÞN
Fs ¼ ð2Þ
C v gf
where Cv represents the calorific value of the fuel substituted (saved) by the
DSWHS and gf the efficiency of utilization of the fuel for water heating. The mon-
etary worth of annual fuel savings (Mwfs) can be calculated using the relation
 
fV qCp ðTf  Ti ÞN
Mwfs ¼ pf ð3Þ
Cv gf

where pf is the unit price of fuel.

The net annual monetary benefits (Bna) can be expressed as
  
fV qVp ðTf  Ti ÞN
Bna ¼ pf  mC0 ð4Þ
C v gf

2.2. Different financial figures of merit for DSWHS

The cumulative present value of life cycle net benefits accrued to the end user
due to purchase and installation of DSWHS can be determined using the following
equation
Bpv ¼ Bna PWFðd; TÞ ð5Þ

where PWF(d,T) is the present worth factor for a discount rate d and the useful life
T of DSWHS. The above expression assumes that the net annual monetary benefits
accrued to the user is constant over the useful lifetime T of the DSWHS. However,
it is expected that price of fuel saved (pf) would escalate in future resulting in
increased monetary worth of annual fuel savings. The modified expression for the
cumulative present value of net benefits can be expressed as
"
#
0 Bna 1þe T
Bpv ¼ 1 ð6Þ
ðd  eÞ 1þd

where e is the annual rate of fuel price escalation.

The following expressions can be derived for the various figures of merit used for
evaluating the financial viability of an investment made on a DSWHS (without
considering the escalation in the price(s) of fuel(s) saved by the DSWHS).
322 B. Chandrasekar, T.C. Kandpal / Renewable Energy 29 (2004) 319–332

2.2.1. Simple payback period

The simple payback period (SPP) for a DSWHS can be determined as the ratio
of the capital cost to the net annual benefits accrued to the user i.e.,
C0
SPP ¼ ð7Þ
Bna

2.2.2. Discounted payback period

The discounted payback period (DPP) for a DSWHS can be determined using
the relation
lnðBna Þ  lnðBna  dC0 Þ
DPP ¼ ð8Þ
lnð1 þ dÞ

2.2.3. Net present value

The net present value (NPV) for DSWHS can be determined as the difference of
present value of net annual monetary benefits to the capital cost of the system. For
the case of uniform net annual benefits (Bna), the net present value (NPV1) can be
expressed as
S
NPV1 ¼ Bna PWFðd; TÞ þ  C0 ð9Þ
ð1 þ dÞT
where S is the expected salvage value of DSWHS at the end of its useful life.
For the case of non-uniform net annual benefits accrued to the user, the net
present value (NPV2) can be expressed as
!
XT
Bna;j S
NPV2 ¼ j
þ  C0 ð10Þ
j¼1
ð1 þ dÞ ð1 þ dÞT

where Bna,j represents the net annual benefits in the jth year.

2.2.4. Benefit to cost ratio

The benefit to cost ratio (B/C) for a DSWHS can be determined as the ratio of
net annual benefit to its capital cost. For the case of uniform net annual monetary
benefits (Bna) the benefit to cost ratio, (B/C)1, can be expressed as
S

Bna PWFðd; TÞ þ
B ð1 þ dÞT
¼ ð11Þ
C 1 C0
For the case of varying net annual benefits due to the use of DSWHS the benefit
to cost ratio (B/C)2 can be expressed as

PT Bna S

j¼1 j
þ
B ð1 þ dÞ ð1 þ dÞT
¼ ð12Þ
C 2 C0
Eqs. (11) and (12) represent the ratio of net benefits to the capital cost. The fol-
lowing expressions can be used to determine the ratio of the present value of total
 B. Chandrasekar, T.C. Kandpal / Renewable Energy 29 (2004) 319–332 323

life cycle benefits to the total life cycle costs. In the case of uniform annual mone-
tary benefits and costs the expression is
S

Mwfs PWFðd; TÞ þ
B ð1 þ dÞT
¼ ð13Þ
C 3 C0 ½1 þ mfPWFðd; TÞg
In the case of varying annual monetary benefits, it is

PT Mwfs;j S

j¼1 j
þ
B ð1 þ dÞ ð1 þ dÞT
¼ ð14Þ
C 4 C0 ½1 þ mfPWFðd; TÞg
where Mwfs,j represents the monetary worth of annual fuel savings, with subscript j
representing the specific year and m the fraction of capital cost required for annual
operation and maintenance of DSWHS. The annual operation and maintenance
cost of the DSWHS is assumed to be constant over the useful life period in all the
above four cases.

2.2.5. Internal rate of return

The internal rate of return (IRR) on the investment made by the user on a
DSWHS can be determined by equating the NPV to zero and then solving the
equation for the discount rate. For the case of uniform net annual monetary bene-
fits, it is determined by solving the equation
 
ð1 þ IRRÞT  1 S
Bna þ  C0 ¼ 0 ð15Þ
ðIRRÞ ð1 þ IRRÞT ð1 þ IRRÞT
For the case of varying net annual monetary benefits accrued due to DSWHS
the IRR is obtained by solving the following equation
X
T
Bna;j S
j
þ  C0 ¼ 0 ð16Þ
j¼1
ð1 þ IRRÞ ð1 þ IRRÞT

3. Hot water requirement based on seasonal variation of ambient temperature

at different locations

Hot water requirement for domestic purposes would essentially depend upon the
prevailing temperatures at a location. One of the primary uses of hot water in the
Indian households is for taking a bath in the early mornings or late evenings (in
some locations). In the present study, the case of morning baths have been con-
sidered as majority of Indian households prefer early morning bath (5–7 a.m.).
Though the water temperature required for taking the bath would vary with indi-
v
vidual preferences, water temperatures in the range of 32–35 C is reportedly pre-
ferred by majority of households. It is with this assumption that an attempt has
been made to determine the number of months in a year when hot water will be
required by households for different locations in India using the temperature data
324 B. Chandrasekar, T.C. Kandpal / Renewable Energy 29 (2004) 319–332

available from the Indian Metrological Department [2]. In this study, it is assumed
that if the average temperature between 5 and 7 a.m. is less than a pre-specified
temperature (Tspc), the household would require hot water for taking a bath. As
the value of Tspc would also vary from person to person, the analysis has been
v
made for six different values of Tspc. These are 20, 22, 24, 26 and 28 C.

4. Estimation of the potential number of households capable of investing

in domestic solar water heating

An attempt has also been made to estimate the potential number of households
who can afford to purchase and install DSWHS in India. This would essentially
depend upon the income levels of households in the country, capital cost of
DSWHS, and the number and timings of repayment installments. It is assumed
that the potential households would in general prefer availing the facility of low
interest loan for the purchase and installation of DSWHS. It is also assumed that
the loan is repaid in equal monthly installments. In such a case, the monthly repay-
ment installment (MRI) would depend on the capital cost, rate of interest charged
on the loan amount and the total number of repayment installments. The MRI can
be determined as
de ð1 þ de ÞN
MRI ¼ FC0 ð17Þ
ð1 þ de ÞN 1
where C0, represents the capital cost of DSWHS, F the fraction of capital cost
available as loan amount to the household, N total number of repayment install-
ments, and de the monthly interest rate. If the annual loan repayment amount is
less than a specified fraction of gross annual income of the household, it is con-
sidered capable of investing in the purchase of DSWHS.

5. Results and discussion

Using simple formulations presented in the above sections, some exemplifying

calculations have been made. Table 1 briefly presents the estimates of unit cost of
useful thermal energy provided by some of the conventional domestic water heat-
ing options. Since the cost of the equipment has not been taken into the calcula-
tions, the values of Ucut,e presented in Table 1 always underestimate the
corresponding actual values. However, the difference between the two values shall
not be significant for most commonly used appropriate domestic water heating
appliances.
It may be noted from Table 1 that the unit cost of useful thermal energy pro-
vided by different conventional options varies considerably. The efficiency of fuel
utilization and unit price of fuel used for water heating have maximum effect on
the unit cost of useful thermal energy delivered. The estimates of unit cost of useful
thermal energy delivered by the DSWHS are presented in Table 2. As expected, the
 B. Chandrasekar, T.C. Kandpal / Renewable Energy 29 (2004) 319–332 325

Table 1
Unit cost of useful energy for different conventional domestic water heating options
Fuel Unit (MJ/unit) Calorific value Utilization Unit price of fuel a
Ucut,e
efficiency (Rs/unit) (Rs./MJ)
kW h 3.6 0.9 3 0.93
Electricity 3.6 0.9 5 1.54
kW h
kg 45 0.6 16 0.59
LPG 45 0.6 25 0.93
kg
kg 45 0.4 7.5 0.42
Kerosene 45 0.4 14 0.78
kg
kg 16 0.1 1.5 0.94
Fuel wood 16 0.25 1.5 0.38
kg
m3 39 0.6 2.0 0.08
Natural gas
m3 39 0.6 2.5 0.11
a
Ucut,e represents unit cost of useful thermal energy.

Table 2
Unit cost of useful thermal energy delivered by a DSWHS
Capital cost Capacity utili- Unit cost of useful thermal energy delivered (Rs./MJ)
(Rs.) zation
d ¼ 0:06 d ¼ 0:08 d ¼ 0:10 d ¼ 0:12
15,000 0.1 2.55 2.87 3.21 3.56
0.2 1.27 1.43 1.60 1.78
0.3 0.85 0.96 1.07 1.19
0.4 0.64 0.72 0.80 0.89
0.5 0.51 0.57 0.64 0.71
0.6 0.42 0.48 0.53 0.59
0.7 0.36 0.41 0.46 0.51
0.8 0.32 0.36 0.40 0.45
0.9 0.28 0.32 0.36 0.40
20,000 0.1 3.40 3.82 4.28 4.75
0.2 1.70 1.91 2.14 2.38
0.3 1.13 1.27 1.43 1.58
0.4 0.85 0.96 1.07 1.19
0.5 0.68 0.76 0.86 0.95
0.6 0.57 0.64 0.71 0.79
0.7 0.49 0.55 0.61 0.68
0.8 0.42 0.48 0.53 0.59
0.9 0.38 0.42 0.48 0.53
25,000 0.1 4.25 4.78 5.34 5.94
0.2 2.12 2.39 2.67 2.97
0.3 1.42 1.59 1.78 1.98
0.4 1.06 1.19 1.34 1.48
0.5 0.85 0.96 1.07 1.19
0.6 0.71 0.80 0.89 0.99
0.7 0.61 0.68 0.76 0.85
0.8 0.53 0.60 0.67 0.74
0.9 0.47 0.53 0.59 0.66
326 B. Chandrasekar, T.C. Kandpal / Renewable Energy 29 (2004) 319–332

Fig. 1. Effect of discount rate on NPV and B/C.

unit cost of useful thermal energy delivered critically depends upon the total num-
ber of days when the DSWHS delivers hot water or is used by the investor. The
unit cost is comparable to that for the cheapest of the conventional water heating
options for high values of capacity utilization of DSWHS and/or low values of
discount rates.
The effects of discount rate used in the financial evaluation exercise, useful life of
the DSWHS, capital cost and the fraction of capital cost spent annually on oper-
ation and maintenance on the NPV and IRR are shown in Figs. 1–4, respectively.
The base values used in these calculations are given in Table 3. The curves showing
the effect of discount rate (Fig. 1) and useful life period (Fig. 2) can also be used in
analyzing the effect of availability of soft loan for the purchase and installation of

Fig. 2. Effect of useful lifetime on NPV and B/C.

 B. Chandrasekar, T.C. Kandpal / Renewable Energy 29 (2004) 319–332 327

Fig. 3. Effect of capital cost on NPV and B/C.

DSWHS. Fig. 3 illustrates the effect of capital subsidy on the NPV and the B/C.
As expected, there is a reduction in both the financial figures of merit with an
increase in the capital cost. One of the key factors, which influences the penetration
of new technologies, is the operation and maintenance cost of the system. Fig. 4
represents the effect of annual operation and maintenance cost (expressed as frac-
tion of capital cost) on NPV and B/C. The effect of net annual benefits accrued to
the end user of DSWHS on the NPV and IRR is illustrated in Fig. 5. One of the
important issues in the financial viability of DSWHS is the capacity utilization of
the system during the year. Due to seasonal change in the requirement of hot water
in many areas of the country, the effective utility of DSWHS to some users may be
limited (3–6 months of winter season only).

Fig. 4. Effect of annual operation and maintenance cost (as a fraction of capital cost) on NPV and B/C.
328 B. Chandrasekar, T.C. Kandpal / Renewable Energy 29 (2004) 319–332

Table 3
Base values used in calculations

Input parameter Symbol Unit Value

Capital cost C0 Rs. 20,000
Capacity V l/day 100
Useful lifetime T Years 10
Discount rate d Fraction 0.10
Annual repair and maintenance cost
m Fraction 0.02
(as a fraction of capital cost)
Unit cost of electricity – Rs./kW h 3
v
Initial temperature of water Ti C 15
v
Final temperature of water Tf C 60
Days of annual hot water requirement – Days 200

The effect of capacity utilization on the NPV and B/C is illustrated in Fig. 6.
Fig. 7 represents the effect of capacity utilization factor on SPP and DPP. The
results exemplify a linear reduction in the SPP and DPP with the increase in the
capacity utilization factor. In urban areas, the DSWHS usually save electricity.
Effect of cost of electricity to the user on the NPV due to investments made in
DSWHS is shown in Fig. 8. The effect of varying fuel price escalation rate on NPV
and IRR is shown in Fig. 9.
Table 4 presents the variation of early morning (5–7 a.m.) ambient temperatures
at different locations in the country. Obviously, the duration of the residential hot
water demand for taking a bath in the morning varies with the location as well as
the value of Tspc. For example, out of the 32 locations considered in the study, 19
v
locations would need hot water for 6 months in a year if Tspc is assumed at 22 C.
v
If Tspc is increased to 28 C, the hot water will be required for 12 months in a year
at 21 locations. The results presented in this table can be used for estimating the
capacity utilization of the DSWHS for a specified value of Tspc at a location.

Fig. 5. Effect of annual net monetary benefits on NPV and IRR.

B. Chandrasekar, T.C. Kandpal / Renewable Energy 29 (2004) 319–332 329

Fig. 6. Effect of capacity utilization factor on NPV and B/C.

Fig. 7. Effect of varying the capacity utilization factor on SPP and DPP.

Fig. 8. Effect of varying the unit cost of electricity on NPV and B/C.
330 B. Chandrasekar, T.C. Kandpal / Renewable Energy 29 (2004) 319–332

Table 4
Estimated period (months) of DSWHS at different locations in India
Locations Elevation (in Latitude Longitude Number of months in a year with temperature
meters) msla (N) (E) less than (during 5–7 a.m.)
v v v v v
20 C 22 C 24 C 26 C 28 C
23 530 91 150
v v
Agartala 16 5 6 7 12 12
23 040 72 380
v v
Ahmedabad 55 4 6 6 7 12
25 270 81 440
v v
Allahabad 98 5 6 6 7 9
31 380 74 520
v v
Amritsar 234 7 7 8 9 12
12 580 77 550
v v
Bangalore 921 7 9 12 12 12
21 450 72 110
v v
Bhavnagar 5 3 4 5 9 12
11 400 19 460
v v
Chennai 12 – 1 4 6 11
22 200 73 160
v v
Baroda 38 5 5 6 9 11
23 170 77 210
v v
Bhopal 523 5 6 8 9 10
24 450 84 570
v v
Gaya 116 5 5 5 5 11
15 290 73 490
v v
Goa 55 – 2 5 11 12
11 020 77 030
v v
Coimbatore 397 3 5 12 12 12
27 290 95 010
v v
Dibrugrah 111 6 7 7 9 12
17 270 78 200
v v
Hyderabad 545 4 6 9 10 11
24 460 93 540
v v
Imphal 781 7 9 12 12 12
22 430 75 480
v v
Indore 567 6 7 9 12 12
22 390 88 270
v v
Kolkatta 6 4 5 5 6 12
10 140 77 280
v v
Kodaikanal 2339 12 12 12 12 12
26 450 80 530
v v
Lucknow 128 5 7 7 8 10
12 550 74 530
v v
Mangalore 102 – – 6 12 12
19 070 72 510
v v
Mumbai 14 3 3 5 8 12
13 220 77 410
v v
Nandi Hills 1479 12 12 12 12 12
21 060 79 030
v v
Nagpur 310 4 6 7 10 11
28 350 77 120
v v
New Delhi 216 4 5 6 7 9
25 360 85 060
v v
Patna 60 5 5 7 7 11
11 400 92 420
v v
Port Blair 79 – – 1 12 12
18 320 73 510
v v
Pune 559 5 7 10 12 12
21 140 81 390
v v
Raipur 298 4 6 6 9 10
25 340 90 530
v v
Shillong 1600 9 12 12 12 12
8 290 76 570
v v
Trivandrum 64 – – 4 12 12
20 540 70 220
v v
Veraval 8 3 5 7 7 9
17 430 83 140
v v
Vizagpattnam 3 2 3 3 6 6
a
msl, mean sea level.

A nomograph for representing the effect of different input parameters on the

potential number of households using DSWHS in India is shown in Fig. 10. It
allows for a wide range of choices of the values of the input parameters and can be
used for a quick estimation of the potential number of households who can use
DSWHS in the country. The potential number of households using DSWHS
depends on the cost of the DSWHS (and consequently the amount of loan to be
taken by the end user), interest rate applicable on the loan amount, the number of
loan repayment installments and other factors such as availability of space for
 B. Chandrasekar, T.C. Kandpal / Renewable Energy 29 (2004) 319–332 331

Fig. 9. Effect of varying fuel price escalation rate on NPV and IRR.

installation, access to solar radiation, knowledge and motivation to purchase solar

water heating system, etc.
In order to decide about the capability of a household to purchase a DSWHS,
the equated monthly installment as obtained in Fig. 10(a) is multiplied by a certain
multiplication factor in Fig. 10(b) to provide the required annual income levels.
The values of the multiplication factor can vary from household to household
depending upon a variety of their socio-economic requirements and constraints.
These required income levels are then compared with the household income distri-
bution of the country [3] in Fig. 10(c) to provide the maximum number of house-
hold who can afford to invest in the purchase of a DSWHS. Finally Fig. 10(d)
provides the estimates for the potential DSWHS used in the country in view of the
fact that only a certain fraction of the total number of households obtained in Fig.
10(c) will be able to use the DSWHS due to limitations on availability and access
to solar radiation, motivation, etc. An example of using the nomograph is also
shown in Fig. 10 using thicker line with arrows. In this case loan of Rs. 20,000
with a repayment period of 4 years is considered, the corresponding equated
monthly installment is found to be Rs. 450 for a multiplication factor of 60, the
required annual income is Rs. 27,000 and the corresponding number of household
in India (1998) is 75.02 millions. If it is assumed that only 60% of these households
have access to solar radiation, the final potential number of households who can
use DSWHS in India is estimated to be 45 millions.

6. Conclusions

The study presented in this paper can be used to undertake a detailed techno-
economic evaluation of DSWHS. The paper also presents inputs for potential
332 B. Chandrasekar, T.C. Kandpal / Renewable Energy 29 (2004) 319–332

Fig. 10. Nomograph to determine the potential number of households who can use DSWHS in India.

assessment of using solar water heating system in India as well as for estimating
their capacity utilization.

References
[1] Ministry of Non-conventional Energy Sources. Government of India. Annual report 2001–2002. p.
50.
[2] Indian Metrological Department. Climatological tables 1951–1980, published by the Government of
India, 1999.
[3] National Council for Applied Economic Research (NCAER). India market demographics report
1998. p. 82.