NOTE:

1. If you invest 250000 lump sum in an equity MF and assume a reasonable 12% return, you will get 42,50,016/-. But you cannot call it an o
here's why:
The cash flow illustration shows you the amount of money you will save each year on electricity bills. That means you are getting the benefits right from year 1 wherea
you will reach 42 lakh only after 25 years. Getting benefits from year 1 means the time value of money is higher and therefore it carries an IRR of 25%-26%.

Before comparing it with mutual funds we need to first understand the nature of this investment. This table does not look like a compounding investment, it rather loo
instrument such as bonds that give you annual cash flows.

2. How is the total cash flow of 19.6 lakh giving 25% IRR and 42.5 lakh from a mutual fund only 12%?
Again, it's because of the time value of money. The benefits from solar panel will start coming from year 1 and let's say you first want to recover your initial investmen
take only 4 years. 5th year onwards you start saving almost 100% of your electricity bill. Had you not installed a solar panel, you would still be paying this money for el
saving this amount. If you start investing this saved amount every year in an equity mutual fund and assume a reasonable 12% return, you will get 68.7 lakh after 21 y
for the first 4 years).

This is what you can do if you start receiving the benefits early on and this is why the time value of money is higher. Because you now have even more opportunities to

It is just like that question:

If I am supposed to give you 1 lakh rupees, would you take it today or 10 years later?
If your answer is "today", then you understood the concept of the time value of money

3. AMC has not been considered in the following calculations because:

A. For the first 5 years it's free
B. 6th year onwards it will depend on factors such as inflation, and labor charges etc but it still remains a tiny fraction of the total savings and will not impact the IRR b
C. Many new robotic solutions are also in the works the world over, it may even get cheaper in future.

Year Units Produced Tariff (Rs/ Unit) Savings

0 (250,000)
Solar System Size 5 kW 1 7000 8.5 59500
Units Produced by 1 kW 1400 per kW per year 2 6951 8.8 60856
Annual Degradation 0.70% 3 6902 9.0 62240
4 6853 9.3 63652
Tariff 8.5 Rs/kWh 5 6804 9.6 65093
Tariff Escalation 3% p.a. 6 6755 9.9 66563
Cost 250,000 Rs 7 6706 10.1 68062
IRR 26% 8 6657 10.5 69592
9 6608 10.8 71152
10 6559 11.1 72743
11 6510 11.4 74366
12 6461 11.8 76020
13 6412 12.1 77707
14 6363 12.5 79426
15 6314 12.9 81179
16 6265 13.2 82966
17 6216 13.6 84786
18 6167 14.0 86641
19 6118 14.5 88532
20 6069 14.9 90457
21 6020 15.4 92419
22 5971 15.8 94416
23 5922 16.3 96451
24 5873 16.8 98522
25 5824 17.3 100631
. But you cannot call it an opportunity cost,
enefits right from year 1 whereas in the mutual fund
es an IRR of 25%-26%.

ounding investment, it rather looks like a fixed income

to recover your initial investment of 2.5 lakhs, it would

still be paying this money for electricity but now you are
you will get 68.7 lakh after 21 years (you didn't invest

have even more opportunities to utilize that money.

gs and will not impact the IRR by more than 1%.

 Monthly Consumption of
Month
home ( in KWh)
January 500
February 600
March 1000
April 1100
May 1100
June 900
July 800
August 800
September 800
October 500
November 500
December 400
Average Monthly Consumption 750
Monthly Solar Generation 116
Solar System Size Required 6.5

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