Rooftop Solar vs. Stock Market Investments: A Risk and Return Analysis

Getting a Rooftop Solar plant is definitely an investment and not an expense considering how it benefits the rooftop owner almost for a lifetime by saving on hefty electricity bills. And since it is an investment, let us see if it is even possible to compare it with investing in stock markets.

Does a Rooftop Solar plant give as great returns as the stock market? Is it safer or riskier than the stock market? Can anyone invest in solar just like the stock market?

Let us answer all the questions in this blog.

1. Who can invest in a Rooftop solar plant?

• Rooftop Solar

Individuals/consumers with a valid electricity connection and sufficient rooftop space for installing the solar panels.

• Stocks

Individuals with a valid bank and a Demat account.

2. What is the minimum amount you can begin investing in solar?

• ‍Rooftop Solar

1kW is the minimum rooftop solar capacity eligible for subsidy under the PM Surya Ghar Muft Bijli Yojana. For 1kW, the benchmark cost as set by MNRE is Rs. 50,000, and a subsidy of Rs. 30,000 can be availed. Hence, Rs. 20,000 is the minimum amount to invest in a rooftop solar. The cost will increase up to a few lakhs based on the size of the rooftop solar, components used, subsidies availed etc. One can understand more about the pricing here in our previous blog. But upfront cost is not as big a hurdle as it sounds like, since attractive financing options are easily accessible.

• ‍Stocks

One can invest in stocks with as low as Rs. 100 and eventually depending on the risk appetite one has for investing.

Although, the upfront investment can be significant, it has drastically come down with market penetration, growth, and availability of components. Also, with easy disbursement of Subsidies and financing options, it has become affordable to thousands of homeowners.

3. Do rooftop solar plants provide better ROI than stocks?

• ‍Rooftop Solar

Rooftop solar offers returns through savings on electricity bills. Assuming an average monthly electricity bill of ₹4,000, installing a 5-kW solar plant could save around ~₹45,000-47,000 annually. If we consider the lifetime of the solar plant to be 20 years, it will translate to savings of ~ Rs. 9 lakhs.

The return on investment (ROI) of solar panels is influenced by several factors, including the electricity rate/tariff in your area, the amount of energy your solar system can generate, and your payment method for solar installation. In short, the higher your energy costs, the greater the potential benefits of switching to solar energy. Additionally, the more energy you can produce with your rooftop solar plant, the more you can reduce your energy expenses and increase your ROI. The average ROI for residential solar installations is 10-15%.

Since the tariffs for commercial and Industrial consumers are higher, the ROI for these consumers is also higher ~25-40%. The higher the tariff, the greater the ROI. ‍

• ‍Stocks

Historically, the Indian stock market (e.g., Nifty 50) has provided annualized returns of 12–15% over the long term. For example, an investment of ₹3 lakh in a diversified equity mutual fund could grow to ₹15–18 lakh in 20 years, assuming an average return of 12%. On average, the stock market has produced an ROI of 10% per year for the last century. But the stock market requires certain observations and study to actually realize the returns. One cannot depend on stock tips and risk their hard-earned money. Even seasoned investors and traders suffer losses sometimes if not most of the time.  

Also, investing in the stock market for the long term can ensure the expected returns. Day trading again requires expertise and a huge appetite for risks. According to SEBI, 7 in 10 intraday traders in equity suffered losses in FY23 and the average number of trades by loss-makers was higher than the profit-makers.

The ROI of solar is almost guaranteed to be realized. On top of that, that energy bill will likely continue to increase with increasing electricity tariffs every year.

4. And what about the environmental impact?

• ‍Rooftop Solar

With rooftop solar, you are guaranteed to help the environment by reducing the demand for coal-based electricity. Solar power is absolutely a clean source of energy. More solar power means less mining for coal, lesser pollution from electricity generation and a cooler planet.

• ‍Stocks

Investing in companies that strive towards a cleaner and greener planet can make your investment green, for example investing in a renewable energy company, sustainable retail company, or impact investing company.

Rooftop solar is widely recognized as an environmentally friendly option. However, when considering investments in stocks, it's advisable to familiarize yourself with a company’s environmental goals and policies. This understanding can enhance the likelihood that your investment aligns with your desire to support a more sustainable planet, recognizing that not all companies may meet these standards.

5. What is riskier: Investing in Solar Plants or Stocks?

• Rooftop Solar Plant:

The risks associated with solar plants are technical, which in most cases with monitoring and maintenance can be avoided. There will be certain costs associated with repairs and maintenance, but they definitely won’t burn a hole in your pocket unless the rooftop solar plant is not maintained well.

There could be some policy and regulation changes, but however since the governments are usually pro-renewable energy, it is unlikely that there would be any drastic regulatory changes that will increase the risk of investing.

Other risks include earthquakes, cyclones, and other natural disasters. These are very subjective to your location and cannot be predicted. Typically, the structures are designed to withstand a speed of 180-200 km/hr to withstand the cyclone to a certain extent. In case of earthquakes if your house is built as per the codes, most likely the solar plant will also survive. However, these cases are extremely subjective, rare, and unpredictable since governments are usually pro-renewable energy, it is unlikely that any drastic regulatory changes. However, you can take a general insurance to cover your solar plant that coversnatural disasters

• Stocks:

The stock market is inherently volatile. Investments can yield high returns during bull markets but are equally prone to losses during downturns. For instance, during the COVID-19 crash in 2020, the Nifty 50 dropped by nearly 35% in a few months.

But if you have been investing in the stock market, you understand the volatility it carries and the returns it offers.

While there are risks involved in both avenues of investment, investment in solar still remains comparatively less risky than investing in the stock market.

Another way to look at both avenues of investment

Invest in both: Solar and Stocks. Let us understand how

Let us understand how much you spend every month on an electricity bill. Say with the help of subsidy and other incentives you were able to install a 5-kW solar plant and able to get a payback in 4 years.

Let us how much you can grow your money after the 4^th year if you invest the savings from solar into stock markets say for 20 years.

For example, let’s imagine that instead of wasting your money on energy you invested that amount into the stock market. If you invested Rs. 4000 per month every month (which is your current electricity bill) for 20 years, and if we assume a conservative 10 % ROI from the stock market, you can grow that amount up to 1 lakh instead of spending it on your electricity bills. Even if we consider the cost of repairs and replacement of items, it is still financially feasible.

Conclusion

When evaluating the average return on investment (ROI) of various options, a rooftop solar plant stands out as a strong contender. Compared to other investments with high ROI, rooftop solar plants carry fewer risks, offer steady rewards, and have a nearly guaranteed return. However, the key question remains: Is investing in solar panels worthwhile? Is it the right choice for you or your business? The answer varies for each individual or organization. One certainty is that solar panels can significantly reduce or even eliminate ongoing electricity expenses, which are ever-present and tend to increase over time.