Solar IRR and Payback for C&I in India, Real Math

ALMM and inverter compliance: MNRE’s current ALMM page publishes solar PV module and cell lists, not an inverter list. Verify the inverter’s exact model documents and applicable scheme or DISCOM requirements separately.

Every C&I decision-maker who asks “should we invest in solar?” eventually asks “what exactly is the return, and how confident can we be in that number?” This guide walks through a complete, honest IRR calculation for a 100 kW C&I system in India, line by line, including the accelerated depreciation tax shield that most solar sales pitches either ignore or overstate. Every input is an illustrative assumption, flagged as such, and the figures are pre-tax project returns, not a quotation or a forecast for your site.

Direct answer. An illustrative 100 kW C&I solar system in Karnataka: ₹55 lakh capex; 1,40,000 kWh annual generation; ₹6.90/unit energy charge avoided; 80% self-consumption; 40% accelerated depreciation tax shield of ₹5.5 lakh in Year 1. Simple payback: about 5.7 years (6.0 years on flat Year 1 savings). NPV over 25 years at an 8% discount rate: about ₹53 lakh. IRR: about 17.7%. The “5-Line C&I Solar Business Case” framework produces this number in five inputs. Every variable is explained and stress-tested below.

For the broader context of CAPEX vs OPEX decision-making, see solar CAPEX vs OPEX, which model fits your business India.

The Base Case: 100 kW System in Karnataka

All IRR and payback calculations start with credible input assumptions. Here are the specific assumptions for the worked example, with justification for each.

The 5-Line C&I Solar Business Case

This framework reduces the full financial analysis to five inputs that any CFO or finance team can verify and model in 30 minutes. Running the same numbers on a different roof size or tariff is faster with a dedicated solar financial modeling tool than rebuilding the spreadsheet each time.

The 5-Line C&I Solar Business Case

1. Annual Generation = System kW × Annual Specific Yield (kWh/kW/yr) = 100 × 1,400 = 1,40,000 kWh

2. Annual Savings = (Self-consumed kWh × Grid energy charge) + (Exported kWh × Export rate) = (1,12,000 × ₹6.90) + (28,000 × ₹4.5) = ₹7,72,800 + ₹1,26,000 = ₹8,98,800, or ₹8,23,800 after ₹75,000 of O&M

3. Year 1 Tax Benefit (Accelerated Depreciation) = 40% of CAPEX × Tax rate = ₹22,00,000 × 25% = ₹5,50,000

4. Effective Net CAPEX = Total CAPEX − Year 1 Tax Benefit = ₹55,00,000 − ₹5,50,000 = ₹49,50,000

5. Simple Payback = Effective Net CAPEX ÷ Annual net savings = ₹49,50,000 ÷ ₹8,23,800 = 6.0 years (about 5.7 years in the cash flow model below, where savings grow each year)

Step 5 divides by flat Year 1 savings, which gives 6.0 years. The 5.7-year figure used in this guide comes from the cash flow model below, where tariff escalation of 3% less 0.5% panel degradation lifts savings about 2.5% a year, so cumulative cash crosses zero early in the sixth year.

At Step 4, the effective net CAPEX after the Year 1 tax shield becomes the real economic cost of the investment: a ₹55 lakh asset with ₹5.5 lakh coming back as lower tax, if the company has taxable profit to absorb the deduction.

The Full 25-Year Cash Flow Model

Simple payback tells you when you recover the capital. IRR and NPV tell you the quality of the investment over its full life. Here is the simplified 25-year cash flow structure.

NPV at 8% discount rate: about ₹53 lakh

IRR: about 17.7% (pre-tax project IRR; about 18.0% if no inverter replacement is needed)

Note: The Year 12 inverter replacement is an assumption kept in the base case. Do not assume a warranty removes it: Qbits’ public datasheets describe an expandable warranty but do not define the base term or remedy, so treat any warranty effect as a sensitivity, not a base-case input.

17.7% IRR is the output for the base case 100 kW Karnataka system with the Year 1 depreciation shield. This exceeds the WACC of most Indian manufacturing companies (typically 10–15%) on these assumptions, but the margin narrows quickly in the conservative case below. Source: calculated in this article from the inputs in the base case table; the avoided energy charge is from the KERC order of 3 March 2026 as reported by ThePrint on 4 March 2026.

How the IRR Changes with Key Assumptions

Three variables most significantly affect the C&I solar IRR. This sensitivity analysis shows how the base case 17.7% IRR changes.

The financing row uses illustrative lender rates, not a quoted offer; see IREDA solar loans and each lender’s own page for current terms. A loan lifts the equity IRR only while the project IRR exceeds the interest rate, and it adds repayment risk.

The sensitivity table reveals two conclusions for decision-making:

1. The avoided tariff is the dominant variable: A facility that avoids ₹9/unit instead of ₹6.90 gains about 5 percentage points of IRR. Check which parts of your bill solar actually reduces: energy charges fall with every solar unit, but a fixed per-kVA demand charge largely does not. This is the same tariff-escalation dynamic covered in electricity tariff hikes in 2026.

2. Self-consumption is the operational driver: A facility that can shift load to daytime hours (running compressors, mills, or pumps during solar hours) adds about 4 percentage points of IRR between 50% and 90% self-consumption by converting export income (₹4.5/unit) to self-consumption savings (₹6.90/unit).

Accelerated Depreciation: The Tax Shield Calculation in Detail

Accelerated depreciation is the most misunderstood (and most debated) element of the C&I solar business case, and many articles still quote an old 80% rate.

The legal basis: Solar power generating equipment is depreciated under the Income-tax depreciation rules (Section 32 of the Income Tax Act, 1961, with the rate set in the rules and carried into the Income-tax Act, 2025; confirm the current section and rate). The rate for renewable energy devices, including solar, is 40% on a written-down-value basis. It was higher (80%) in earlier years, so older articles and EPC proposals may still show 80%; check which rate your proposal uses.

The mechanics (base case):

• Total asset cost: ₹55,00,000
• Year 1 depreciation claim: ₹22,00,000 (40%)
• Remaining WDV after Year 1: ₹33,00,000
• Year 2 depreciation: ₹33,00,000 × 40% = ₹13,20,000, with a further tax saving of ₹3,30,000 that this model does not count
• Tax saving in Year 1 (at 25% rate): ₹22,00,000 × 25% = ₹5,50,000

This ₹5.5 lakh tax saving arrives in the Year 1 advance tax or the annual return, reducing effective capex to ₹49.5 lakh. If the plant is used for fewer than 180 days in the financial year, the first-year depreciation rate is halved. The “without depreciation” case in the sensitivity table drops only the Year 1 shield, so it understates the value of ordinary depreciation in later years; the true effect of accelerated depreciation is mostly one of timing.

See solar inverter depreciation in India for the full breakdown of depreciation rules applicable to solar equipment under both IT Act and Companies Act.

Stress-Testing the Business Case: Conservative vs Base vs Optimistic

Any credible IRR model should be stress-tested across three scenarios.

Even in the conservative scenario the model returns about 12%, which is near the lower end of the 10–15% hurdle rate many Indian manufacturers apply, so a low-tariff, no-escalation case is marginal rather than compelling. In the base and optimistic scenarios, solar compares well with typical corporate hurdle rates, but these are illustrative modelled results, not market statistics.

Building the Business Case for Internal Approval

For CFOs and plant managers who need to present the solar business case internally, the 5-Line C&I Solar Business Case framework provides the structure. Attach these three supporting documents:

1. Site survey report with generation estimate: monthly generation projections from a PVSyst or equivalent simulation, not rule-of-thumb calculations, ideally backed by a proper site survey and land feasibility assessment before the numbers go to the board
2. EPC bid comparison: using the 15-Point EPC Bid Scorecard to document the selection rationale
3. Tax treatment confirmation: written advice from the company’s qualified tax professional using the current asset classification, rate, eligibility and business facts

This package makes the solar decision defensible to the board or investment committee, reduces approval time, and creates a clear success metric (actual generation vs projected) for post-implementation review. Once the model is approved internally, translating it into a formal client-facing proposal is faster with a quotation system built for solar sales than re-keying the same numbers into a generic document.

Where Qbits Fits in the C&I IRR Model

• C&I Solutions: Ask which project services are available and obtain the responsible party, deliverables, exclusions and fees in writing.

• Download Datasheets: Technical specifications for the IREDA financing application and banker review.

Contact Qbits with the site, load, equipment and document details relevant to this guide. Confirm the responsible party, deliverable, commercial scope and response time after submission.