ECONOMIC VIABILITY ASSESSMENT OF ON-GRID PHOTOVOLTAIC SOLAR POWER PLANTS IN THE NORTH DISTRICT OF THE ANDAMAN AND NICOBAR ISLANDS

Abstract

This study investigates the economic viability of on-grid solar photovoltaic (PV) systems in the North District of the Andaman and Nicobar Islands through an integrated techno-economic and econometric framework. The analysis examines 15 grid-connected PV projects, ranging from 50 kW to 2 MW, incorporating project-level observations and technical and financial parameters covering 2015–2025. Economic feasibility is evaluated using Levelized Cost of Electricity (LCOE), Net Present Value (NPV), Internal Rate of Return (IRR), payback period, multivariate regression, and scenario-based sensitivity analysis. Results indicate an average LCOE of ₹12.5/kWh, considerably below diesel-based electricity generation costs of ₹25–30/kWh. Mean NPV reaches ₹18.4 million, while IRR averages 13.8%, exceeding the benchmark discount rate of 8%, with investment recovery occurring within 5–7 years. Log-linear regression identifies significant relationships between LCOE and capital expenditure (β = 0.233; p = 0.018), energy generation (β = −0.412; p = 0.003), and policy incentives (β = −0.071; p = 0.034), explaining 86% of observed variation (R² = 0.86). The NPV regression demonstrates substantial explanatory power (R² = 0.88). Sensitivity analysis reveals that LCOE varies between ₹10.8/kWh under optimistic conditions and ₹15.9/kWh under pessimistic scenarios. The findings establish the economic competitiveness of solar PV investments and emphasize capital-cost optimization, generation efficiency, targeted subsidies, and supportive institutional frameworks as essential strategies for reducing diesel dependence, improving energy security, and advancing sustainable electricity development in geographically isolated island economies.