Revamped MNRE scheme improves growth prospects for rooftop solar market

With attractive growth potential, the residential rooftop solar market is expected to pick up pace with gradual improvement in affordability, financial viability, consumer awareness, entry of large players as well as better policy implementation.

After the revamped scheme announcement, the market prospects have been improving gradually. The Indian government adopted an installation target of 4 GW for residential rooftop solar for December 2022. Thus, the outlook for the residential rooftop solar market is turning positive due to several favourable factors, says a report of Bridge to India, a solar energy consulting firm.

Country’s residential rooftop solar market failed to grow in line with utility scale solar and commercial and industrial rooftop solar segments. Residential category accounted for just 2.9 per cent and 17 per cent share of total solar capacity and total rooftop solar capacity respectively on a cumulative basis as of June 2021. Despite ambitious government targets and steady reduction in capital cost, annual installations were almost stagnant in the 100-200 MW range until FY20.

Only about 0.4 per cent of independent urban homes, equivalent to 0.4 million are estimated to have installed rooftop solar systems so far. Total residential rooftop solar capacity as of June 2021 was estimated at 1,292 MW. However, the launch of a revamped MNRE scheme in February 2020 has helped accelerate the market. Entry of larger players such as Tata Power, Mahindra and possibly, Reliance, is further expected to catalyse market growth.

Free net metering in most states also strengthens the investment case for residential rooftop solar. Average marginal tariff for a household with monthly consumption of 300 kWh in 15 states, accounting for 90 per cent of residential consumption, is ₹7.18/ kWh – effectively yielding an investment IRR of 8.3 per cent for 3 kW system.

Hurdles to installations

But there are some hurdles. The biggest one is consumer inhibition and low awareness about technical, financial and operational aspects of installations. Rooftop solar is not deemed as an essential purchase because of improving reliability of grid power.

A significant proportion of urban affluent population does not also have access to rooftop rights or is unwilling to make a long term cost commitment. Households attach a very high financial (ability to expand the building vertically) and/ or social value (space for leisure or games, utility needs) to rooftop, where available, restricting growth prospects.

The addressable market for residential rooftop solar systems is about 52 million households by 2030 (10 per cent of urban independent households), according to the report.

Net capital cost, after 40 per cent upfront subsidy from Union Ministry of New and Renewable Energy (MNRE) for systems under 3 kW, is currently estimated at ₹32,000 / kWp.

“Cost increases arising from rise in module cost, import duties and GST are also a potential dampener in the short-term,” it pointed out.

The Reserve Bank of India has included a loan limit of .₹10 lakh per household for installation of renewable energy equipment including solar PV systems under priority sector lending guidelines. In addition, Banks are also facilitating installation of rooftop solar plants for an individual household through various loan products including home loans and home improvement loans.

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