The residential rooftop solar category is expected to witness an acceleration in new installations in the near term, helped by a strong policy push and resurgent market demand.

The rooftop solar segment is expected to fall short of its December 2022 capacity target as it had added only about 12 GW as of March 2022 (as against the target of 40 GW). The residential category’s share was minuscule at about 2GW.

“However, the residential rooftop solar segment is on the cusp of a robust growth phase now. From the 2GW cumulative installed capacity (as of FY22), the residential market will likely reach 3.2GW by FY23. Enhanced policy incentives and advancement in the demand and supply side of the market will lead to a 60 per cent year-on-year rise in installations,” according to a new report by the Institute for Energy Economics and Financial Analysis (IEEFA) and JMK Research.

New scheme

The new subsidy scheme (introduced by the Central Government in July 2022) has the potential to significantly catalyse the growth of the installed capacity in the residential segment. For the first time, the central government will be offering a subsidy for residential rooftop solar systems of 10kW and greater capacity. For any qualifying system, the government will provide a fixed subsidy amount of ₹94,822.

In addition, the new CFA scheme will allow residential consumers to buy rooftop solar systems from any registered supplier of their choice.

This broadens consumers’ options for quality products and services. Further, the provision of the DBT mechanism will help smooth the subsidy disbursal process as it removes the DISCOM from the subsidy equation, it said.

Apart from government subsidies, other key drivers of the demand include the growing need to save on electricity costs and rising awareness among residential consumers.

Considerable savings

Rooftop solar promises considerable annual cost savings (about 25 per cent or more) on their electricity bills in the residential segment. Also, for some states, the cost of consuming power (in per kilowatt-hour (kWh) terms) generated from residential rooftop solar systems is substantially lower than procuring grid-based power from the local DISCOM. Also, grid tariffs for residential consumers are likely to become more expensive.

Payback on the investment for residential rooftop solar systems varies across states according to the respective grid tariff rates. For a 1kW non-subsidised, residential rooftop solar plant, the payback period varies from 3.2 years (Maharashtra) to 7.1 years (Delhi). In addition, the payback periods decrease substantially if the central and state-level subsidies are considered.

System costs

Currently, a residential rooftop solar system costs between ₹45,000/kW and ₹65,000/kW. The variation in system costs primarily depends on the type of solar module. In subsidy-linked systems using DCR modules, the cost of a rooftop system (before subsidies) varies between ₹45,000/kW and ₹50,000/kW. For subsidy-free systems using high-quality non-DCR modules, the cost will range between ₹50,000/kW and ₹65,000/kW, it said.

Considering the availability and disbursal of subsidies in different states along with other factors, such as net metering approvals, the three most favourable states for residential rooftop solar installations are Gujarat, Haryana, and Maharashtra.

Gujarat’s SURYA scheme, which saw 1.1GW installed in the state in the last 18 months, is one of the shining examples for other regional markets to emulate, it stated.