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Discoms’ rooftop moment

Arjun Dutt/ Neeraj Kuldeep | Updated on April 10, 2018 Published on April 10, 2018

Far from being a threat, the rooftop solar revolution is a big opportunity for DISCOMs to cash in on

India’s rooftop solar ambitions are yet to gather momentum. Incentives offered by the Ministry of New and Renewable Energy (MNRE) in the form of capital subsidies and a net metering policy, which allow consumers to sell excess power to distribution companies (DISCOMs), have failed to catalyse rapid deployment.

Capacity addition in rooftop solar stood at around 870 megawatt (MW) in 2017, as compared to the targeted 5,000 MW for FY 2017-18. As of December 2017, cumulative rooftop solar installed capacity was only 1.6 GW. At the current pace of deployment, rooftop solar installations are unlikely to cross even 10 GW by 2022, far short of the targeted 40 GW under India’s National Solar Mission.

While the 2018-19 Union Budget remained silent on the support for the rooftop solar sector, the recent announcement of the proposed Sustainable Rooftop Implementation for Solar Transfiguration of India (SRISTI) scheme indicates that the government has not given up on the rooftop solar sector just yet. The SRISTI scheme is an evolutionary step towards a DISCOM-driven model of rooftop solar adoption. Could this scheme incentivise DISCOMs to lead a rooftop solar revolution?

Jobs potential

The scaling up of rooftop solar offers great socio-economic benefits. As per estimates by the Council on Energy, Environment and Water (CEEW) and the Natural Resources Defense Council (NRDC), the deployment of rooftop solar creates 24.7 full-time equivalent jobs per MW, significantly higher than the corresponding figure of 3.5 jobs per MW for utility-scale solar. Realising 40 GW target would provide employment to 2,38,000 people.

DISCOMs, however, consider rising rooftop solar penetration as a threat to their business. Rooftop deployment, especially in the commercial and industrial category, has a two-fold impact on DISCOMs’ businesses. A reduction in demand for grid electricity leads to revenue losses. Further, since this segment cross-subsidises residential and agricultural consumers, these revenue losses compound the financial burden on DISCOMs.

Favourable shifts in cost-competitiveness make the transition to rooftop solar inevitable. Over the past 10 years, tariffs for grid power have risen at an annual rate of 7 per cent. On the other hand, the costs of rooftop solar systems and battery technologies have been declining. In Delhi, a commercial and industrial consumer pays anywhere between ₹7 and ₹10 per unit, whereas, rooftop solar (without batteries) tariff is only about ₹4-5 per unit. As their competitiveness improves further, an increasing share of consumers will make the shift away from grid power.

The SRISTI scheme represents the perfect means for DISCOMs to capitalise on the opportunity presented by rooftop solar. The proposed ₹14,400-crore incentive fund under the scheme would compensate DISCOMs for their revenue losses. In order to maximise the benefits for DISCOMs, we propose five ideas that could accelerate rooftop solar deployment.

First, there is a need to debunk the narrative of rooftop solar being a threat to the DISCOM business. Adoption of rooftop solar within the boundaries of the distribution network offers certain inherent economic benefits to DISCOMs. Solar generation close to the point of consumption lowers transmission and distribution losses. Further, targeted solar deployment in select geographies could minimise the problems of grid overloading, thereby lowering the requirements of investment for upgradation of distribution infrastructure.

Creating awareness

Secondly, DISCOMs must raise consumer awareness to create demand for rooftop solar. Given their limited penetration, solar PV systems are still an unfamiliar technology for many. Further, the lack of awareness of various incentive schemes and processes also contributes to the problem of weak demand. Moreover, many consider it as an expensive alternative to grid electricity despite solar tariffs dipping below ₹5 per kWh for small-scale projects. DISCOMs could utilise their existing bill collection and payment networks to disseminate information, thus reducing a major barrier to rooftop solar adoption.

Thirdly, DISCOMs could help mitigate challenges such as the high upfront cost of installations and access to affordable finance. This could be achieved by facilitating the deployment of the Renewable Energy Service Company (RESCO) model of rooftop solar, where the developer bears the upfront capital investment for the installation while the consumer only pays for the electricity consumed.

So far, the implementation of the RESCO model has largely been driven by developers, which favour large-scale rooftop systems and commercial and industrial consumers with higher creditworthiness.

Alternatively, DISCOMs could play the role of demand aggregators to facilitate the implementation of the RESCO model across all consumer segments by coordinating between developers, financiers, and consumers. Demand aggregation lends the benefits of economies of scale to rooftop solar installations.

Fourthly, DISCOMs could potentially mitigate the off-taker risk prevalent in the RESCO model by providing greater certainty over cash flows for developers or financiers. DISCOMs could facilitate this by directing the payments due to consumers for electricity exported to the grid to developers or financiers. The Bengaluru DISCOM has provisions for such a business model under its rooftop solar programme, which is operationalised through a tripartite agreement between consumers, developers/financiers and the DISCOM.

Lastly, DISCOMs could enable developers to expand their service areas beyond their regional geographies. Given the widespread network of DISCOMs, they could provide certain additional services to developers such as bill collection and operations and maintenance. The opportunities for these services are the greatest in remote areas where such services are prohibitively expensive for developers. Such facilities also offer opportunities for building new revenue streams to DISCOMs.

DISCOMs have been unwilling participants in India’s rooftop solar revolution so far. However, an alignment of interests could see DISCOMs champion the cause of rooftop solar, giving the floundering revolution a much-needed shot in the arm.

The writers are Programme Associates at the Council on Energy, Environment and Water

Published on April 10, 2018
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