Rooftop solar needs a helping hand

No shouting from the rooftop about this industry, at least not yet!

India’s solar sector is growing at a hectic pace but the rooftop segment has been slow off the blocks.

Recently, the Cabinet Committee on Economic Affairs chaired by Prime Minister Narendra Modi approved Phase II of grid-connected rooftop solar systems to achieve a cumulative capacity of 40,000 MW from rooftop solar projects by 2022. The programme will be implemented with total Central support of ₹11,814 crore, with the government extending financial assistance of 40 per cent for 3 kW capacity and 20 per cent beyond 3kW up to 10 kW.

Will this trigger the next wave of rooftop solar adoption? Here is what sector experts say.

Subsidies and more

Ashish Khanna, Managing Director and CEO of Tata Power Solar and President of Tata Power (Renewables), believes that “We are at an interesting cusp where we could potentially see accelerated growth of rooftop solar systems in the country. But the real growth will come once we have quality battery back-up systems, say, within the next 2-3 years. This will provide real, round-the-clock reliable power.”

Already, solar power supply has achieved grid parity and its prices compare well with other fossil fuel options. Significantly, it is much lower than, say, a diesel generating set which works out to about ₹15 a unit in many parts of the country, says Khanna.

Referring to the recent government moves to boost rooftop solar systems, Khanna says subsidies may not be the best way to encourage their adoption, but provide early initiation into the system. “The best long-term solution is a self sustaining one,” he stresses.

Nearly 200 million people in the country either do not have power or have erratic power and solar rooftop solutions have the potential to address this problem even in the remotest parts of the country.

Over the years, the cost of setting up of one kW rooftop solar, which was about ₹90,000 has now come down to about ₹50,000. And with the inherent advantage of using this power for 25-35 years, it is a compelling proposition, he says.

Needed: viable financing

Saurabh Marda, Co-Founder and MD of Freyr Energy, a company engaged in providing solar installations, points out that while the Government plans to develop about 40 giga watt by 2022, the current installed capacity is about 4 GW. Several reports estimate that about 8 GW will be generated by 2023.

“To achieve the target, the rooftop segment has to double every year in terms of installations. There is potential to accelerate this, provided the issues faced by the sector are addressed,” says Marda.

“While there are plenty of financial instruments to support development of utility-scale solar plants, no such instrument is available for rooftop solar customers. Most residential and MSMEs (micro, small and medium enterprises) have to rely on their own funds to own a solar system. Constantly evolving Central and State policies related to taxes, net metering, subsidy, etc, create uncertainty, both for customers and financial institutions. This delays the decision making process and results in a long sales cycle,” Marda adds.

Tax incentives are available for only commercial and industrial customers. They can avail accelerated depreciation of 40 per cent every year on their solar investment until the asset is fully depreciated. This is one of the drivers to invest in solar, apart from helping the customer reduce their electricity bill.

However, residential customers, NGOs and not for profit organisations such as educational institutions are eligible for capital subsidy of 30-70 depending upon their location. The implementation of the subsidy scheme has not been very effective anywhere. “We believe that a better way to encourage individuals is to provide tax breaks. Implementing that will be far more straightforward and cost-effective,” Marda argues.

Incentives and subsidies are plagued by several delays and confusion around whether the customer gets the subsidy or the company installing the solar system. And then there are challenges on the ground when it comes to net meters and completion of site inspection. This adds to delays in subsidy disbursal.

Over and above all these, a key challenge is the cost associated with investing in a solar system. Implementable, scalable financing options are needed. And over-reliance on subsidies creates long-term growth challenges. Also, while some States mandate that buildings must have roof space to install a solar system, it is hardly enforced.

Policy matters

Vivek Subramanian, Founder Partner, Executive Director, Fourth Partner Energy, a distributed solar energy solutions provider, says that safeguard duty of 25 per cent on import of modules has slowed demand as this is a mixed signal to the market, especially when the government has set an ambitious target of 40 GW by 2022 for rooftop solar. The recent GST uncertainty and revised rate of around 9 per cent on solar have also affected the profitability of the sector.

“While policies such as net metering have been successfully implemented across the country, given that electricity is a State subject, policies have differed from State to State, making it difficult for developers, financiers and consumers to adopt solar,” points out Subramanian.

Most States impose a cap on installable capacity under net-metering of 1 MW. Further, some restrict the installable capacity to a certain percentage of the total contract demand. “We have many clients who have large demand for power, space and intent to adopt solar, but the policy is restrictive,” he rues.

Some spurs to growth

Industry stakeholders have many suggestions to promote the growth of rooftop solar. For instance, they say, the metering for rooftop solar could be combined with the regular discom billing such that any default would lead to disconnection of power. Warehouses, sheds, etc., have space but inadequate consumption. So installation and injection into the grid from these locations should be allowed and consumers should be permitted to draw at another location.

Community solar is where the hyper local energy markets are. In such places a real-time exchange for power is created and settlement between buyers and sellers (prosumers) happens instantly. This has already been indicated in the latest UP State Policy.

Penetration into off-grid and rural through distributed solar — using storage solutions, payment solutions and policy for creating an energy efficient ecosystem — is necessary.

The discoms could be incentivised to support rooftop solar and net metering by allowing them to charge a fee and making them a stakeholder. In this context, Ashish Khanna of Tata Power Solar says his company plays a role across the entire power spectrum, including discoms. There is a need to strike the right balance to promote solar rooftop installations.

Sector experts also stress that there is a need for improved regulations for dispute resolution giving more comfort to developers, financiers and consumers of solar given the long duration of contracts under theoperating expenses (OPEX) model, which varies from 10 to 25 years.

If these suggestions are acted upon, the real numbers could be a pleasant surprise in 2022.

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