Rooftop solar panels are a common sight on government buildings, academic institutions, homes, airports and railways. However, experts are divided on whether this growth will translate into India’s target of 40GW by 2022
Solar rooftops are rapidly growing with installed capacity set to be over 500MW by the end of the year, says a recent report by the Solar Rooftop Policy Coalition. India’s target, which is 175GW of renewable energy by 2022, includes 100GW from solar and 40GW from rooftops. However, opinions vary on whether the country will actually be able to meet this goal.
“The 40GW target is ambitious, although possible. To achieve this will take really strong, sustained efforts from central and state governments, regulators, utilities, investors and the industry,” said Phil Marker, project director of the Solar Rooftop Policy Coalition.
“The Solar Rooftop Policy Coalition made recommendations that we estimated would help achieve
26GW, which we think is a pretty good further step towards the target,” he added about the report that was released on March 17 this year.
According to Vivek Mishra, executive director, Meghraj Capital, growth of 86% would be required on a year-to-year basis to achieve this target. “To get close to it, measures which promote market-led growth, i.e. private investment, are needed. These could include operationalizing net metering, support of distribution licensees, increasing investor confidence and consumer awareness, developing skills of various stakeholders, maximizing roof space and adopting mandates.”
Renewable energy (RE) consultant S.P. Gon Chaudhuri admits that it is a big target and may be difficult to achieve by 2022, but says it could be done if a pro-people incentive scheme is formulated. “The scheme should be very simple and user-friendly”.
However, Narasimhan Santhanam, co-founder and director, Solar Mango, which provides guidance for the adoption of rooftop solar, feels it is very difficult. “We are projecting about 7GW by 2020 and about 12GW by 2022 if the current pace of growth continues, even with net metering becoming more common.”
Significance of net metering
Presently, 26 states have net metering regulations in place and a number of utilities are taking proactive steps to support rooftop solar. “A net metered rooftop solar is viable for commercial and industrial consumers in 7 states without subsidy, with more reaching tariff parity each year as solar costs decline and tariffs rise,” the Solar Rooftop Policy Coalition report states.
Marker explains that net metering regulations are already in place in most states and it is easy for consumers to understand. So, the key priority is to make net metering regulations work in practice. For this, utilities need trained staff with operational guidelines so they can make new connections quickly. “We have recommended that regulators set time limits for new connections to offer greater speed and certainty to new net metered customers.”
Concurring that net metering is necessary to achieve the 40GW target, Meghraj Capital’s Mishra states that it is expected to provide the necessary initial thrust for the adoption of rooftop solar by consumers. However, at a later stage, as the cost of generation from rooftop solar reduces and retail tariff increases, a variant of net metering or gross metering can be adopted. “In the current scenario, net metering regulations must be operationalized by putting in practice the guidelines and be monitored by the Regulatory Commission.”
Chaudhuri feels all installed meters can be easily converted into net meter by the utility. “At present, the cost of net meter has been jacked up unnecessarily. A regulation regarding net metering benefit should be honored by power utilities.”
Net metering is by far the most important policy instrument that provides a good business case especially for the industrial and commercial sector to go solar, states Solar Mango’s Santhanam. “As commercial and industrial sectors are expected to be the major contributors to rooftop solar targets, net metering will be the most critical driver.”
While net metered rooftop solaris viable for industrial and commercial consumers in major states, it is not so in Lakshadweep, Andaman and states of the North-Eastern region, including Sikkim. For them, an additional subsidy is required since tariff is low and side by side generation from solar rooftop is also low, reasons Chaudhuri.
In several states, Marker explains, the economic viability of rooftop solar for such customers is already in place and getting stronger every day as electricity prices rise and solar costs fall. What is urgently needed is making it easier for these businesses to opt for rooftop solar. This can be done by making new grid connections simpler and quicker, addressing risks for investors so more of them enter the market and removing obstacles to ‘third party’ models where the solar developer owns and operates the system on the roof and sells cheaper electricity to the building owner.
Subsidy or no subsidy
Currently, the government provides central financial aid up to 30% for selected categories and up to 70% for special category states, including islands.
Mishra thinks the government should focus on non-subsidy measures.Marker also stresses that non-subsidy measures should be the priority because it will achieve greater impact at a much lower cost. “Our modelling suggests that further subsidies would have less impact because some of the benefit would go to projects that would have happened anyway or soon after. Therefore, we are not recommending additional subsidies beyond those the government has already announced.”
He feels the government is moving in the right direction and is right to refocus subsidy away from commercial and industrial customers.
Incentives, Chaudhuri adds, should flow to the beneficiary directly like cooking gas subsidy. “No state agencies should be involved since they take maximum time to release the subsidy and create unnecessary problems.” The Ministry of New and Renewable Energy (MNRE), he suggests, could appoint 1,000 validators throughout India to verify the installation and give their comments regarding release of subsidy to the ministry.
However, Santhanam states that subsidies are unlikely to be the key driver, for two reasons. One, history shows that subsidy payments are delayed or they come with strings such as use of domestic panels, which many private companies are not keen on. Two, it is extremely unlikely the government can bear the cost of subsidizing medium and large rooftop solar installations (upwards of 100Kw), so that leaves subsidies only for the residential and smaller segments, which are unlikely to contribute to more than 20% of the total installations by 2022.
Marker explains that even though the potential for private investment in the sector is good, based on strong fundamental economics, very little lending is taking place so far. Some of this is due to temporary factors such as the lack of comfort with the technology on the part of banks and investors. Rooftop solar also entails some very specific risks for investors. “The most important of these is the risk of contract default: rooftop solar involves lots of small systems and the legal costs of pursuing defaulters through the courts would be prohibitive.” Therefore, addressing this risk is important for unlocking large scale investment and is one of the most important areas for action by government, he suggests.
Mishra feels there is significant scope for private investment. “The achievement of 40GW of solar rooftop is contingent to successful private investment. However, for this to happen, lending support of financial institutions and redressal of investment risk would be required.”
According to Santhanam, private investment is happening now mainly from those who can avail accelerated depreciation (AD) benefits. However, once the market starts maturing and net metering and other policies are in place, we can expect pure play investors to get in as well as more firms investing in this even if they do not have the AD benefits.
Though Chaudhuri agrees there is huge opportunity for private investment in rooftop solar, he warns that there will be a conflict in this connection. More investment from the private sector on rooftop solar will reduce the revenue of the power utilities which they may not like. This will be a major problem in future. In this context, feed-in-tariff (FiT) may be a better option. In net metering mode (If it is significant) power utilities will loose revenue. However, in FiT mode, the utility may purchase the power protecting their own interest.
Net metering is an agreement that allows the solar PV system owner to sell excess solar energy to the utility company or buy deficit energy from the utility company using a meter to track this energy exchange. FiT enables anyone who generates electricity from RE sources – be it a home owner, small business or a large electricity utility – to sell it to the grid and receive guaranteed long-term payments at a predetermined rate for energy transferred.
While current measures are expected to lead to an installed capacity of 13.5GW by 2022, strong measures are likely to accelerate market-led growth and may double progress by 2022 to an additional 26GW without further fiscal incentives, the Solar Rooftop Policy Coalition has concluded.
There is a lot already underway which could lead to around 13GW – which in itself would represent impressive growth. In Marker’s view, this can be doubled to 26GW without further direct subsidy by making the market work better, bringing utilities fully on board with rooftop solar, addressing the risks for private investors and consumers and planning early to tackle obstacles to long term growth – such as skills and availability of rooftops.
According to Mishra, this would require the support of private investment, operationalizing network regulations, getting the aid of distribution licensees, building investor and consumer confidence and tackle obstacles to sustainability– such as skills, introduction of mandates and availability of rooftops.
Santhanam is of the opinion that comprehensive net metering across states alone can take it to about 12 to 15GW, even perhaps up to 20GW, as solar economics are otherwise already positive. The additional 20 to 25GW or so can be added only if the centre/states start implementing some of the market reforms, especially gradual tariff increases, easier approvals, and reduced bank loan interests.