Solar photovoltaic installations have emerged as the fastest growing segment in renewable energy sector in India

Rooftop solar is coming of age in India (Image from Flickr)

Installations of solar rooftop panels in India have been doubling every year for the past few years and have increased more than three times in the financial year ended March 2017, Bloomberg New Energy Finance (BNEF) has said in a report.

Solar photovoltaic installations are now the fastest growing segment in the renewable energy sector in India, BNEF said in its Climatescope 2017 findings released at the on-going Future of Energy Summit in Shanghai.

In the next five years, India will need to invest USD 23 billion to meet its target of 40GW of rooftop photovoltaic installations by 2022, according to a BNEF study titled Accelerating India’s Clean Energy Transition. Some of the most interesting activity will be in small-scale solar, it said. “Rooftop solar in India will grow inevitably with or without the support of power distribution utilities,” said Shantanu Jaiswal, head of India research at BNEF.

“Growth of rooftop solar presents an opportunity for the distribution companies to diversify and start their own businesses in that area rather than lose customers to other rooftop developers,” said Ashish Sethia, head of Asia-Pacific research at BNEF.

However, there are experts who say there is still a long way to go. “Largely, the problem comes down to the fact that almost 40% of the ambitious target of 100 GW from solar by 2022 has to come from rooftops. Against that, what we have achieved by the end of September 2017 is barely 1.7 GW across the country, in the rooftop sector,” P. Vinay Kumar, chief operating officer, Greenko Energies, told indiaclimatedialogue.net.“There is a huge gap between what the target is and where we are now.” See: Installation of residential solar rooftops lagging behind

Although there are 15 to 17 states across the countrythat have already issued net metering policies, the move hasn’t been able to incentivise the rooftop business much, he said.

Rooftops on rent

Presently, policymakers are looking at enhancing output from rooftop solar. Recently, renewable energy secretary Anand Kumar said the government was working towards a “rent a rooftop” policy with the aim of achieving 40 GW of solar power from rooftop.

“Renting rooftops is one of the steps to optimising our outlets. When there are issues of finance in the CAPEX (capital expenditure) model coming up, wherein you own everything and are in charge, but many a times you are not necessarily using the electricity and you have some space, so you want to use it to better purpose,” an official at the Ministry of New and Renewable Energy (MNRE) told indiaclimatedialogue.net. “Taking this into consideration, the concept of rent a roof has come.”

It will create a different ecosystem altogether because it will incentivise energy service companies who want to install systems and sell their electricity through solar, the official said. For instance, if a solar or energy service company takes 200 roofs on rent and sets up systems, it can prove to be a good business model. “There are some roadblocks in terms of the regulatory framework, but we are looking at some solutions so that we can address them,” the official said.

This policy will help solar rooftop developers to partner with people that have the rooftop real estate but are not keen on investing their own money on energy projects, thus unlocking potential from an untapped segment in the renewable industry, BNEF’s Jaiswal told indiaclimatedialogue.net. “Developers can also aggregate several projects to achieve better economies of scale,” he said

Challenges

Currently, there are two models in India — the CAPEX model, where the owner of a building or commercial space invests in the rooftop and owns it, and the Renewable Energy Service Company (RESCO) model, where a developer would put his asset on another’s rooftop and sell power to the owner of the premises.

As of now, around 60% of the installed 1.7 GW of India’s installed rooftop capacity is in the RESCO mode and 40% in the CAPEX mode. But for the RESCO model to advance further, some things have to fall in place, says Vinay Kumar. See: Residential solar rooftop fails to shine

One is the non-repudiation of contract — these solar assets are lying on somebody else’s premises, with Power Purchase Agreements (PPAs) that last typically for long periods, say 25 years. Many customers do not like it – they do not want to be locked in at a rate for 25 years because they expect solar tariffs to fall further in a year or two. So there is a temptation to re-negotiate tariffs during the life of the PPA and dishonour the same. This does not bode well for the financial viability of rooftops as older rooftops would have already have locked themselves into a higher cost structure.

In this wait and watch game, there is no great compulsion on part of the customer who hopes for lower tariffs tomorrow and would defer his buy decision. That is the primary problem with the RESCO model, Kumar says.

Similarly on the CAPEX model, which has been quite popular with the commercial and industrial establishments, the accelerated depreciation has been reduced from 80% to 40% in the first making it less attractive as a tax shield. However it is expected that the pure value arbitrage that solar rooftops offer over grid tariffs, would still incentivise greater adoption by commercial and industrial customers.

In addition to this, in the RESCO model, the lenders to the developer typically insist that the roof which belongs to the client has to be mortgaged as a security, because that is where the assets are lying. This is a very touchy point with most customers because nobody wants to mortgage a part of the premises to a third party. There are no policy guidelines on this, so the need of the hour is to bring out a document that is approved by the government, and is acceptable to lenders, property owners and developers, says Kumar.

The RESCO model, Kumar feels, will really take off if there is clear legal transparency on the rights and responsibilities of the stakeholders, which are brought out in a rooftop-lease document. “It will definitely boost the prospects of the solar rooftop sector.”

Way ahead

Guidelines on rooftop lease agreement and clarity on that will definitely help, suggests Kumar. What will also help the industry is to incentivise the distribution company (Discom) in promoting rooftops. Currently, there are no incentive triggers for a discom to promote net metered or behind the meter rooftops. It would be a good idea to include the Discom as a stakeholder in the rooftop PPA between the developer and the customer.

“Right now, it (the PPA) is only between the developer and the rooftop owner. Bringing Discom into the picture would enhance the robustness of the contract and offer a payment collection guarantee to the developer,” Kumar told indiaclimatedialogue.net. “As of now, there is no payment comfort that the developer has if the payments from the client get delayed. But, if the Discom is part of the picture and payments are routed through the Discoms to the developers, it can cut off power to the party – so that will enforce discipline in payments to the developer. In the process a separate revenue stream can also be created for the Discom and which would incentivise them to support the scaling of solar rooftops. ”

Incentivising Discoms to be part of agreements between developers and clients will enhance the bankability of the PPAs with the lenders making it easier to raise debt apart from the ensuring the continued interest of the Discom and offering them a revenue stream, he concludes.

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