The government’s ambitious renewable energy target can only be met with policy certainty, financial support and increased consumer awareness about rooftop solar energy
Rooftop solar is the fastest growing renewable energy sub-sector in India but installations must rapidly accelerate if the nation is to meet its ambitious renewable energy target of 175 GW by 2022.
India has installed 28 GW of solar capacity, a fourfold increase in less than three years, according to a study, Vast Indian Potential of Rooftop Solar, according to a new study by the Institute for Energy Economics and Financial Analysis (IEEFA).
Despite this strong growth, India has achieved only 10% of its 40 GW rooftop solar target. This is well below the run-rate anticipated by the government. To achieve the 2022 target, India will have to greatly accelerate the pace of new solar rooftop installations.
IEEFA estimates that for the next three years, solar rooftop installations will grow at a compound annual growth rate (CAGR) of 50%, suggesting a cumulative 13 GW of installed capacity by the financial year 2021-22 (April-March).
Tim Buckley, co-author of the study and IEEFA’s director of energy finance studies says there are further steps the government can take to increase installations. “There has been significant investment in preparing the regulatory framework, upskilling the workforce for small scale deployments, and in educating the market,” Buckley says. “However, regulatory uncertainty is slowing the pace of rooftop solar installations. Policy certainty and more financial subsidies would also incentive the market, as would support for domestic manufacturing and simplifying the net metering application process.”
Shifting subsidies away from imported fossil fuels and reallocating to assist the capital cost of rooftop solar deployments is one way to fund the energy transition for marginalised households. At the moment around 70% of the market growth in the solar rooftop market is driven by commercial and industrial consumers enjoying high tariffs. Residential consumers and state governments are lagging behind. The government’s recent 20-40% financial subsidy for new residential rooftop solar installations should accelerate the pace at the local level.
Solar is now cheaper than commercial and industrial grid tariffs in all major states in India, with average tariffs of Rs 6-11/kWh. The payback period is down to 3-4 years for commercial and industrial customers and will reduce further as equipment costs fall, coupled with the rise in retail tariffs. This means these consumers can, over time, enjoy a financial gain when they shift to rooftop solar plus battery storage.
The accelerated depreciation benefit allowing investors to claim 40% asset depreciation (reduced from 80% in 2016) in the first year of installation is an additional factor driving the commercial and industrial market. State governments must continue to provide concessional exemptions including wheeling charges, the cross-subsidy surcharge and additional surcharges to ensure acceleration of installation across the country.
Rooftop solar is a win-win solution for both consumers and electricity distribution companies while reducing India’s reliance on imported fossil fuels.
“India’s rooftop solar market holds huge growth potential and should be exploited to help meet the growing energy requirements of the population while enabling the government to reach its ambitious but achievable renewable energy target by 2022,” Buckley says. “It would make India a global leader in renewable energy installations, a badge to be proud of.”
Vibhuti Garg is an energy economist at IEEFA. He can be contacted at [email protected]