India’s solar sector has seen a spectacular run in the last four years, largely attributable to its ambitious renewable energy targets and pro-solar policies. However, uptake of solar rooftop has remained sluggish all along. So far, India has attained less than 10 percent of its 40GW rooftop solar target. Undoubtedly, the pace of installations will have to be accelerated exponentially if the country were to accomplish its 2022 energy target.
To achieve the cumulative capacity of 40,000MW from rooftop solar projects by 2022, Cabinet Committee on Economic Affairs recently approved Phase–II of the Grid-Connected Rooftop Solar Programme. The programme will be implemented with central financial assistance of Rs 11,814 crore (approximately $1.7 billion), pursuant to which the government will provide financial support of 40 percent for 3kWp and 20 percent for capacity beyond 3kW up to 10kWp for residential sector. The programme also earmarks Rs 4950 crore (approximately $712 million) as incentive to distribution companies (discoms) for installing additional grid-connected rooftop capacity up to first additional 18 GW rooftop capacity. The programme is laudable and necessary to give the much-needed momentum lacking in the industry. It does so by seeking to address two major roadblocks impeding the large-scale deployment of rooftop solar in India – insufficient support by discoms and dearth of interest, particularly amongst residential consumers.
Though India’s rooftop solar potential is much higher than the 40GW target, the sector’s growth has been lacklustre because of many challenges, including intrinsic market challenges. Declining cost and increasing deployment of rooftop solar at the global level have risen debates about its financial impact on utilities and its increasing proliferation in India may pose operational and commercial challenges for discoms. Large scale migration of consumers to rooftop solar may imply a decrease in sale of electricity by discoms and resultant revenue loss as well as fixed cost already incurred on distribution infrastructure and long-term power purchase agreements for such utilities. Further, with cost of solar power achieving grid parity and increasing electricity retail tariff, most early adopters for rooftop solar are likely to be the discoms’ high-paying industrial and commercial consumers. Shifting of such consumers to rooftop solar may also impact the cross-subsidy paid by this category of consumers to subsidised categories of consumers. The implications of such a scenario may only increase the burden of discoms which are already reeling under severe financial stress. High levels of aggregate technical and commercial (AT&C) losses and inability of power tariffs to recover the cost of supply have attributed to sustained increase in losses of discoms over the years. Therefore, any attempt for large scale deployment of rooftop solar will need to factor this market reality and incentivise discoms to support the same. Indeed, discoms have a key role to play in the successful implementation of rooftop solar projects since they will facilitate technical interconnections and create framework for business models for banking and net metering. Rooftop solar will ultimately help utilities meet their day-time peak demand, reducing peak hour power purchase cost as well in achieving their renewable purchase obligations.
The existing fragmented growth of solar rooftop is largely attributable to institutional and commercial consumers. The deployment of solar in residential sector has been negligible largely because of significant upfront cost, unavailability of space, issues relating to ownership of roofs, lack of awareness, et.al. These factors seem to drive residential consumer choices notwithstanding the inherent positive aspects of rooftop solar such as access to energy, zero fuel cost and environmental benefits.
The programme deftly deals with the two big challenges hindering the large-scale uptake of rooftop solar. By giving monetary incentives, it induces discoms to support the growth of rooftop solar and encourages consumers to shift to rooftop solar systems, thereby creating a win-win situation for both discoms and consumers. Incentivising the involvement of discoms with properly planned rooftop programmes and business models will also ensure greater participation from consumers and eliminate inherent market challenges.
While the programme seems to have laid a foundation in the right direction, as with all policies, whether it will trigger the wave to help India near its renewable energy targets will depend on how it is implemented. Further, to achieve its ambitious 40GW target, the government will need to devise and launch more such innovative policies which can create an ecosystem where all stakeholders – discoms, solar panel manufacturers and installers, consumers and regulatory commissions -- can work together to make India a global leader in renewable energy industry.
Large scale diffusion of renewable energy is unlikely to happen without government support. Government intervention in mainstream renewable energy is crucial since, expecting private sector to cover high upfront costs may not be sustainable, renewable energy does not enjoy level-playing field with conventional sources of energy generation and path dependency associated with using conventional energy. Given the structural barriers such as market distortions, technical and financial constraints, institutional weaknesses and behavioural choices of consumers, penetration of renewable energy would be excruciatingly slow if left to market forces alone. The government will have to internalise some of these risks and costs in the short term for benefits in the long term.
Discoms’ and consumers’ reluctance to adopt rooftop solar may also be attributable to the existing legal framework of the distribution business. Presently, discoms in India are responsible for both setting up distribution infrastructure and supplying power. Therefore, discoms that incur significant cost in installing and maintaining distribution infrastructure have no incentive to implement business frameworks to encourage the shift to rooftop solar systems. Further, the lack of ability to choose an electricity supplier also constrains a consumer from migrating to rooftop solar system. In view of these issues, the Electricity Amendment Bill 2018 proposes the segregation of carriage and content businesses of discoms, pursuant to which separate licences will have to be procured for distribution and supply of electricity. It is noteworthy that there has been significant opposition to the bill particularly from discoms. However, once the bill becomes a law, it will enable consumers to buy electricity from a power supplier of their choice bringing in greater flexibility and may induce behavioural shift to use rooftop solar systems.
India’s tremendous potential for solar energy with a perfect geographical location, 250-300 sunny days and growing energy requirements presents itself a big opportunity to chart its development path in a sustainable manner. The government does realise this potential and opportunity and the programme seems like a commendable policy decision. Yet, it is only a reinvigorated effort in the right direction which will have to be followed by many more such innovative schemes and programmes.
Vishnu Sudarsan is Partner and Sugandha Somani is Of-Counsel at J Sagar Associates. The article is contributed as part of Climate Change and Renewable Energy Initiative at JSA. The views expressed are personal.