Considering the spike in bills which commercial, industrial and residential consumers had faced recently, usage of solar, particularly the rooftop variety, has gained traction and is expected to grow further.
The popularity of rooftop solar is on the rise, even as companies are struggling with imports of solar photovoltaic (PV) modules or panels and higher cost of capital for engineering, procurement and construction (EPC) projects.
On September 1, Gautam Adani, Chairman, Adani Group said that its renewable energy portfolio had exceeded the total capacity installed by the entire US solar industry in 2019, largely driven by rooftop installations.
According to a report by the research firm Mercom, Adani's solar portfolio is 12.32 GWac. At the end of 2019, the US had about 1,100,546 MW - or 1.1 billion kilowatts (kW) - of total utility-scale electricity generating capacity, according to data from US Energy Information Administration (EIA). India still has a significant large-scale solar project development pipeline of 41.7 GW, with another 34.2 GW of projects tendered and pending auction at the end of 2Q2020, according to Mercom.
The use case for solar was inevitable. Considering the spike in bills which commercial, industrial and residential consumers had faced recently, usage of solar, particularly the rooftop variety, has gained ground. "The use case for rooftop solar is proven and it continues to grow," states Ashish Khanna, President, Tata Power Renewables. Tata Power Renewables has its own manufacturing facility for solar cells and modules in Bengaluru, which it plans to expand to 1.1 GW by December.
The Government of India has set a target of 40 gigawatts (GW) of rooftop solar capacity to be installed by 2022. As of December 31, 2019, total rooftop solar capacity stood at 5.4GW. To promote the deployment of solar rooftop capacity, the Ministry of New and Renewable Energy (MNRE) implemented in 2015 the æGrid Connected Rooftop and Small Solar Power Plants Programme-Phase IÆ under which a subsidy of up to 30 per cent of the benchmark cost was provided for general category states, and up to 70 per cent of the benchmark cost for special category states such as the North-Eastern states, and Uttarakhand, Himachal Pradesh, Jammu and Kashmir, Lakshadweep, and Andaman & Nicobar Islands for installations across the residential, institutional and social sectors.
For government installations, achievement-linked incentives of up to 25 per cent of the benchmark cost in general category states and union territories (UTs) and up to 60 per cent of the benchmark cost for special category states and UTs were also provided.
About 2,098 megawatts (MW) of solar rooftop systems were either sanctioned or approved under Phase-I. To achieve the 40GW rooftop target by 2022, the government also introduced the Rooftop Phase-II Programme in August 2019. Under this programme, an additional rooftop solar capacity of 18GW was targeted through incentives for distribution companies and 4GW was targeted for the residential segment, with the central financial assistance of 40 per cent of project cost for a system size of up to 3 kW.
"Consumer awareness of the benefits of rooftop solar, its cost savings and the importance of clean energy, are factors playing key roles in the greater adoption of rooftop solar in India," points out Vibhuti Garg, Energy Economist, Indian Institute of Energy Economics and Financial Analysis (IEEFA).
The payback period for rooftop solar projects is gradually shortening because the cost of equipment is declining. Currently, in a Capex model, payback can be realised in a shorter duration of three to four years, while for an Opex project the tariff rate is about Rs 3.5-4/kWh, which is less than half the average of commercial and industrial grid tariffs prevalent across most states, explains Jyoti Gulia, Founder JMK Research.
Commercial and industrial (C&I) users consume approximately 49 per cent of the electricity generated in India and account for 70-80 per cent of all the country's rooftop solar installations. This situation is quite different from other economies where the residential segment leads to rooftop solar. The reason is that, in India, residential and agricultural users are subsidised while C&I consumers are charged an additional cross-subsidy surcharge leading to higher than average mains electricity tariffs. As a result, rooftop solar is an economically viable solution for C&I consumers.
Electricity demand in the C&I segment was rising at a compound annual growth rate (CAGR) of 5-6 per cent (FY2017-FY2019) while grid tariffs for C&I consumers are increasing at a year-on-year rate of 1-2 per cent. Increasing electricity demand and rising grid tariffs for C&I customers have driven commercial users to rooftop solar, which is not only cleaner and cheaper but also gives them tariff certainty for up to 25 years.
Even as these are positives, on the ground, developers are reeling from the impact of the COVID-19 pandemic. "Initially, companies faced challenges regarding labour movement to the construction sites due to public transport as well as local quarantine rules. While that has been eased, projects have not got back into full steam" states Gagan Vermani, Founder and CEO, MYSUN. This, in turn, has resulted in an increase in costs.
Costs and Payment Delays
"Labour-related costs have gone up, thereby putting a strain on working capital. Additionally, the sector is facing payment delays and higher working capital, which is putting severe stress in project execution," says Saket Suri, owner of Nagpur-based JK Powerguard, a solar products distributor. According to a report by the rating agency CRISIL, this puts at risk around 3GW of solar projects auctioned between July and August 2018, which need to meet their scheduled commercial operation date by July 2020.
"It is still difficult for consumers to get credit approved as lenders do not identify rooftop solar projects as a standalone asset. Also, due to low MSME project capacities, rooftop solar projects are not particularly attractive to banks and financial institutions that cannot aggregate portfolios of rooftop assets," says Garg.v However, the building blocks in the micro, small and medium enterprises (MSME) will be the new market to aggressively adopt solar in the coming years. MSMEs are the backbone of the Indian economy, contributing 6.1 per cent of the gross domestic product (GDP) and about 45 per cent of the total manufacturing output.
"Electricity costs are up to 50 per cent of their total expenses, so cutting such costs via solar power sustainably improves their competitiveness in a big way," points out Garg.
Policy Uncertainty Hampering Growth
Policy uncertainty is the biggest issue that is hampering the growth of rooftop solar in India. Distribution companies are fearful of losing their high paying C&I consumers and are issuing orders and notifications to restrain net metering and power banking provisions.
Additional charges for grid support have also been proposed in India's key industrial state of Maharashtra. This uncertainty deters many C&I players from deploying rooftop solar. Also, cost of power purchases - whether by state distribution companies such as Maharashtra State Electricity Distribution Company Ltd (MSEDCL) or Independent Power Producers (IPP) have had to spend higher in power purchase costs this year.
Andhra Issue Pending
Then there is the Andhra Pradesh issue, wherein power purchase agreements of the Chandrababu Naidu government were scrapped by the YSR Jagan Reddy government a year ago. The matter is still with the Andhra Pradesh High Court and a quick resolution will send a strong message to investors.
Nonetheless, the basic framework, including net metering policies for rooftop solar arrays, now exists across all states and the implementation of rooftop solar power installations has started in a true sense. Given such momentum, this sector should be a key economic growth priority post the COVID-19 pandemic.
Tamil Nadu Electricity Minister P Thangamani last month announced that more than Rs 7.5 billion worth of projects, including rooftop solar units and implementation of prepaid meters in 2020-21. In order to promote solar power in the southern state, the government will set up 50 MW rooftop solar projects at an outlay of Rs 2.5 billion during 2020-21.
Also, with a committee headed by former banker KV Kamath recently identifying power as one of the 26 sectors that can undergo restructuring of loans, renewable energy companies can expect some sort of handholding to help tackle their finances.
-NEYOOR B. SHARMA