What is Hindering Solar Roof Top Sector In India?

The renewable energy target of 175 gigawatts (GW) by 2022 is making progressive headways. Solar power plays a central part in achieving this goal and installation of utility scale power has seen a dramatic increase in the past 12 months. Rooftop Solar, however, is still lagging and a lot more needs to be done to achieve its 40 GW capacity target by 2022 within, the bigger target.

India’s total installed rooftop solar capacity is estimated at only 1,247 megawatts (MW) (till 31 December 2016) which is about 3 per cent of the targeted 40 GW by 2022. 

The study released by Indian Council for Research on International Economic Relations (ICRIER) states that the total investment requirement to meet the outstanding 38.75 GW rooftop solar target, after considering the current subsidies is Rs 1.8 trillion ($ 28 billion). Despite of a tenfold growth in the rooftop solar capacity, a lot of ground still needs to be covered.

Given the considerable gap between currently installed and expected capacity by 2022, there is a greater need for investments in rooftop solar. So what are the major barriers that are hindering the rooftop solar segment to take off in its full potential?

One of the major hurdles noted in the study, is the high upfront costs for installation, which is a barrier for many. The size of a typical rooftop solar installation in the commercial and industrial segments is around 150-200 kilowatts (kW), costing between Rs 9.7-13 million, assuming the current price of Rs 65,000 per kW.

Commercial and industrial consumers are often reluctant to invest such a high amount upfront, especially for a non core business activity.

Second is the issue of finance. Due to perceived high risks and suspicion about performance, banks are unwilling to lend to solar rooftop projects and the borrowing costs can be as high as 14 per cent or more.

Furthermore, the market for the third party debt capital from bond issuance is still marginal in India. In fact most of the rooftop solar projects in India are being financed with equity capital with minimum or no debt. Due to the smaller size of the projects, the developers do not approach banks for loans because of the proportionately higher transaction cost per unit of the project cost. As the cost of the equity capital is usually more expensive than debt, the overall project cost also becomes more expensive.

Third comes the perception of risks and performance among the consumers themselves. Rooftop solar still remains a relatively new technology in India and thereafter there is a perception that it may not perform as expected over its lifetime. The report goes on to add that there is a trust issue as several entrepreneurs in the rooftop market are comparatively new with no or little track record.

Although 27 states have issued net metering policies or regulations, only a few states have begun the actual implementation of the policy. ‘Net metering’ is a mechanism of selling the surplus power generated, which is them net amounted in the consumer’s electricity bill.

Without net metering, the solar rooftop economics could go for a toss, especially as the third part model comes in where the owner of the solar plant at a consumer’s roof is not the consumer himself, but the developer. The slow or patchy progress in the net metering policy can be attributed primarily to issues like inadequate policy framework, passive opposition from DISCOMs and insufficient training at the local utility level.

“Implementation of rooftop solar is taking place at a much slower pace and it seems unlikely that the government would achieve its 40GW target by 2022. Specific policy initiatives to support rooftop solar especially effective net-metering implementation and offering incentives in order to attract financial investors’ needs to be introduced”, mentioned another report released by industry lobby group PHD Chamber of Commerce and Industry and credit rating agency CARE Ratings, last month.

There is another major challenge in the form of storage. Currently the cost of a rooftop solar system with battery storage could be between Rs 90,000 and Rs 1, 35,000 per kW, depending on the voltage.

The study jointly done by ICRIER, Stockholm Environment Institute (SEI) and Climate Policy Initiative (CPI) also pitches for local government’s participation as a much better proposition, given that fact that rooftop solar is a decentralised form of electricity generation. The study proposes a bond model in which municipalities can play an active role in raising debt capital for private developers under third part financing (OPEX) model, reducing the costs of debt capital.

“The main advantage of the proposed public debt based financing OPEX model for rooftop solar is that compared to the private developers; municipal governments are in a better position to raise capital by issuing bonds. They posses relatively large size balance sheets which can have the financial strengths and capital to raise finances. This also includes guarantee from the state government which places them in a better position to secure guarantees on bonds, as compared to the private developers.

Naina Sood

BW Reporters Naina Sood is a Economics graduate and has done her post graduation in International economics and Trade. She has deep interests in Indian economy and reforms