The rooftop solar segment forms a large part of the 100 GW solar energy target to be achieved by 2022. While the government has been promoting the segment, there exist certain regulatory and implementation challenges that impede its growth. These include lack of general awareness and access to competitive capital, and billing and payment issues. At a recent Renewable Watch conference, solar power plant developers shared their perspective on the key challenges and solutions for the segment. Excerpts….
Chief Executive Officer, Telecom and Distributed Solar, ACME Cleantech Solar
We have been concerned about the megawatt scale of the solar segment. One of the key challenges faced by the segment currently is the lack of implementation of the net metering policy. In addition, a detailed assessment of roofs is needed in order to understand the feasibility of project implementation. Regulatory and legal hurdles in terms of rooftop rights for a large variety of customers also pose a challenge. While both the government and the private sector have been active, developers tend to move towards the latter when projects from the government decline. However, there are multiple issues in the execution of rooftop projects in the private sector. These include finance and execution delays (it takes nearly six to twelve months to close a project). Besides, the conversion rate of projects is quite low with only 3-4 per cent reaching the implementation stage. Government intervention in taking this business to a much larger scale than planned, akin to megawatt-scale solar, is the need of the hour.
Vice-President and Head, Distributed Solar and Offtake, ReNew Power
The solar segment has been growing at a brisk pace given the low base it started with. This can be largely attributed to the interest shown by the government and the uptake of solar power due to falling prices. However, for companies and businesses to sustain the momentum in the long term, all the stakeholders, including the government, need to focus on two things: reduce vulnerability and providing enablers. The rooftop segment is typically small in size and largely confined to a single-user base, especially through the renewable energy service company (RESCO) model, which makes the investor highly vulnerable. This comes from the two ends of the business: business challenges, such as reduced generation due to a new high-rise building coming up which results in the shading of the plant or due to pollution from a nearby factory, making the projects economically unviable; and regulatory challenges, which need government intervention to address issues such as net metering. In addition, there are commercial issues, such as those pertaining to cross-subsidy surcharges in most states, especially the ambiguity concerning their imposition and applicability. Power sales to a third party within the customer’s premises, a potentially significant business model, have not been properly captured by the regulators. The government has a huge role to play in reducing investor susceptibility to help the segment grow.
About half a decade ago, the problems for investors in the solar segment varied from land acquisition to awareness, which have now been solved to a large extent. Lenders are now increasingly aware of the risks associated with renewable energy projects. However, the rooftop segment is a fairly recent phenomenon, which needs awareness creation and capacity building for lenders, so that the projects can be implemented in a slightly different way.
Another growth enabler is a payment security mechanism that will bring the prices of the rooftop segment closer to ground-mounted solar projects. Customers who are connected to the grid and the discoms do not generally default on their payments as they run the risk of being disconnected. However, in the case of rooftop solar plants, the investor does not enjoy the same protection, which makes the setting up of these plants potentially risky. These risks need to be built into the business model and the tariff calculations. The government and discoms can play a role in introducing a mechanism to reduce these risks, wherein both sides recognise that in the event of any unpaid generation, the discoms will be liable to bill to the customer to be paid mandatorily.
Vice-President, Business Development, Amplus Solar
The rooftop distributed segment is very different from the typical grid-scale solar segment. The challenges faced by the latter, such as in land acquisition, power evacuation and transmission issues, do not find relevance in the rooftop segment. The challenges associated with the rooftop segment relate to customer awareness, rooftop suitability and access to finance. Besides, timely payment by customers to investors is a major issue. For instance, a plant with a 20-year power purchase agreement (PPA), which will receive 240 payments from the customer over this period, has a high default risk.
One of the key growth drivers for the segment is access to competitive capital. While the capital is seldom available at a low rate of interest, it goes beyond 10 per cent when the risks involved in the rooftop segment are taken into consideration by banks and non-banking financial companies. Another major challenge is performance risk. When entering into a PPA at a mutually agreed tariff, the investor expects a certain rate of return, assuming that the solar plant will generate power at a particular efficiency. However, it has been seen that the actual capacity utilisation factor is sometimes 10-15 per cent less than that given by the historical data. This can be resolved by analysing newer data as opposed to the decade-old solar irradiation data available in the market, which usually pertains to ground-mounted solar projects and was recorded when the pollution levels and temperatures were low. Moreover, the ambiguity over the various taxes and surcharges levied needs to be defined clearly so as to allow transparent tariff and payment structures.
Finally, incentives should be provided based not on the capacity installed but on the power generated and fed into the grid. Standardisation is essential to the provision of subsidies and incentives by the government, whether at the state or the central level. Net metering is an integral part of the regulatory solution to issues pertaining to the rooftop segment. However, individual state-wise policies often create logistical hurdles that can be avoided through a uniform policy structure. The state regulators should focus more on the quality of solar power plants. Stringent testing norms are essential to maintain the quality of generation from these plants and to avoid accidents.
There is a considerable impact of rooftop solar on discoms as the segment takes away the revenue from high-consumption industrial and commercial customers. The discoms, which are already facing a financial crunch, will lose a big part of their revenues to rooftop solar, and are therefore against it. Therefore, a streamlined regulatory process is required to save the discoms from potential losses.
Assistant General Manager, Business Development and Regulatory Affairs, Clean Max Solar
Clean Max Solar has traditionally focused on solar installations in the commercial segment and has only recently forayed into installations for government buildings. Our installed base comprises 90 per cent industrial customers and 10 per cent government buildings. The challenges associated with the rooftop segment are completely different from those of the grid-connected solar segment. One of the primary challenges is the integration of modern rooftop systems into old building structures, especially government buildings in Tier II cities such as Agra and Varanasi. Apart from this, grid integration and backflow of power through net metering are some of the issues that need attention.
Delays in payments are another important issue, particularly for government institutions. A government office typically takes three to four months to process payments and there are no practically enforceable mechanisms to penalise the customer for these delays. In addition, the capacities being auctioned have been decreasing consistently in the new tenders issued by the railways or the Solar Energy Corporation of India.
Further, it is difficult for a RESCO to maintain small plants with only 5-10 kW of installed capacity. Although it is necessary for the government to bundle small projects with large ones, the financial viability of small projects is often low. Since the state and central tenders are floated together, different rates create confusion for developers.