Promising Growth

SPAAS emerges as a key driver for rooftop solar

The Indian rooftop solar market has been growing at a brisk pace over the past two years, with the cumulative installed capacity crossing the 1 GW mark in October 2016. This growth has been driven by the realisation that the utility-scale segment, which has been the focus of solar power development so far, has several limitations, the key ones being land identification and acquisition challenges. Rooftop solar, on the other hand, has limited land requirement and no transmission losses, thus making it one of the most viable sources of power for captive use. Besides, rooftop acts as an ideal “plug-in, plug-out system” as it is affordable, quick to install and easy to work with. It takes six to eight weeks to mount and install rooftop solar panels, and the entire procedure, from the signing of the power purchase agreement (PPA) to the commissioning of the project, takes about six months. Since the project site is typically the consumer’s rooftop, there is often apprehension about the capital and operational costs of the solar power plant. In this context, solar-power-as-a-service (SPAAS) has emerged as a key growth driver for the segment. SPAAS allows projects to be developed and maintained on a build-own-operate-transfer (BOOT) basis and, therefore, does not require any capital expenditure on the part of the consumer. With solar tariffs showing a declining trend, developers are providing solar power at a lower price than that from conventional sources of energy, which is an added cost-saving incentive for consumers. Further, at the end of the PPA term, the project is transferred to the consumer, unless the agreement is extended.


One of the key challenges plaguing the rooftop solar segment is the lack of customer awareness. Limited awareness regarding the costs, emerging business models and benefits of rooftop solar has restricted the growth of the segment. Moreover, opposition by discoms, especially towards the commercial and industrial consumer categories, has resulted in inadequate penetration of the technology. In addition, the ambiguity around regulatory and legal hurdles in terms of rooftop rights for a large variety of customers, net metering polices and subsidies available at the state level, as well as the lack of clarity on long-term policies pose a considerable challenge to the segment. The recent introduction of the goods and services tax has, moreover, increased the overall cost of installation, thereby discouraging developers and investors.

Performance risk is also a significant deterrent, especially for business models such as SPAAS and BOOT. PPAs are typically signed at a mutually agreed tariff, assuming that the solar plant will generate power at a particular efficiency. However, it has been seen that the actual generation is much less (sometimes by 10-15 per cent) than the estimations based on historical data, due to various factors including climatic changes and uncertain cloud cover, which lead to a loss of revenue for the developer. Further, capital is not available at competitive interest rates to developers. Considering the risks involved, banks and non-banking financial institutions charge interest rates of over 10 per cent, thus discouraging developers from borrowing capital.

Recommendations and outlook

While discoms have been inherently opposed to rooftop solar development, they have a significant role to play in fuelling market growth. Discoms have customer outreach, installation permits and expertise in metering and billing, which can help developers reduce their overall costs by almost 30 per cent, thereby improving returns and decreasing default and operational risks. According to KPMG, a cost analysis of energy produced from conventional and rooftop solar technologies shows that the differential between rooftop solar and grid power is negligible and can be further reduced by Re 0.89 per unit with active participation by discoms.

The introduction of new financing options can also help develop the segment. Zero tax debt with higher tenors such as home equity or home improvement loans could be a good option to finance rooftop solar projects in the residential segment, with loan terms extending to 15 years.

The emergence of new business models and dynamic players, as well as better policy implementation have given a significant boost to the rooftop solar segment. Interestingly, discoms have now started participating in the rooftop solar segment in states like Madhya Pradesh, Karnataka and Delhi, and are expected to play an active role in other states as well, thus driving the segment towards achieving the 40 GW by 2022 target.


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