Over the past one year, the solar power industry has increased its focus on rooftop solar development. An increasing number of states are reforming their net metering regulations. However, owing to various challenges, rooftop solar continues to be a minority segment in the country’s overall solar power ecosystem. At the “Solar Power in India” conference, senior representatives from leading rooftop development firms expressed their views on the key challenges faced by the segment, the possible solutions and the future outlook…
Dr Anuvrat Joshi, Director and Head of Business Development, Cleantech Solar
Cleantech Solar is essentially a solar independent power producer operating in India and Southeast Asia. We operate in eight countries and India forms about 75 per cent of our project portfolio. Our key focus is on commercial and industrial (C&I) consumers, with the industrial solar segment dominating the sales. Our portfolio size is about 300 MW, of which 100 MW is open access-based capacity.
We cater to both onsite and open access-based offsite needs of our industrial customers. In both cases, there are substantial savings for the customer as opposed to relying on any other source of power, which in most cases is the grid. In the case of open access-based offsite projects, it is possible to build large plants, which allow for cost reductions. However, large plants may face issues related to land acquisition and building transmission infrastructure.
The cost of solar energy delivered from an offsite can be 5-10 per cent lower than grid power, excluding charges for transmission and billing. These sources deliver power at a rate of Rs 4-5 per unit. This gives the industry an opportunity to become more competitive, although the existing stakeholders and power suppliers need to be accommodated. Customers cannot be denied access to a cheaper source of power. Economic viability, and some amount of engaging with regulators, is required.
At present, very few states allow open access. One of them is Tamil Nadu. Meanwhile Gujarat does not permit it at all. Others such as Andhra Pradesh and Telangana allow some form of open access or the other, but they are constrained in terms of transmission. Most of the states have devised difficult open access rules, which are not possible for developers to follow. Besides, one of the key issues associated with solar power is that it is intermittent. This is problem is even bigger in the case of offsite projects. Another issue pertains to project size. While rooftops and onsite land of consumers can usually accommodate more than 1 MW of power, there is a 1 MW limit for capacity as well as for net metering. Approaching the regulators for a solution will lead to a question of load study on transformers, which is a long and complicated process, and by the time an answer will emerge, the term of the power purchase agreement (PPA) may have ended. As a developer, we should keep asking for better and more consistent net metering and larger plant sizes where the transformer permits it. We have to solve this problem using economics rather than relying solely on the regulatory process.
The investment for Cleantech Solar came from debt investors, which include the Swiss Climate Fund, Deutsche Bank’s Green Climate Fund, the World Bank and State Bank of India. Thus, we have set up a relatively large fund right from the start. The debt allows us to focus on operations and maintenance (O&M) while enjoying the benefit of a substantially large average project size in the industry. We are able to focus on our individual projects a lot more and keep most of the control parts in-house while outsourcing services such as panel cleaning.
In India, we are witnessing a lot of automation. It will probably be applied first to large offsite ground-mounted projects. We are using it in floating solar plants, which require more automation. Other forms of automation include network operating centres and thermal imaging of panels in the entire plant. Automation in cleaning may take a little longer, especially since labour continues to be cheap in India. Another emerging challenge is related to the limited number of Tier 1 customers, which are our target user group. As the Tier 1 consumer segment is getting exhausted, we are already working towards building our offsite portfolio. When this is exhausted as well, one can think of diversifying operations into new countries. The ultimate strategy should be to stick with the good customers.
Residential solar in India will also take off soon in the form of loans as the customers have a very good credit rating. However, the challenge lies in the fact that rooftops in India tend to be non-uniform as compared to other countries where rooftop solar has been successful. As far as the future outlook for the overall rooftop segment is concerned, the installed capacity is projected to reach 10-12 GW by 2022, as against the target of 40 GW.
Kushagra Nandan, Co-Founder and President, SunSource Energy
SunSource Energy is largely focused on the C&I segment, in India as well as Southeast Asia including the Philippines, Thailand and Vietnam. Very recently, we have delivered our first project in Africa. In India, we have set up projects in over 25 states. We are backed by the Neev Fund, which is a joint venture of SBI Caps and the UK’s Department for International Development. In terms of portfolio, we have completed almost 115 MW of projects and there are multiple projects under development. While we specialise in rooftop solar projects, we have recently ventured into the open access-based solar segment. We are setting up the first such projects in Uttar Pradesh and we are looking at other states as well.
Open access for solar presents a significant opportunity, but it also has its own set of challenges. As stakeholders in the industry, we have been raising the issues, and in most instances the government has been receptive to our concerns. From discoms’ point of view, by restricting open access they are trying to safeguard their income sources. As an industry, we have to come together to present our view to the discoms. And I think we are doing it and the regulators are willing to hear about the issues. Another regulatory gap pertains to net metering approvals. So, although the majority of the states have adopted net metering policies, there are several challenges. Net metering is highly restrictive in India as some of the states have allowed this facility only for projects up to 1 MW. Another issue is of policy instability. Take for instance what happened overnight in Uttar Pradesh. It released a net metering regulation but withdrew it the other day. The state has tremendous scope in the C&I rooftop space and it should allow net metering for this segment. So, the regulators have to ensure that this does not trickle down to other states. Otherwise, it will become a case of policy paralysis.
For O&M, we have a combination of in-house and outsourcing models. We have a technical in-house team that takes care of SCADA operations and data analytics. Panel cleaning is outsourced. Besides, it is important to ensure PPA credibility for the cash flow to stay intact. This starts with in-house discipline in client selection. One should also be quite selective in terms of long-term PPAs because they require a lot of capital both on the debt side and the equity side. Moreover, there is a need to ensure timely payments. We have developed our in-house credit assessment tool, which includes third-party or external rating, along with other aspects of assessment, for ensuring that the basic hygiene factors are in place. It is important to know their credit history in terms of paying out in time to their vendors and other parties. A positive development in this regard is the evolution of various laws, including the MSME Act. This keeps the clients in check and they also think twice before defaulting. Another consideration is regarding the value addition. There is a need to assess whether consumers who are already saving on their existing utility bills will shift from grid power if they are offered a lower tariff.. For that, there is a need to look at the penalty clauses more closely. The other is the force majeure situation that we cannot control. We also follow a strict mechanism for vendor due diligence. If it is a cable manufacturer or a panel manufacturer, we do visit and audit the factories and then do a lot of reference checks.
Umakant Shende, Chief Executive Officer (Southeast Asia), CleanMax Solar
CleanMax Solar is one of the top rooftop developers in India. It has a portfolio of over 550 MW of installed capacity. This consists of 220 MW rooftop and 330 MW ground-mounted capacity. Most of our customers are in the commercial and industrial sectors. IFC (World Bank), Warburg Pincus and UK Climate Investments along with some international PE funds have invested in our company, providing us the wherewithal to develop open access projects across four major states.
Open access is very lucrative for the commercial sector because rooftop has certain limitations such as the available installed capacity. Through open access, the consumers can achieve their green targets while saving on their electricity costs. However,the segment faces a number of challenges. On the regulatory side, every state has its own net metering regulation. In Andhra Pradesh and Telangana, one can get net metering fairly fast, at times within a month or so.
However, in other states, it can take a considerable amount of time. Some states are promoting net metering, some have an awareness problem while other states are against it. In some states, the net metering policy is being reversed to gross metering. A case in point is Uttar Pradesh. My personal opinion is that there should be a national net metering policy. Net metering will not only help the industry, but the discoms as well. It will help in reducing the losses that they incur. Even though net metering should be promoted, each state has its own constraints in terms of revenue loss so, they cannot be forced.
In terms of O&M, CleanMax has outsourced the field work, particularly panel cleaning and inverter maintenance. However, the entire technical management and expertise is in-house. A global operation centre in Mumbai has a centralised monitoring facility for all the plants. This has helped us increase the overall plant uptime across our projects. There is a call centre that monitors the plant whenever the inverter goes down. They call up the field team to ensure that it is up and running in least possible time. The soiling analysis is monitored centrally. The feedback of this analysis is given to the field team. Today, we have an in-house state-of-the-art monitoring system, which helps us to have a better control on the generation. Besides, we have around five service providers, and each of them has been designated a cluster. Region-wise or cluster-wise allocation helps us achieve economies of scale. Our expansion strategy has been to shift from Tier 1 customers to the next level. When we started, we were only looking at MNCs, but today we are also working with BBB-rated customers. However, moving from Tier 1 consumers to Tier 2 is a challenge. One has to be very cautious and careful.
Summing up, 40 GW is a very tall target for the rooftop segment. These projects would require a lot of support from discoms, which will not be easy to achieve.
Jay Kumar Waghela, Head, Business Development (North and East Region), Fourth Partner Energy
Fourth Partner Energy was founded in 2011. At present, our installed rooftop solar capacity stands at about 160 MW. The company grew by around 200 per cent post investment from The Rise Fund, a global impact investment fund managed by TPG Growth. The investment of about Rs 4.5 billion by TPG has allowed us to adopt the developer model. More than 70 per cent of our projects are now in opex mode.
We are also looking to expand our operations outside India. We have started developing projects in the SAARC region and are slowly expanding to Southeast Asia and the Middle East. In India, we have delivered projects across 23 states and 1,700 sites, while catering to more than 100 corporate clients. We have taken baby steps in open access in Haryana, Maharashtra and Uttar Pradesh, where there is policy clarity. In these states, the regulators are more forthcoming in terms of their attitude towards the consumers opting for this solution.
Energy forms a very critical component of the economy. If as a nation we have to be competitive internationally, our products have to be competitive, which means energy has to be generated at a competitive cost. If we benchmark our energy cost against China, we are on the higher side. The concern regarding the impact on discom earnings is a very short-term persepctive. From a global perspective, we are trying to impact the GDP of the country by making our products more competitive in the international market. This is a larger picture, which we need to create as an industry by increasing our presence in the regulatory formation process and challenging the discoms.
Currently, there are variations across states in the actual framework. One state could have 100 per cent contract demand while another could have only 45 per cent contract demand. Moving down from framework to actual implementation – there are variations there as well. At times even in a discom, the papers required to be filed and the timelines vary from circle to circle. In my opinion, there should be national-level standards and focus on the move towards digital. For instance, while filing for net metering, if the application and payments are processed digitally through an online process, things would be much more transparent and easier to track.
At Fourth Partner, all our competancies are in-house – right from site survey, design and execution to O&M. Service is going to be the key differentiator as we move ahead and O&M forms a major element of that service. Regular cleaning, adequate generation, monthly reports and quarterly meetings usually drive the re-order level, which for us is 25-30 per cent. We have tried to keep these services in-house in order to always be in control of the quality and efficiency.
In addition, discipline in maintaining the payment cycle is important. Typically, we have very tight monitoring at least during the first three months of the payment schedule and that is where the business development team is involved. If any payment is missed, the sales team gets involved and ensures that the cycle is maintained. Currently, there is 31.5 GW of installed solar capacity across the country but the target is to reach 100 GW by 2022. For rooftop solar, India has only 4.5 GW, which is 10-11 per cent of the targeted 40 GW. So, the rooftop segment is clearly lagging behind. Even in the best case scenario, India is likely to reach 12-15 GW by 2022.