Despite being promoted by policymakers, the rooftop solar segment is not likely to deliver the ambitious target of setting up 40 GW of such capacity by 2022. As of September 2020, the installed rooftop solar capacity in India stood at 3.22 GW, accounting for around 8 per cent of the set target. The capacities are concentrated in few states. The top five states in terms of installed capacity are Gujarat (796.68 MW), Rajasthan (356.28 MW), Maharashtra (262.5 MW), Tamil Nadu (247.49 MW) and Karnataka (232.77 MW), accounting for approximately 59 per cent of the total installed rooftop solar capacity. Many changes in policies, regulations and business models have taken place in the past to find an appropriate solution. While some of them worked, many ended up creating more hurdles in the segment.
Renewable Watch presents a history of the rooftop solar segment, the current policy framework, recent developments and the key challenges facing the segment…
In 2010, the Jawaharlal Nehru National Solar Mission was launched with a target of setting up 20 GW of grid-connected solar capacity by 2022. In the same year, the Gujarat government initiated the rent-a-roof programme, supported by the IFC. Under this programme, private and government-owned companies started to lease the rooftop space. The operators received a feed-in tariff of Rs 11.21 per unit for a 25-year period and the systems were installed under the public-private partnership (PPP) model. The business model attracted many private companies in the rooftop solar space. Following its success in Gujarat, the PPP model was later followed in Odisha.
To facilitate the grid connection of small renewable energy systems and promote residential rooftop solar systems, in 2012, net metering was introduced. After this, several states launched their rooftop solar programmes. A major policy push for the segment came in 2015 when the central government set a 40 GW rooftop solar target (part of the 100 GW solar target) to be achieved by 2022.
Prevalent business models
The adoption of the opex model in 2015-16 was a game changer in the rooftop solar space. Till then, most rooftop solar projects were deployed on the capex model, where the consumer would have to put in the initial investment. Under the opex model, no upfront capital investment is required from the consumer, which was a relief considering the high initial cost of such systems. In this case, the consumer pays a predetermined tariff to the developer. Moreover, consumers are not responsible for the O&M of the project, which is undertaken by the rooftop project developer. Rooftop solar power is a cheaper alternative to grid power for the commercial and industrial (C&I) segment, which led to its greater uptake. With this, many specialised players entered the market, providing solutions under the opex model. Also, large consumers of electricity including Indian Railways, the DMRC, various airports and ports have been regularly floating tenders to install rooftop solar systems on their premises.
Among states, the Madhya Pradesh government has taken the lead in terms of demand aggregation and has floated tenders for C&I consumers in Mandideep and Pilukhedi. The World Bank, State Bank of India, Asian Development Bank and Punjab National Bank are partnering with the state government to assist on this project. In addition, the state government successfully implemented renewable energy service company (RESCO) tenders for government buildings, schools and hospitals and discovered record low tariffs of Rs 1.58 per kWh and Rs 1.38 per kWh. Setting up data rooms in each building and undertaking pre-engineering design work helped the state government achieve such low tariffs.
Meanwhile, the residential segment grew at a slower rate due to the lack of awareness, high initial costs, subsidised grid tariff, etc. In the residential rooftop space, the Solar City Initiative of BSES Rajdhani Power Limited (BRPL) has been quite popular. It covered apartment complexes in Dwarka and Shakurbasti in the first two phases. The initiative is expected to benefit the discom, consumers and vendors. The discom gains by managing the peak demand through solar energy while also meeting its renewable purchase obligation (RPO) mandate. Consumers gain by reducing their electricity bills with zero upfront costs under the opex model. Meanwhile, vendors are confident that the discom will purchase the surplus electricity generated in order to comply with its RPO. Recently, the initiative was expanded by BRPL and BSES Yamuna Power Limited to launch Solarize Safdarjung and Solarize Karkardooma.
MNRE’s grid-connected rooftop solar programme
In December 2015, the MNRE approved the Grid Connected Rooftop Solar Programme with the target of installing 4,200 MW of rooftop solar systems by 2019-20. Of this, 2,100 MW was to be set up with central financial assistance (CFA) and the remaining 2,100 MW was to be set up without it. Following this, in February 2019, the MNRE approved Phase II of the programme. In the second phase, discoms were given a greater responsibility. They became nodal agencies for the implementation of the programme. This is because discoms have direct contact with end users including a billing interface. They also provide approvals for installation and manage the distribution network. The guidelines for the implementation of the second phase were released in August 2019, which outlined the road map for achieving the 40 GW target by 2022. The availability of CFA for the residential segment (Component A) and performance-based incentives for discoms (Component B) were the key highlights of the guidelines.
In January 2020, the MNRE clarified that all bidders within the lowest bid price bracket (specified by the MNRE) will be empanelled, but will have to match the lowest bid. Currently, either a CFA of 40 per cent of the benchmark cost or the cost discovered through a transparent bidding process by the implementing agency is applicable (whichever is lower) for rooftop systems up to 3 kW. For system sizes of 3-10 kW, either a CFA of 20 per cent of the benchmark cost or the cost discovered through a transparent bidding process is applicable (whichever is lower). For group housing societies (GHS) and residential welfare associations (RWAs), the CFA is limited to 20 per cent for rooftop solar plants for the supply of power to common facilities. The capacity eligible for CFA for GHSs and RWAs is limited to 10 kW per house and up to 500 kWp for the entire GHS and RWA.
The discoms need to incur additional expenditure for the implementation of rooftop solar systems on account of additional manpower, infrastructure and capacity requirements as well as for raising awareness. In view of this, Component B of the programme compensates discoms with performance-linked incentives for the first 18 GW of capacity. The incentives are calculated for each MWp of rooftop solar capacity added by the discom in its distribution area over and above 10 per cent of the base capacity installed at the end of the previous year. So, no incentive is applicable for capacity addition up to 10 per cent. A 5 per cent incentive is applicable for addition beyond 10 per cent and up to 15 per cent, and a 10 per cent incentive is applicable for addition beyond 15 per cent. While the CFA under Component A is not applicable to non-residential consumers, the discoms are incentivised for the addition of rooftop solar capacity for non-residential sectors under Component B.
Mixed response in states
State-level regulatory developments over the past few months have been both positive and negative for the overall growth of the rooftop solar segment. In February 2020, the Kerala State Electricity Regulatory Commission (KSERC) issued the KSERC (Renewable Energy and Net Metering) Regulations, 2020. According to the regulations, the discoms will provide net metering arrangements to consumers only on a first come, first served basis, thereby limiting its uptake. In March 2020, the KSERC approved the Kerala State Electricity Board’s approval for implementing 50 MW of grid-connected rooftop solar projects under the programme.
Maharashtra has witnessed uncertainty regarding its rooftop solar policies. After receiving continuous criticism from the industry, in January 2020, the Maharashtra Electricity Regulatory Commission (MERC) finally issued the net metering regulations, allowing net metering and net billing arrangements, with grid-connected renewable energy generating systems tied to the consumer’s meter. As per the new regulations, these arrangements will be permitted by the discom on a non-discriminatory, first come, first served basis. Earlier, the state was planning to shift to gross metering for non-residential consumers. Further, in April 2020, the MERC decided not to levy grid support charges for rooftop solar systems until the cumulative rooftop capacity of Maharashtra reaches 2 GW. Also, additional fixed charges on behind-the-meter rooftop solar systems were exempted for Maharashtra State Electricity Distribution Company Limited projects for the period 2020-21 to 2024-25. However, the state is now reportedly looking to impose a grid support surcharge for rooftop solar systems.
Delhi remains one of the few states where positive regulatory developments have taken place. In July 2020, the South Delhi Municipal Corporation eased old regulations by removing the 2 metre height norm for rooftop solar systems. In October 2020, the Delhi Electricity Regulatory Commission broadened the scope of applicability for virtual net metering connections by including more consumer segments. In 2019, the Delhi government finalised group and virtual net metering regulations, ahead of other states and UTs. In another positive development, in March 2020, both the Uttar Pradesh New and Renewable Energy Development Agency and the Punjab government announced subsidies for rooftop solar projects.
The variations in the net and gross metering policy frameworks have led to complexities and uncertainties in the segment. For instance, earlier, Uttar Pradesh had flip-flopped on gross and net metering issues, but now does not allow net metering for C&I consumers. However, the state allows the use of blockchain for peer-to-peer trading of energy. Meanwhile, Karnataka links net metering permissions with the mode of financing. If the installation is financed by a third party, net metering is not allowed, but if it is self-financed, net metering is allowed. Developments in the past year have not been supportive either. In March 2020, the discoms in Andhra Pradesh requested the state electricity regulatory commission to only allow gross metering for rooftop solar systems in a bid to reduce revenue losses.
Key challenges and future outlook
The rooftop solar segment continues to face some fundamental challenges such as the bad financial health of discoms and their reluctance to promote rooftop solar, various state-wise regulations, restrictions on the open access of electricity, and policy uncertainty. Almost all states have issued net metering regulations, which vary across states and are often marred with uncertainty, which makes their implementation difficult. Most states not only restrict the maximum capacity of rooftop solar systems, but also put a cap on the amount of power that can be fed back into the grid. To reduce the woes of discoms, there is usually a 1 MW limit on both capacity installation and net metering. This hampers capacity additions as many consumers can accommodate more. Also, regulators keep on changing the contract demand in different states and there have been instances of bureaucratic hurdles in getting net metering permits in many states.
Recently, in September 2020, the Ministry of Power released the Draft Electricity (Right of Consumers) Rules, 2020, according to which residential rooftop solar projects of up to 5 kW will be eligible for net metering while projects above 5 kW will have to adopt gross metering. If implemented, these regulations are expected to create more hurdles and confusion in the industry. This is because many state discoms have been keen on shifting completely to gross metering.
Overall, considering the constraints in the segment, it is now clear that the 40 GW rooftop solar target by 2022 is impossible to achieve. Still, a greater consistency of metering policies, streamlined implementation of regulations, and long-term certainty will go a long way in giving the much-needed fillip to the ailing segment in the coming years.
By Sarthak Takyar