Quality in Question

A rating system is essential for deploying durable solar assets

By Shreyans Jain, Analyst, Climate Finance, Climate Policy Initiative

The Government of India has set a target of installing 100 GW of solar capacity by 2022. In this pursuit, the country has witnessed large capacity additions over the past few years. But this boom is riding on an uncomfortable truth – poor quality.

Suppliers’ competition

Due to low entry barriers, the sector has witnessed participation from a large number of engineering, procurement and construction players, installation companies, system integrators and entrepreneurs. This has led to intense competition among suppliers, especially in the distributed solar segment, on project cost instead of long-term system performance and levellised cost of energy. The push for low prices has led to the widespread installation of poor quality components, both domestically produced and imported, and the application of inferior system design at the execution site. There have been several instances of system failure due to cheap installations by flight-by-night vendors that are new to the sector and lack adequate technical competence to achieve quality installations.

The absence of mandatory standards for workmanship, installation, and grid integration results in poor system performance, as reflected in lower power generation, shorter equipment life span, and safety concerns for the distribution network.

Compromised connections, unsheathed cables with insufficient bending radius, rusting and corrosion on mounting structures, and incorrect array layout lead to system failure and, in turn, increased expenditure on O&M activities. Claiming warranty in the aftermath of system failure is often a cumbersome process. This not only adversely affects the project owner’s return on investment, but also distorts market development by eroding lender confidence in the sector.

Distinguishing the best from the rest

The implementation of a rating system that evaluates the quality of projects undertaken by vendors can inspire confidence among all stakeholders and accelerate the adoption of solar. The ratings can provide an effective mechanism to improve the accountability of vendors by putting in place a framework that provides certification based on their ability to design, develop and deploy solar energy systems. Such a framework should involve evaluation of the technical capabilities and financial strength of the vendor and on-site inspection of a certain number of randomly selected legacy installations. Enabling the comparison of different players on their quality of workmanship and deployment practices, will motivate them to constantly improve, provide better services to consumers and maintain a high rating. This will foster healthy competition in the market and help developers, consumers, discoms and financial institutions distinguish the best vendors from the rest for solar installation and O&M. The ratings will also help financial institutions improve their due diligence and come up with incentives for highly rated vendors.

While designing a robust rating system that is dynamic in form and acceptable to all stakeholders, a few pitfalls should be avoided. In a capex ownership model, consumers are likely to have a strong preference for a highly rated vendor since their own investment is at risk. Meanwhile, the lack of ownership under the opex/RESCO model might make the consumer indifferent to a vendor’s rating. Further, the RESCO might be reluctant to get certified due to fear of comparison and increased competition.

The rating system should not allow a vendor’s rating to be affected by consumers’ feedback due to the latter’s lack of technical competence to evaluate the performance of a solar installation. In the absence of the force of law backing the rating system, the entire exercise might get reduced to a typical “rating shopping” model. The eligibility criteria for obtaining certification should be carefully designed. In comparison with large players, poor rankings for small players and new entrants in the ecosystem will not only mean loss of market share, but also deny them access to institutional finance on favourable terms. Further, it needs to be explored if the presence of highly rated vendors, per se, is sufficient to extract a premium from price-sensitive consumers.

The way forward

A robust rating system will not only ensure the creation of safe, durable solar assets, but also help in achieving the national renewable energy targets by accelerating the deployment of solar energy systems at scale. A well-designed awareness programme that demonstrates the favourable business impact of ratings to vendors, sensitises consumers to the risks of cheap, suboptimal solar systems, and improves due diligence of institutions financing solar projects can make the rating system a commercial success.

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