Chandigarh: With less than four years left to meet its target of installing 40,000 megawatt (MW) of rooftop solar power capacity by 2022, India has installed just about 2,538 MW as of March 2018, a full 94% short of the target.

At this rate, missing the target is a foregone conclusion, which also jeopardises India's overall solar target of 100 gigawatt (GW, equal to 1,000 MW) by 2022.

Rooftop solar has been a key part of the recent renewables revolution around the world, particularly in Germany and the U.S., and its appeal is clear--residential, commercial and industrial buildings can generate their own electricity, which is green and potentially less expensive than the electricity they draw from the grid. What's more, they can inject the excess power back into the grid and get paid for it.

India's ambitious target, in fact, is backed by a 30% subsidy for residential buildings. But this has failed to enthuse home owners, the majority of whom pay small electricity bills and find the cost of solar equipment prohibitive in comparison.

Commercial and industrial building owners have shown more enthusiasm as their large power bills justify the expense of solar power systems, even though they get no subsidy. But here, policy and regulation are blocking the way, say a range of industry participants, including installation businesses, consultants and power distribution companies (discoms).

"The government needs to do much more if it is serious about the 40 GW target," Sanjeev Agarwal, managing director and CEO of Amplus Solar, one of the largest rooftop solar installations companies in India, told IndiaSpend.

Current scenario

After India announced the Jawarharlal Nehru National Solar Mission in 2010, rooftop installations went from zero to grow annually at a compound annual rate of 117% between financial year 2013-14 and 2017-18 (the Indian financial year runs from April to March).

In 2015, the ministry of new and renewable energy announced its 40 GW target and a subsidy for home-owners to install rooftop systems, and began to urge state governments to announce policies to enable net-metering, a billing mechanism that enables power consumers to be paid for injecting renewable power into the grid.

The segment has since grown to install 2,538 MW as of March 31, 2018, according to the consultancy Bridge to India. This gives rooftop solar a 10% share in India's overall solar capacity installation, with large-scale and off-grid solar installations cumulatively nearing 22,000 MW during the same period.

(Large-scale solar includes megawatt- and gigawatt-sized projects, including solar parks and solar ultra mega power plants (UMPPs). Off-grid solar installations are smaller, often kilowatt-sized (1 kilowatt equals 1,000 megawatt), and generate and use their own power independent of the grid. Rooftop solar projects are also small, kilowatt- or megawatt-sized, but are usually connected to the grid through net-metering.)

On the plus side, the industry is at "an inflection point" right now, Agarwal of Amplus Solar said. "Rooftop solar is a well-established, well-understood sub-sector now, not the hard sell it was when we started four years ago," he said, "The technology is well established, and costing has come down 40-50% to a level where adoption is quick."

The earliest and most eager adopters of rooftop solar have been commercial and industrial users, accounting for 544 MW and 1,088 MW of capacity installation, as per Bridge to India. "They have large rooftops and large consumption, and are able to break even in 3-4 years," Kanika Khanna, director of SunkalpEnergy, which brings together rooftop owners and solar system installers, told IndiaSpend.

Commercial and industrial customers also get tax breaks such as accelerated depreciation--a tax saving accounting tool that enables a business to front-load capital expenses in the earlier years of a project's lifecycle to claim tax rebates--Vibhav Nuwal, director of data analytics and management consultancy REConnect, told IndiaSpend.

So, for example, for new and expanding factories, installing rooftop solar generators makes innate sense, Nuwal said. Companies such as Amplus, CleanMax and Fourthpartner have raised large amounts of money from global and Indian investors, he said, betting big on the potential of the segment in India.

Across India, grid power tariffs vary by state, but generally, residential tariffs are subsidised and quite low for small users (roughly Rs 5 or 0.07 cents per kilowatt-hour), but get progressively higher for larger users (around Rs 7.75 per kilowatt-hour).

That makes the wealthier home-owners also interested. This is particularly true of wealthy residences that have no grid connection, such as ‘farmhouses’ around Delhi that the government does not consider legal and so does not provide electricity connections to, and homes that have such erratic power supply that they rely largely on diesel generators, such as gated communities in Gurgaon, Khanna said. "Many South Delhi homes have seen their electricity bills go from Rs 120,000 [$1,740] a month to Rs 30,000 [$435]," she said.

Subsidy, and why it isn't enough

For the vast majority of home-owners, however, the subsidised power from the grid is so cheap that it does not make economic sense to spend on expensive solar power systems. This is why only 503 MW have been installed on private homes.

As an inducement, the renewables ministry gives home-owners a 30% subsidy on the cost of equipment. "But the process is long-winded and involves many permissions," Khanna said, which can take up to four months, "Though in some states you could wait for up to a year and a half!" For small retail consumers such as households, that is too long a wait.

Some of the agencies whose approvals are required, listed in a November 2016 'Concept Note' by the renewables ministry, are: The respective state Regulatory Commission (for net metering regulation), discoms (for net-metering), the Chief Electrical Inspector (for safety aspects), the state nodal agency of the central renewables ministry (for release of subsidy), banks (for housing/ improvement loan), and the urban local body (for adherence with building byelaws).

For this reason, "Nobody is looking at subsidy anymore”, Agarwal said, "[Businesses] don't want to get into the residential sector because the subsidy is not enough, the paperwork is too much, you are forced to use domestic equipment that is not the best in the market, and then get an inflated invoice because companies want to claim more subsidy." He was referring to the fact that state nodal agencies select equipment suppliers that quote the lowest prices, who then go on to supply equipment of questionable quality.

Installation businesses instead want to focus on commercial and industrial rooftops. But here, too, the government must urgently improve the ease of doing business, Agarwal said.

In addition to the various approvals mentioned before, commercial and industrial customers are held back by other regulatory hurdles. For one, most states' net-metering policies allow a roof owner to inject into the grid only a proportion of their sanctioned off-take from the grid.

So, facilities such as warehouses, for instance, which need power only for lighting purposes and hence have small connections (or "sanctioned loads"), are prevented from installing greater rooftop generation capacity and using the full potential of their usually vast rooftops, Nuwal said.

Getting utilities on board

Perhaps the biggest challenge the rooftop solar segment faces is opposition from discoms. To keep residential tariffs low, utilities charge higher tariffs from commercial and industrial customers to cross-subsidise residences. As high-paying commercial and industrial customers begin to use rooftop systems, their electricity bills shrink, reducing discoms' revenues and forcing them to further raise commercial and industrial users' tariffs, setting off an adverse cycle.

In theory, utilities would gain as more users moved to rooftop systems because it would cut down their transmission and distribution losses--which the World Bank recorded at a whopping 19% in 2014. All rooftop capacity installed in their license areas also goes towards offsetting their renewable purchase obligations, under which discoms (and other large power users) must source a state-specific portion of their power use from renewable sources.

However, at the moment, these benefits are dwarfed by the drawbacks, a 2016 study by Shakti Sustainable Energy Foundation and the consultancy Deloitte showed. Due to shrinking power sales to large users who have switched to rooftop systems, utilities are finding it difficult to recover the investments they have made in building distribution infrastructure and making good their long-term power purchase agreements. Moreover, they are unable to recover cross-subsidy charges.

Utilities are also facing problems managing the variability in generation by rooftop systems--which produce power during the day and shut down at night, effectively injecting solar power into the grid during off-peak periods and withdrawing it during peak periods.

In addition to technical issues, utilities' administrative load has increased as they must process applications, conduct inspections, provide connections, carry out metering and billing and so on, the study said.

"In the current scenario, there is no incentive for discoms," Vinay Rustagi, managing director, Bridge to India, told IndiaSpend. "Not only do they lose their high tariff paying customers, they also have to undertake extra efforts to upgrade distribution infrastructure and provide free metering and banking services to rooftop solar projects." Banking means injecting excess energy into the grid which can be later claimed at a charge.

Utilities need financial and operational support to encourage the rooftop segment, Rustagi said, and new business models must be devised which give discoms the role of a service provider that gets compensated for its efforts of facilitating installation and use of rooftop solar systems, as well as the loss of its business.

To this end, the renewables ministry in December 2017 proposed a scheme, called Sustainable Rooftop Implementation for Solar Transfiguration of India (SRISTI), to make utilities the central agencies responsible for installing rooftop solar power plants in the residential sector while offering them a subsidy on installation costs in addition to incentives based on capacity added.

As per the scheme, utilities would take on all tasks involved in setting up rooftop systems, including creating awareness among rooftop owners and getting them to agree to install solar plants, obtaining the various approvals required, installing the equipment and managing the billing, etc. thereafter.

Some utilities support this scheme, saying their existing interface with consumers can be put to good use. The trust that exists between the consumer and the utility is absent between the installer or the developer, Jitendra Nalwaya, additional vice-president at the private Delhi utility BSES Delhi, told IndiaSpend. He said commercial and industrial rooftops account for larger volumes of capacity installation, but the residential segment is important to create a culture that gives renewable rooftop installations primacy in the interest of long-term sustainability.

Utilities stand to gain from making low-tariff paying residential consumers migrate to rooftop systems, Neeraj Kuldeep, programme associate at Delhi-based research and advocacy group Council on Energy, Environment and Water (CEEW), told IndiaSpend.

However, critics point out, a one-time subsidy is not enough. A June 2018 study by CEEW, BSES and Shakti Sustainable Energy Foundation suggested alternative business models that give utilities a central role in installing rooftop systems as well as in collecting user fees, from which they would earn revenue, while eliminating the need for rooftop owners to make any upfront expenditure.

One such model, called the 'solar partner model', would have the utility play demand and supply aggregator; systems would be installed through competitive bidding, and rooftop owners would either earn monthly rent for use of their roof or get a credit on their electricity bill.

Another, called the 'on-bill financing model', would have the utility aggregate consumers and help them get loans below market rates to install rooftop systems, which they would repay with their electricity bills.

In a 'utility-led community solar model', a group of consumers would either jointly own a solar rooftop system or buy solar power from a community solar system and adopt either of two subscription options--subscription fee or upfront payment.

Currently, regulations support only a 'capex' model (the rooftop owner pays for the system) and a 'resco' model (the installer owns the system and sells power to the rooftop owner). State governments’ policies and regulations would have to be updated to allow a range of new practices, for instance, differentiated tariffs.

"Whichever models are eventually approved, effective implementation is the key as past moves have suffered from bureaucratic glitches," Rustagi said, "Also, as electricity is a concurrent subject, buy-in from state governments is crucial for growth of this market."

(Singh is a contributing editor with IndiaSpend.)

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