Clean Power

Published on August 29th, 2014 | by Anand Upadhyay


Subsidies Do More Harm Than Good, Says Solar Industry In India

August 29th, 2014 by  

A number of stakeholders want the Indian Ministry of New and Renewable Energy (MNRE) to do away with subsidies for rooftop PV. You read that right, they would like the subsidies to be removed. But this proposal is not as crazy as you might think.

Rooftop panels in a village in India - Original author image

Rooftop panels in a village in India

MNRE provides what is called “Central Financial Assistance” (a fancy phrase for subsidies) to a number of programs, and in this case the rooftop program. This assistance amounts to 30% of benchmark costs which MNRE revises periodically. In its current form, the rooftop program envisages a total installation of 25 MW of solar PV, in project sizes of 3–100 kW. The maximum size of installation has been reduced from 500 kW to the current 100 kW in light of financial constraints. These installations can come up on all sorts of commercial and non-commercial rooftops, save residential ones.

The total program is expected to cost $78.2 million. About a third of this will come from the National Clean Energy Fund created from taxes on coal. The program is quite well defined with technical requirements, reporting procedures, designated teams, etc. in place, but it falters on one thing that counts the most for the industry – timely release of payments. The Times of India reported two months back that MNRE had a subsidy backlog of about $530 million. Needless to say, this has been the cause of many sleepless nights for solar installers.

No new projects were sanctioned for subsidy since February this year. In such a scenario, many stakeholders across the solar industry think it is better to do away with subsidy because customers who would otherwise “convert” keep waiting for the subsidy. Even in cases where subsidy is approved, the time and effort spent in chasing the subsidy payments only adds to the cost. Many customers can comfortably invest in solar without subsidies, and the solar installers don’t want to leave this money on the table.

The government understandably does not want to portray itself in bad light by removing subsidies. It is good manners to support renewables even though its will power for implementation seems half hearted. Others have, however, suggested that the money earmarked for subsidy should rather be used to facilitate better financing options for the customers. With the residential sector kept out of the program, solar electricity is definitely cheaper than both grid and diesel power in almost all parts of the country. Thus, financing the upfront capital outlay is going to be the biggest bottleneck for the growth of the solar industry.

With the subsidy backlog still prevailing, it is quite possible that installers may choose not to apply for subsidies. Writing this feels like déjà vu because it has happened earlier in the case of solar water heating systems! Many large water heating installations went ahead without subsidies because of long delays in release of payments.

In fact, in several parts of the country, PV panels have been selling unsubsidised for a long time now. While subsidy has definitely helped to fuel the growth of the sector, in all probability, its usefulness as upfront capital assistance has come to an end. This seems to be the case at least for rooftops at commercial locations.

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About the Author

is an Associate Fellow with The Energy and Resources Institute (TERI, New Delhi) - an independent, not-for-profit research institute focused on energy, environment, and sustainable development. Anand follows the Indian solar market at @indiasolarpost. He also writes at SolarMarket.IN. Views and opinion if any, are his own.

  • Rupanagudi Ravi Shankar

    What ever ! Indian Government is moving or
    moved [?] towards a more sensible approach regarding subsidies for PV Solar
    Power plants, may it be roof tops or otherwise. When subsidies were
    announced the per watt cost was high; but now it has come down and may
    still come down. Also, I have observed that the cost of the equipment
    like inveters, chargers, panels are kept high by many suppliers though they can
    still make a decent margin with lower prices, with subsidy in view.

    May be Government in consulation with RBI should advice Banks to formulate a
    new product to fund the roof tops / PV solar projects with a low rate of
    interest and with long repayment periods with managable EMIs to consumers [
    though not as long as housing loans, may be something like 10 years may be
    reasonable]. This will / may accelerate installation of PV Solar power.

    Also Government should make it compulsory for all roof tops to have PV Solar

  • Kevin McKinney

    Hmm, then there’s the Ontario way to do wind…

  • Vensonata

    Gawd! Thank you gentleman, for your wit and humor. I’m smiling before 7a.m.

  • JamesWimberley

    This is only the Indian way to make a subsidy ineffective: announce one, then not pay it. The far superior American way is to create a subsidy in the tax code, then suspend and reintroduce it at random intervals.

    • Hans

      There is also the Dutch way: Every new government introduces a new (ineffective) support system that mainly serves as window dressing, and ignores lessons learned in other countries.

      The British way: Introduce a system thought out by economic theorists, that turns out very expensive in practice

      The German way: Introduce a very effective system, that reduces the costs of photovoltaic systems much more quickly than anticipated, then wait two/three years for correcting the support downwards to a more realistic level. After that start overcompensating and do away with the effective system alltoghether and start introducing the ineffective British system, because economical theorists like it better.

      • Hans

        The Spanish way: Copy and paste the original effective German support system, including the same feed in tariffs, without realising that the higher solar radiation in Spain allows for much lower tariffs. When finally it sinks in that the support was overly generous start making change retrospectively.

        • JamesWimberley

          Add: go into reverse and impose a punitive and discriminatory tax on solar.

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