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

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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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Anand Upadhyay

is a Fellow with The Energy and Resources Institute (TERI, New Delhi). He tweets at @indiasolarpost. Views and opinion if any, are his own.

Anand Upadhyay has 95 posts and counting. See all posts by Anand Upadhyay