By Akhilesh Magal
India’s solar market has grown exponentially in the last five years (see graph below). However, unlike most international markets, large ground-mounted grid-connected plants have driven India’s solar market, as opposed to rooftop systems. This difference in development made sense some time ago, when electricity prices were low and solar prices were higher. There was simply not enough incentive for consumers to shift to solar. This meant that the government had to create and promote the market through subsidies.
The government preferred to push large-scale plants simply because of economies of scale and the potential for cost reduction in solar tariffs. This has worked. Solar tariffs have fallen to incredible (and sometimes unsustainable) lows in the market. The recent bids in January 2016 saw record low tariffs of INR 4.34/kWh. This is now lower than most modern coal-fired power plants.
Having achieved the goal of rapidly bringing down solar tariffs (which was aptly aided by China’s manufacturing boom), the government now wants to accelerate rooftop solar systems. The Indian government has set a target of 40,000 MW of rooftop solar systems by 2022. Rooftop solar systems make sense because they are distributed by nature. They do not require expensive land. Also, the effect of geographically distributing the systems helps minimize variations. Further, the deployment of rooftop solar systems creates jobs.
The government has historically subsidized the rooftop solar market. It provided a subsidy of 30% to all rooftop consumers. Despite such an attractive subsidy, the market has simply not grown fast enough. As per estimates from MNRE, the rooftop solar installed capacity in India stood at 313 MW as of March 2016. Other analysts estimate this number to be higher at 525 MW. This difference can be explained due to the fact that the MNRE reports only those systems that have been supported by a subsidy. The significant difference in the numbers mean that most consumers are going ahead without availing themselves of the subsidy and perhaps even without informing the local distribution company.
The timely disbursement of subsidies has impeded the development of the market. Consumers have had to wait endlessly for the subsidies to arrive — sometimes in vain. Installers have sometimes taken the subsidy risk by discounting the system cost upfront. These installers have had to shut down because of cash-flow issues. The industry has on previous accounts called for the removal of the subsidy.
The government recognizes this issue and has aimed to allocate greater subsidies. The Cabinet Committee on Economic Affairs (CCEA) sanctioned INR 50 billion in January 2016, with the aim of clearing the bottlenecks. This is definitely one step in the right direction. The problem, however, may not lie in the quantity of subsidies, but rather in the disbursement mechanism.
Non-transparent approval procedures
Subsidies are channelized through SECI and other financial institutions. While this move prevents the abuse of subsidies, it also creates inordinate delays in the system. A better approach would be to transfer subsidies directly to the consumer’s bank account via an online transfer. This kind of subsidy transfer is not new to India. India has successfully implemented the LPG subsidy transfer in a similar manner. In this case, the government can verify the electricity meter number as registered with the local DISCOM. This will ensure that subsidies actually go to the consumers, as opposed to middlemen.
A potential solution
In fact, the entire approval process and subsidy channelization can happen online. A single online portal that links the consumer, the DISCOM, the Central Electrical Inspector (CEI) for safety approvals, and the state nodal agency, can help bring all the relevant stakeholders onto one common platform. This portal can be opened up to third party developers so that it can be automatically linked to a solar marketplace. Consumers should be allowed to pick the solar modules, inverters, and perhaps even structures online. Such a marketplace will bring transparency to the marketplace and bring down costs. It will also help establish user-driven reviews and ratings, by which the MNRE can disqualify system integrators or equipment manufacturers which receive several negative reviews.
The DISCOM barrier
Another key reason for the slow growth in the rooftop market is the DISCOM. Most DISCOMs in India are already cash-strapped (see complete list of DISCOM ratings here). DISCOMs are resistant to rooftop solar systems since they reduce their revenue. What is puzzling though, is that India has embarked on the world’s largest non-subsidized LED program. India has already distributed over 110 million LEDs through the UJALA scheme at the time of writing this article. The government estimates that nearly 3,000 MW of peak demand has been reduced because of this scheme. While the efforts of the government are laudable, the remarkable fact is that the government has gotten the DISCOM’s buy-in to this program, without which the program would have failed. Even power surplus states like Gujarat and Madhya Pradesh have signed up for the scheme. This goes to show that the implementation of such schemes needs a strong political push. It is time for the government to use similar channels of dialogue to get the rooftop solar market vibrant again.
A potential solution
Yes, the DISCOMs do stand to lose, and it could be detrimental to their financial health in the long run. This is where an incentive mechanism needs to be developed in order for DISCOMs to stay incentivized. One possible option is the Utility Owned Model. Under this model, DISCOMs (or one of their allied companies) own the solar plants on the rooftop of their clients and sign Power Purchase Agreements (PPA) with consumers. This way the DISCOMs retain their consumers for the lifetime of the solar power plant. The DISCOMs are best positioned to do this since they already own the grid, have the necessary technical expertise, have relevant networks with equipment suppliers and have the billing systems already set up. One significant barrier could be that DISCOMs are not allowed to get into the generation business. This is where they could act as a trader — sourcing solar power through developer-owned systems and reselling this to consumers who want to switch to solar. This would require advanced regulatory support such as virtual net metering, which is already being rolled out in states like Delhi.
Fixing three key aspects — an online and national wide uniform approval process, direct transfer of subsidy, and utilities participating in the rooftop boom — will ensure India’s moment in the rooftop sun. Judging by the political will and administrative action, at least in the power sector, these ideas do not seem far-fetched.
Akhilesh Magal is the Head Advisor – Solar Energy for the Gujarat Energy Research and Management Institute (GERMI), an institute dedicated to research in the fields of solar energy, energy efficiency, environment, and petroleum research. He is an environment engineer from Carnegie Mellon University and is an expert on solar policies and grid integration of renewable energy. He can reached at: firstname.lastname@example.org
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