MNRE Financial Assistance to DISCOMs to Boost Rooftop Solar in India

The Ministry of New and Renewable Energy (MNRE) has released a new proposal to overhaul the existing rooftop solar implementation mechanism by making it the responsibility of distribution companies (DISCOMs). Under the proposal, DISCOMs would be eligible to receive financial assistance to the tune of ₹234.5 billion (~$3.66 billion) based on their performance in facilitating rooftop solar deployment.

The concept, once approved, would serve as the basis of MNRE’s revised Phase-II rooftop solar program.

In the new policy proposal, MNRE notes that so far rooftop installations have been lagging well behind the installation goal of reaching 40 GW by 2022. The reasons cited for the slow progress include having too many agencies involved in rooftop implementation, tender delays and cancellations, reluctance by DISCOMs to promote rooftop solar due to potential revenue losses, and a lack of policies and implementation by states.

Rooftop Solar Target vs Industry Estimates

To address these issues, MNRE has proposed bringing DISCOMs to the forefront of implementation of the rooftop solar program by providing them with performance-based financial support. The support is designed to accelerate the deployment of rooftop solar projects within their distribution areas and make DISCOMs the sole implementing agencies. Incentives would be provided for each MW capacity of rooftop solar added by DISCOMs in their distribution networks. The installations would then be counted toward the DISCOMs’ respective Renewable Purchase Obligations (RPOs).

Challenges on the ground

Two important incentives ended this year. Accelerated depreciation rates came down from the current 80 percent to 40 percent starting April 1, 2017 and the 10-year income tax holiday under section 80-IA was not reinstated in the recent budget and ended on March 31, 2017.

The government has been tinkering with rooftop policies for a while. The efforts so far have been lackadaisical where the goal has been to get rooftop solar going by spending the least amount of money possible. It is important to recognize where the real problems lie before applying a new fix. For example, it is a well-known fact that many rooftop installers fell on hard times financially because the subsidies owed to them by the government were delayed indefinitely a few years ago. Most rooftop installers would rather not deal with subsidies at all.

Net-metering implementation is a mess and sometimes can take up to six months to get net-metering approved. Sometimes there are ‘extra fees’ to get these connections approved. Government building installations are costing more compared to other rooftop installations also because of the ‘extra costs’ in getting approvals. The most common challenge according to rooftop installers is the restriction of net-metering policies that put an upper ceiling of 1 MW on rooftop solar projects. This is restricting the growth of rooftop according to many in the industry.

Currently, no government agency is monitoring rooftop installations to know where the market truly stands. According to a bottom-up analysis by Mercom in its Q3 Solar Market Update cumulative rooftop installations in India at the end of Q3 totaled 1,345 MW with most of the installations coming from the commercial and industrial segment.

Proposed Incentives

Recognizing that the current incentives have not been attractive to residential customers, the proposal also calls for providing Central Financial Assistance (CFA) to rooftop solar project installations in the residential sector for systems up to 5 kW in size.

Financial assistance would not be made available for commercial and industrial, government, social and institutional segments (social and institutional segments were provided incentives similar to residential installations before). The proposal specifies that this is because the power tariffs in these segments are already high enough to make economic sense for them to install solar without any incentives. But the question remains, will it make financial sense for DISCOMs to get customers to go solar or is it more beneficial to let them keep paying higher prices?

Since there will be a cost burden associated with becoming an implementation agency, DISCOMs will be incentivized for every MW of solar added in their distribution networks.

Applicable Incentive Rates for Discoms for Rooftop

DISCOMs will need to submit installation figures for their areas by March 31, 2018, and these will be taken as the base capacity for reporting purposes. Incentives will be given on capacities added each financial year. The incentives would be calculated on a progressive basis with higher incentive rates paid for higher levels of capacity added.

For example –

Proposed Incentive Mechanism by MNRE

MNRE is proposing to set separate targets for rooftop segments to achieve the goal of installing 40 GW of rooftop solar by 2022. Under that scenario, the government, residential, institutional, and social segments would each be assigned an installation goal of 5 GW of rooftop solar capacity. The remaining 50 percent of the installation target (20 GW) has been set for the industrial and commercial segment.

Rooftop Target by Segment

In all, MNRE is proposing to provide a total of ₹234.5 billion (~$3.66 billion) in CFA and incentives to DISCOMs to implement the next phase of the rooftop solar program.

How the program would work

DISCOMs will need to submit an online proposal based on the target allocation using MNRE’s SPIN portal by January 2018. Tenders would then be floated state-wise in February and tariffs would be realized through competitive bidding in March 2018. The tariffs will then be applicable for the period of April 1, 2018 to March 31, 2019. DISCOMs would be eligible to receive financial assistance of up to 30 percent of the total CFA allocated for the project. CFAs will be paid out bimonthly or quarterly.

Financial Outlay of Proposed CFA and Incentives

After months of inactivity, suddenly policy proposals are coming out one after the other since Mr. R.K. Singh took over as the new Minister of Power and MNRE. Recently, MNRE released a concept note of a proposal to build out India’s manufacturing supply chain, including polysilicon, wafers/ingots, cells and modules. MNRE also recently said that it is working alongside states to announce the tenders needed to reach 20 GW of ground-mounted capacity in solar parks in the 2017-18 fiscal year, followed by 30 GW in 2018-19, and another 30 GW to follow in 2019-20.

It is unclear how things will play out. Many of these top-down solar proposals over the years have looked good on paper. But effective execution, coordination, and communication with all the agencies involved and reacting to realities on the ground are where the challenges lie.

The massive rooftop solar potential in India is still untapped and a convergence of right policies, execution at the right price point can really propel it to the next level.

Click here for a copy of the rooftop proposal.

Image credit: Azure Power

Raj Prabhu Raj is a recognized thought leader in clean energy markets where his work has influenced policies worldwide. He has a deep understanding of regulatory policy and clean energy markets and his market and opinion pieces are regularly published on both MercomIndia.com and other leading publications globally. Raj is also a regular speaker and presenter on clean energy policy and finance topics at conferences worldwide. Raj attended the KLE College of Science in Bangalore, India for physics and chemistry, and holds a Bachelor of Science Degree in Hotel and Institutional Management from Johnson and Wales University, Rhode Island. More articles from Raj Prabhu.