Oriano Interview: India needs a proper rating system to drive rooftop solar adoption in SMEs

Rooftop solar installations are definitely going to be a big part of India’s renewable growth story. In a country of billions, generating solar power at the point of consumption is pivotal to reduce our energy cost and carbon footprint, as well as realize our renewable energy targets for the future. Currently, the country lacks the required awareness & rating system about solar rooftop viability for powering SMEs and households, feels Sachin Jain, the co-founder and chief executing officer of solar Engineering Procurement and Construction (EPC) firm Oriano Solar.

Until and unless the citizens are educated about the benefits of rooftop solar installations, the implementation of rooftop solar on a large scale would seem far-fetched. Banks lending loans for such projects also need to be made aware of the processes to be followed, opines Jain.

As India moves forward with its ambitious plan to reach 100 GW of installed solar by 2022, Jain says it is imperative that the Indian government ensures the solar market remains robust by moving forward with tenders in to 5 to 10 MW range that provide an entry platform to various investors/MSMEs and educate the public about the benefits of rooftop solar facilities. Jain talked about these matters and a range of other issues in a recent conversation with Mercom India. Here are excerpts from the exclusive interview:

What are your thoughts on rooftop solar in India? What is inhibiting country’s rooftop growth?

The rooftop market is growing at 80 to 100% annually. However, there are a few challenges that need to be addressed to accelerate the growth pace.

There are two kinds of markets for rooftop: OPEX (third-party-owned, lease) and CAPEX (outright purchase). OPEX is where you have a developer who is funding the project. There are a lot of developers in this market and, as developers get bigger, the average minimum capacity they look for is more than 500 kW for each site.

Now, if some consumer wants to go for 100 kWp project in the OPEX market, it would be difficult to get developers ready to do this size. Neither the size nor the tariff would be competitive and the EPC cost would be higher. Moreover, the contract required for OPEX is a huge responsibility, so the developers ideally would prefer large size projects. The OPEX market mainly addresses the Commercial & Industrial (C&I) consumers. The other market is CAPEX which used to get depreciation benefits till last year.

Financing is a major issue when it comes to building solar rooftop projects in India. Banks are ready to finance projects backed by large OPEX developers. However, to finance small projects, banks don’t have a proper rating system to select which SME’s to finance. A proper rating system is required which can help banks to disburse solar loans like car loans or home loans.

Utility-scale projects in India have seen a faster growth compared to rooftops. India has around 20 GW of installed solar capacity by March 2018. Out of this, rooftop would be around 2.1 GW which is approximately a share of 11 percent. We can see that the rooftop penetration is quite less and hence, the public lacks awareness about rooftop solar benefits because they have largely been unable to ‘touch-and-feel’ these solar project installations around their homes and buildings.

In rooftop solar, why is the cost allocation in government tenders so much higher than it is for the private sector?

Project costs are different depending on project terms & specifications. Even when the projects are same, the payment terms may differ for private and government projects. Secondly, the Operation and Maintenance (O&M) period is higher for government tenders in most of the cases. If the payment terms & O&M period were same for both, then there would not be much difference between the two. Additionally, sometimes in the rooftop bid projects, size, roof space availability and connectivity are not very clearly defined. In such cases, developers may reserve some additional margins.

The cost of EPC has been declining. Has this affected the quality of the projects?

Over the last 7 years in India, the EPC cost has declined, however, lately in the past 6 months the project cost has gone up due to impact of custom duties and GST.

I don’t think the EPC cost changes are affecting the quality. The EPC cost has declined due to the improved efficiency of suppliers and design optimization allowing higher overloading. The success of the plant depends on the quality, and so it is the outcome of the joint efforts put in by both the companies, the EPC and the developer.

What is the average cost of a 1 MW rooftop solar project?

For rooftop projects, it will be roughly be ₹45 to 47 million ($0.73 to 0.734 million). For government projects, the price would be around ₹48 to 50 million ($0.75 to 0.78 million). For ground-mounted projects, the average price would be somewhere around ₹45 million ($0.7 million).

Who are your preferred module suppliers?

Choice of the modules would majorly depend on developers and availability of the modules. We work with the Tier-1 top module suppliers.

Which inverter suppliers do you prefer?

Some of the inverters we have used include TMEIC, Huawei, Delta, SMA.

Do you have any final comments?

There has been some confusion surrounding the Goods and Services Tax (GST) refund process as the input and output taxes are different. Also, distribution mechanisms under GST Compensation Fund needs clarity.

To summarize, I would say that the Indian solar market lacked a steady pace in the first two quarters of 2017. In the 3rd quarter and in January, we saw a good number of bids coming out.

However, the bids in the 5-10 MW range are lacking. If more projects are auctioned in the range of 5 to 10 MW, then it would create opportunities for more companies and value chain players to participate, leading to a sustainable vibrant ecosystem.