Higher Power Tariffs, Not Policy Support, Driving India’s Rooftop Market

The total combined capacity of rooftop solar installed in India has crossed 1.3 GW to date. As of the third quarter of 2017, rooftop solar projects totaling 1.3 GW had been commissioned, and within the last four months alone over 200 MW of rooftop solar was added to the grid.

According to Mercom’s India Solar Tracker, rooftop solar installations totaled 1,345 MW as of September 2017. Installation numbers are gradually rising even though rooftop solar has not yet made its way into the life of the average Indian residential electricity consumer. The increase in rooftop solar installations is instead being driven by the growing number of commercial, industrial, and government facilities that are using rooftop solar as a way to reduce their electricity bills.

Projects designed for captive consumption have been driving the bulk of growth in the sector. A surge of rooftop solar tenders has been announced issued by various organizations that are vying to bring down their electricity bills and curb their emissions. Be it colleges, upcoming smart cities, railways, airports, ports, or manufacturing units, all of these entities are finding it advantageous to make a one-time investment in a rooftop solar system to meet their energy demands.

A diverse list of government organizations is taking the rooftop solar route. The Railway Energy Management Company Limited (REMCL) auctioned 67.38 MW of rooftop solar projects for the Indian Railways in a deal that only represents the tip of the iceberg. Other companies with rooftop solar projects include Bharat Petroleum Corporation Limited (BPCL), Life Insurance Corporation of India (LIC), the Forest Department, Delhi Metro Rail Corporation, Bharat Heavy Electricals Limited (BHEL), Banaras Hindu University, Varanasi, and the municipal corporation of Udaipur Smart City Limited (USCL).

According to Mercom India Research, captive consumption rooftop solar projects currently account for the majority of installed rooftop solar capacity in India.

Even though there are government programs and subsidies designed to help residential consumers take advantage of rooftop solar, installations haven’t caught on as only a few customers can afford its up-front cost, even after the subsidies.

What does the market say?

An executive at Fourth Energy said that these days, all of the industries that have rooftop solar are using it for captive consumption because most of these industries are paying more than ₹7 (~$0.11)/kWh for power. The executive cited this as the main reason for the growth in rooftop solar.

A Thermax Limited executive explained, “In the Indian solar industry, rooftop solar has started growing. If we talk about the industrial electricity cost per unit, it is above ₹7 (~$0.11)/kWh, so most of the industries are looking to go solar to meet their daily consumption needs as the payback period for a rooftop project is around five to six years.”

Meanwhile, an executive at RelyOn Solar added, “the rooftop sector in India is not doing well. As per my estimate, rooftop will not even cross 10 GW until 2022. The government has to do more about net-metering, there is lot of ambiguity about net-metering as DISCOMs should not restrict project capacity to 1 MW of capacity.”

An executive with Cleanmax said rooftop installations aren’t growing faster because they need support from the Indian government. The executive added that there is also a lot of ambiguity with net-metering policies, saying “there should not be ceiling of 1 MW right now.”

Sobhit Rai, a director at Prozeal, told Mercom in an interview that, “Out of the targeted 40 GW of rooftop solar by 2022, India will install a maximum of 15 GW of rooftop solar under the current market scenario.”

The biggest challenges now facing the rooftop solar industry is lack of policy support and lackluster net-metering enforcement. Rai said that demand was also dampened last year when accelerated depreciation (AD) rates were slashed and the added tax incentives were discontinued.

Rai elaborated by adding, “The small and medium enterprises (SME) sector in India comprises a much larger chunk than the corporate sector, when the added tax incentive was discontinued and the AD was slashed, it became much more expensive for the SME sector to utilize rooftop solar.”

When asked about the proportion of rooftop solar projects that are for captive consumption in India, Rai said, “They (captive projects) will comprise almost 95 percent of installed capacity.”

Rai also said, “The government should be taking the initiative to provide a single window of clearance for rooftop projects of up to 250 kW, as this will save time and help in controlling project cost.” Currently, the Chief Electricity Inspectorate to Government (CEIG) has to inspect each rooftop solar project and grant it charging permission, which can take months.

Top Indian States for Rooftop Solar Projects

As it now stands, more than 90 percent of India’s total installed rooftop solar project capacity is concentrated within just 12 states. Leading the pack are Tamil Nadu, Karnataka, and Maharashtra; Tamil Nadu has the largest installed rooftop solar project capacity in India, and it is closely followed by Karnataka and Maharashtra.

Mercom has recently in its Q3 2017 India Solar Quarterly Market Update, forecasted a cumulative rooftop solar capacity of 945 MW for 2017.

Image credit: By Oleg Savitsky (Own work) [CC BY-SA 4.0], via Wikimedia Commons