The global Coronavirus pandemic has made commercial and industrial customers realize that going solar is one of the best ways to cut down operational costs.
Energy costs account for around 30% – 40% of operational expenses for C&I entities. With solar power prices dropping drastically over the years, it makes sense for businesses to adopt solar to save costs and to keep their businesses afloat in these challenging times.
Mercom spoke to rooftop solar installers operating in the C&I space to find out how switching to solar has helped companies save money and remain operational during the lockdown.
The installers unanimously agreed that going solar would help reduce operating costs drastically. They have seen an increase in demand for rooftop solar systems from the C&I segment over the last few months. These projects can help businesses save enough money to stay afloat and help generate income.
They said that some of their C&I consumers with net metering facilities who had shut down their facilities during the nationwide lockdown could generate income by supplying the unused power generated by the solar systems back to the grid. Companies affected by the lockdown could sustain their businesses and even pay salaries thanks to their rooftop solar systems.
According to Mercom’s Q2 2020 India Solar Market Update, about 96% of the rooftop installations in the quarter came from C&I consumers. Cumulatively, the commercial segment in the country has installed 1.9 GW of projects, while the industrial segment has added 1.5 GW of projects, as of June 2020.
“Onsite rooftop solar systems help in meeting anywhere between 20% to 50% of electricity needs of the facilities it is located on while procuring power through the open access (OA) route can help meet as much as 70% to 100% of the customer’s electricity needs,” said Ritu Lal, Senior VP & Head – Institutional Relations, Amplus Solar.
The savings on power costs could be immense. Grid charges for commercial power consumers go as high as ₹11.47 (~$0.16)/kWh in states like Maharashtra, while charges for Industrial consumers go up to ₹7.1 (~$0.096)/kWh depending on the state.
“Rooftop solar is the cheapest form of energy available for use to C&I consumers. On average, the cost of power for C&I customers in India is ₹7 (~$0.095)/kWh whereas, the tariff for rooftop solar projects is around the ₹4 (~$0.054)/kWh range,” said Jay Kumar Waghela, Head of Business Development (North & East Zones), Fourth Partner Energy.
“If we were to consider a portfolio of 250 MW operational rooftop solar capacity, our clients would have saved over ₹500 million (~$6.7 million) in operational costs in the last six months alone,” Waghela added.
Installers also said that they noticed a change in demand trends before and after the lockdown. C&I consumers have expressed more interest in going solar under the OPEX model following the lockdown.
The OPEX or operational expenditure model is a system where the developer owns the solar project, and the consumer only has to pay for the energy generated. This model is also called the RESCO or Renewable Energy Service Company model. Under this model, consumers are not required to make any large upfront investments. This is not the case under the CAPEX model, where they would have to bear all the capital expenditure involved in the project right from the start.
“As businesses struggle with cash flows, the OPEX model is an effective way to help save on operating costs since this model requires no upfront investment by the customer and offers them savings on every unit of electricity purchased,” Lal explained.
Developers under the OPEX model prefer medium to large-sized projects, which are ideal for C&I businesses with limited cash reserves.
“We have not witnessed any increase or spike in demand in terms of CAPEX installations. It is now only preferred by a handful of cash-rich customers. Many clients who were keen on CAPEX rooftop solar projects earlier are now opting for OPEX instead,” said Waghela.
He explained that C&I consumers are now a lot more receptive towards rooftop solar projects to help save on power costs and that even deals are sealed much faster. However, they have become aggressive in price negotiations and other commercial aspects of the projects, he added.
Shobit Rai, Director at Prozeal Infra Engineering, said that the OPEX model is also ideal for companies looking to expand or just meet their green targets. On top of this, they will enjoy savings of around 30% to 40% on their power bills, he noted.
Given the situation, solar rooftop projects are a worthwhile investment for companies regardless of whether they are struggling financially, just want to cut down on operational costs, or go green.
‘Rooftop in India has never really taken off, and installers have experienced some tough times this year. However, like Zoom calls, online shopping, and food delivery, the value of solar installations has become more apparent to businesses during the COVID pandemic. But a majority of companies still do not have a clear grasp of the solar value proposition, which needs to be aggressively addressed,” said Raj Prabhu, CEO of Mercom Capital Group.
In July, Mercom wrote about increased interest for rooftop solar systems from segments like pharmaceuticals, FMCG, and textiles after the lockdown was imposed. Companies were more interested in going solar because it offers cheaper power, resilience, and flexibility.
Nithin is a staff reporter at Mercom India. Previously with Reuters News, he has covered oil, metals and agricultural commodity markets across global markets. He has also covered refinery and pipeline explosions, oil and gas leaks, Atlantic region hurricane developments, and other natural disasters. Nithin holds a Masters Degree in Applied Economics from Christ University, Bangalore and a Bachelor’s Degree in Commerce from Loyola College, Chennai. More articles from Nithin.