Solar Rooftop: Will the slowdown sustain?

Growth of rooftop solar installations in 2018 is likely to witness a decline on the back of regulatory complexity and policy uncertainty. POWER TODAY spoke to a cross-section of experts to understand as to what it would take return traction to the segment.

India has attained the milestone of 20 GW in cumulative solar installations, with utility scale cumulative installation at 18.4 GW and rooftop solar at 1.6 GW, according to a research report by Mercom Capital. The feat was achieved four years ahead of the goal set for 2022 by the government-led National Solar Mission (NSM).

For the first time, solar emerged as the top source of new power capacity additions during the calendar year 2017, with preliminary numbers showing that solar installations reached 9.6 GW and accounted for 45 per cent of total capacity additions. Rooftop solar continued to be the fastest renewables sub-segment in India, and has clocked a four-year compound annual growth rate of (CAGR) of 117 per cent, said a Bloomberg New Energy Finance report.

However, the Mercom report explained that growth of solar installation in 2018 is likely to witness a decline as some of the government policies could increase developer's costs and create uncertainty. Quoting Raj Prabhu, CEO, Mercom Capital Group, it said, 'The government's revised solar installation target of 100 GW by 2022 has recently been clashing with PM Modi's 'Make in India' initiative to promote domestic manufacturing. The recommendation for 70 per cent safeguard duty on (solar panel) imports, the ongoing anti-dumping case, and a 7.85-per cent port duty on imported modules are together creating an atmosphere of regulatory uncertainty that is taking a toll on the industry and slowing down installation activity.'

The federal government had initially targeted 200 MW of installed rooftop solar capacity in 2016, growing to 4.8 GW in 2017 and 5 GW in 2018. However, just 271 MW had been installed till December 2017, according to figures from the Ministry of New and Renewable Energy (MNRE). A combination of factors has led one of the largest solar markets in the world to go in for a downward revision of its rooftop solar target for the 2017-18 financial year to 1 GW.

What triggered the slowdown
As against MNRE's target of 5 GW in 2017-18, cumulative rooftop solar capacity has only touched 982 MW as of December 2017. 'With less than three per cent of the 40 GW rooftop solar target achieved, it is clear that there are bottlenecks on the supply and demand side that are posing significant challenges to the segment's growth and those need to be tackled well,' said industry experet Vishwanathan Iyer.

According to Iyer, on the supply side, factors such as lack of debt financing, high customer acquisition costs, low entry barriers resulting in inexperienced players entering the fray, and focus on capital expenditure (capex) over operational expenditure (opex) by service providers have led to the situation. On the demand side, factors such as heavy focus on commercial and industrial entities, exclusion of residential sector, lack of consumer awareness, lackadaisical movement on net metering and moderate tendering activity due to multiple stakeholder involvement appear to be the key reasons for the slowdown.'

Commending the 'good job' done by central and state governments on solar rooftop policies, Andrew Hines, Co-Founder, CleanMax Solar, recommended changes to the net metering rules and plant size specifications to accelerate adoption of solar rooftop. 'Since last year, many uncertainties have disrupted growth momentum like fluctuation in PV module prices, bottlenecks in implementation of net-metering and recent uncertainty in policy on the implementation of unviable duties, he opined.

Sushil Sarawgi, Director, Kor Energy India, said that a combination of several factors was responsible for the truncation of targets as well as slowdown in the segment.

'Firstly, the previous targets were somewhat over ambitious, which the government has recognised of late. Many government agencies including Solar Energy Corporation of India (SECI) had tendered mega projects for subsidies and incentives for residential, social and government sector rooftop installations in the previous year, but the achievement is less than 10 per cent of the tendered capacity in some cases,' said Sarawgi.

Add to that demonetisation and the Good and Services Tax (GST) rollout, private investment was somewhat curtailed in the sector. Moreover, with the industry adjusting itself to changes in tax laws, there was reduced capex on rooftop solar.
Industry insiders pointed out that a lot was still required to be done to promote and educate private sector for rooftop solar installations. Hostile attitude of government agencies responsible for extending capital subsidy and ambiguity on net metering in many states continued to discourage customers. Moreover, with the Director General of Safeguards recommending imposition of 70 per cent safeguard duty on imported solar equipment has added to the uncertainty. Although in January, the Madras High Court put a temporary stay on the recommendation after contractor and developer of solar projects Shapoorji Pallonji Infrastructure petitioned the court against it. The fifth hearing in the case is scheduled for early March.

Need for policy overhaul
Does this mean that a policy overhaul is required in the renewable energy space? 'Yes, in fact the MNRE has been aware of it and being credibly efficient at its self-appraisal process has also come out with a note in December enumerating steps for a policy overhaul, clearly acknowledging that what has been done wasn't sufficient and needs tweaking,' said Iyer. This would include reworking the Central Financial Assistance (CFA) across sectors, namely residential, and focus on the involvement of distribution companies, besides promising more outreach to debt financial institutions.

Kor Energy's Sarawgi was overtly critical of what he defined as complete lack of coordination between distribution companies, state nodal agencies, central agencies and MNRE for collation of necessary data in this regard. 'There is a need for a common project approval and completion report submission platform or integration of all such platforms so that data can be seamlessly compiled on real time basis,' he asserted.

But, several others view any drastic changes to the policy as needless. Hines felt that growth could be returned to the sector with only a few necessary policy-related changes. 'Artificial capping on net-metering, i.e., size restriction on the solar capacity needs immediate review. The government should allow you to cover the full roof. For instance, an automaker may have space worth 20 MW of solar power, but the policy allows only 1 MW of installed capacity.' Lifting of such restrictions would lead those who have already adopted rooftop solar and realised its cost benefit, to add capacity.

Secondly, a consistency in policy was also required. 'Although the opex model has been driving the growth in rooftop solar space, policies of some states don't allow net-metering for solar plants under that. In Gujarat if a solar plant is owned by a developer like CleanMax, then end-users can't avail its benefit,' informed Hines. It then requires capital investment from the end-users, rather than them just availing of the benefits of solar power without having to make any upfront investment. This becomes an obstacle in the way of more people switching over to solar power.

Is rooftop solar discriminated?
Among other things, it is also said that the current policy has been designed with only the industrial rooftop in mind with there not being too many incentives for the residential rooftop.

'While partially true, given the quantum of 5GW target expected in the residential rooftop solar as opposed to 20 GW of commercial and industrial and the allocation of CFA therein, it must be appreciated that for the very first time over the years, there appears to be focus on moving the residential portion of the pie at a much faster pace than ever before,' said Iyer.

The policy can be further improved by addressing issues such as net metering reforms to allow sale of power since most residential users do not consume much power during the day, allow depreciation on the assets and provide income tax exemptions to boost demand.

Further, the industrial and commercial segments will continue to drive the growth in the solar industry since most states have a grid price that is higher than rooftop solar. 'The residential segment has huge potential for rooftop solar, but developers are not venturing into the space due to lack of price parity, absence of economy of scale, credit risks and fragmented nature of the market,' suggested Hines.

'Residential customers need more encouragement in the form of capital subsidies and soft loans to make them adopt rooftop solar. Central and state governments have to take the lead in promoting solar for residential installations, added Sarawgi.
For its part, the government has been considering policies such as 'Rent a Roof'. Simultaneously, the centre and state authorities to promulgate policies that will help consolidate the market.

Net metering challenges
It is often said that one of the best ways of popularising adoption of rooftop solar is by making net metering policies cohesive and also allowing users to sell surplus electricity. Net metering is helpful because the excess power is harnessed and used elsewhere and the source consumer gets equivalent benefit on his tariff or power consumption. A strong net metering policy not only helps in increased consumption of power generated by rooftop solar, but also encourage its faster adoption among corporations and institutions once they see reduction in their operational costs.

'One of the biggest challenges around net metering has been involvement of various agencies and multiple approvals leading to inevitable delays in implementation. Other challenges include lack of uniform regulation across the country, caps on energy that can be returned to the grid at an absolute number of KWs without regards to class of consumer, reluctance of distribution companies due to anticipated revenue loss and lack of understanding on part of implementing agencies of net-metering as a concept for being an enabler for residential rooftop solar,' surmised Iyer. He felt that addressing these issues in a time-bound manner in relation to the yearly targets envisaged will help give thrust to the adoption of net metering as a key tool to achieve the overall growth of rooftop solar.

'For the net metering policy to be made cohesive, artificial capping needs to be removed and distribution companies should be become enablers in implementation of such policies. Also, policies introduced should be long term to make solar an attractive proposition for developers and consumers,' said Hines. Citing Maharashtra, he said the western state's net metering policy involved a 20-year contract with the distribution company, which provided an element of comfort to signatories that assumptions made in the contract won't change abruptly.

Sarawgi described net metering policies in most states as a major bottleneck. 'Officials of distribution companies are not aware of the policies, and they don't have the required infrastructure to record and give benefits of units exported to grid,ö he said. There is a need to first build infrastructure for the same and also educate all concerned so that net metering can be implemented quickly. He mentioned cases where rooftop solar power plants remained shut for over six months after installation for not getting the approval for net metering.

According to reports,  Anand Kumar, Secretary, MNRE said that rooftop solar programme was not doing too well owing to a clash of interest between power distributors and high-end consumers, he said the government was working on a new scheme called Sustainable Rooftop Implementation for Solar Transfiguration of India (SRISTI) to create a win-win situation for all stakeholders.

Distribution companies the world over are not known to be very enthusiastic about rooftop solar. In January 2016, the solar industry in the US state of Nevada collapsed after the public utility commission allowed the state's only power company to hike rates and fees for users of solar panels. Given the relatively small size of solar rooftop projects, things are presently very different in India. Instead, the rooftop segment might present a solution to the country's loss-making power distributors to diversify their business.

-Manish Pant