02 November 2016 15:50:59 IST

Going the solar way is not that easy

Rooftop solar plant installations are still not cost-effective for residential customers

India has a long way to go before it achieves the targeted 100 GW of solar capacity by 2022. But it is moving in the right direction.

A recent report by Bridge to India, a consultancy and research firm in the renewable energy space, shows that India doubled its rooftop solar PV (photo-voltaic) capacity in a year’s time to 1,020 MW as of September 2016.

The government wants to scale this up to 40,000 MW (1GW= 1,000 MW) by 2022. The rest (60,000 MW) is to come from large and medium scale (non-rooftop) solar power projects.

The economics

A good 63 per cent of the existing rooftop solar capacity has been set up by industrial and commercial (offices and malls) consumers. That’s hardly surprising, given that this segment faces the highest power tariffs and has the biggest incentive to adopt cheaper alternatives. Another one-fourth has been put up by residential customers, and 12 per cent by government establishments.

The industrial states of Tamil Nadu and Maharashtra, which have among the highest electricity tariffs, lead in rooftop solar power plant installations. Together, they account for a fifth of the country’s rooftop solar capacity.

But while this is a viable option for industrial and commercial customers, they are still not viewed as a cost-effective alternative by residential customers. This is despite the capital subsidy that the Centre doles out to them.

Subsidy story

The Ministry of New and Renewable Energy (MNRE) provides a subsidy to approved companies for setting up rooftop solar PV systems, which is then passed on to the final consumer. A few states such as Tamil Nadu, Haryana and Delhi, hand out an additional subsidy over and above what is provided by the Centre.

The MNRE website gives you a rough cost estimate for setting up a rooftop solar PV system. For instance, if you have a rooftop area of 1,000 square feet and you want to utilise half of this space for installing solar PV systems, then you can set up a 5kW solar plant at roughly ₹2,44,000 (after 30 per cent capital subsidy). Assuming your current average power tariff is ₹6/ unit, you can save about ₹42,000 every year for the next 25 years.

If you are in Tamil Nadu, where the State government provides an additional subsidy, then for setting up a 1kW plant, you will have to dish out ₹32,500. This includes 30 per cent capital subsidy from the Centre and ₹20,000 state government subsidy. The latter is provided for residential solar plants of up to only 1 kW. Assuming your average power tariff is ₹6 per unit, you can save ₹9,000 a year for the next 25 years.

Stumbling block

The high upfront investment, even after adjusting for subsidies, remains a stumbling block. This is because a vast majority of residential customers buy power from State distribution utilities at subsidised tariffs (₹4 per unit or lower in many States) and therefore, shifting to rooftop solar plants may not fetch substantial savings in power bills. The economics of it all, therefore, doesn’t add up.

For those falling under the higher tariff slabs, it can be a feasible option, but this is a much smaller section of consumers. For the Centre to achieve its ambitious target by 2020, there has to be a wider adoption of renewable energy.

Other factors

Technical constraints in harnessing sunlight too can play spoilsport in a big way. After all, how many people have adequate and exclusive terrace space to install solar power panels? Being surrounded by neighbouring buildings can act as hindrance to access adequate sunlight. Industries, on the other hand, are mostly located on the outskirts and have much wider spaces. This makes it feasible for them to harness sunlight for power generation.

OPEX model

Apart from this, newer cost models that have evolved in recent times are a big draw for consumers in the commercial segment. Today, many companies are setting up rooftop solar PV systems for their clients under the ‘OPEX’ (operation expenditure) model. Here, the cost of installation is borne by the company installing the system.

The consumer does not have to make any upfront investment and has to only sign a power purchase agreement (typically for a 20-year period) committing to buy some minimum units of solar power from the installer at a pre-determined rate. The model has been gaining popularity as it makes solar power viable even for those who cannot cough up capital for putting up rooftop solar power systems.

Unfortunately, such innovative models are not available to a residential consumer, except maybe in the case of a very large group of customers — say, a township. Long-term buying commitment from residential customers in any case is difficult as they tend to move from one location to another.

While some of these challenges are here to stay, the government can, in the meantime, iron out other procedural issues, which can lay the ground for a smoother transition. For instance, the application process should be made online in all States. Currently, only a few States provide this option. The government must also ensure that the subsidy reaches customers on time.

An easy and quick process can help consumers make hay when the sun shines!