The solar rooftop installation in the country is a mere 4 GW out of the targeted 40GW and is primarily driven by the Commercial and Industrial rooftops. The growth of the residential rooftop segment, especially has been disappointingly low. What are some of the prime reasons that drag the growth of the residential rooftop market?
Residential sector has the highest technical potential for rooftop solar in India – 82 per cent of the total potential considering just the urban areas. However, the current installations in the residential sector stands around 0.7 GW – a mere 16 per cent of the total installations. This slow growth in the sector can be attributed to a combination of economic and non-economic barriers.
Given the highly-subsidised electricity tariffs for residential consumers, the technology is not economically feasible for large proportion of residential consumers. Around 80 per cent of the total residential consumers consume less than 100 units a month on average1. Feasibility of rooftop solar for these consumers depends on the tariffs set in each of the states and it can be as low as zero (in Delhi).
ven for consumers for whom the technology is economically feasible, there exists several market challenges. The primary challenge is the lack of awareness. Even though most of the consumers may be aware of rooftop solar systems, when it comes to more specific details such as cost of the system, system lifetime, process to purchase, benefits of the system, and so on, consumers do not have much awarenes2. Additionally, the high upfront cost of purchasing a system, lack of access to easy financing, lack of access to suitable roof spaces, and long roof lock-in period are the other non-economic challenges that deter the scale-up of rooftop solar in the residential sector. Residential rooftops are also smaller in size compared to commercial and industrial buildings. This makes residential systems quite small and distributed in nature and makes it a non-attractive enterprise for large solar developers and financiers as their transactional cost will be higher for each purchase.
Findings from a survey of 418 residential consumers in East Delhi which captures consumer perception towards rooftop solar can be found here.
How does the commercial and industrial rooftop market differ from the residential rooftop market?
There are three characteristics of large commercial and industrial consumers (C&I) that makes them better prospective rooftop solar consumers than residential consumers: 1) Buildings with relatively large roofs and higher electricity consumption, 2) higher grid electricity tariffs that cross-subsidises residential and agricultural consumers, and 3) better financial position with a credit rating and organised decision making, with large companies having dedicated energy and utility managers.
What this means is that rooftop solar technology provides an alternative cheap source of electricity and thus offers a strong economic case for C&I consumers. Large rooftops and higher sanctioned loads facilitates large systems sizes, thus providing economies of scale. Moreover, the RESCO model – where the system is owned and operated by a third-party and consumer buys the electricity generated on a monthly basis through a Power Purchase Agreement (PPA) – is usually only offered in the C&I sector as it is easier for solar developers to gauge the payment default risk with the consumers’ available credit rating. The main advantage of RESCO models is that it lets consumers buy solar energy without paying the upfront cost for it.
However, in case of residential consumers, smaller roof sizes, subsidised electricity tariffs, and higher payment default risks prevents vendors from offering RESCO-model. The higher transactional costs associated with smaller roofs also prevents large solar vendors from entering the residential market and financiers from offering dedicated solar loans.
How have the Government’s initiatives like advancing loan for residential systems along with home loan and subsidies have helped the growth of the Residential Solar?
Under the Jawaharlal Nehru National Solar Mission (JNNSM), central government support in the form capital subsidy has been available for the residential sector since 2014. A capital subsidy of 30 per cent for all system sizes up to 500 kW was given under Phase I and subsidy of 40 per cent up to 3 kW and 20 per cent for up to 10 kW is announced under phase II. Additionally, some of the state governments also have several incentive schemes in the form of capital subsidy or generation-based incentives (GBI).
The capital subsidy definitely has brought down the capital for consumers and hence brought down the payback period for them. However, awareness levels are very low regarding the process of procuring a system, and is acting as the main deterrent. People are also not aware of the cost.
In addition, there has been issues with the subsidy disbursement process across states. Delays in disbursement, flaws in vendor empanelment for subsidy eligibility, and auction-based benchmark price discovery leading to lowest quality systems getting installed are some of the problems that had cropped up.
Advancing solar loans with home loans may not have had the expected results. The final interest rate offerings by the banks are often not favourable. Rooftop solar systems also do not have a resale value, as of today, and hence, will not be counted as collateral. Therefore, for obtaining a solar loan, consumers might have to put up their properties as collaterals, which would discourage any prospective buyer.
All the states have put in place their own solar rooftop policies. How successful have these policies been in promoting the residential segment?
Almost all of the states have come up with solar rooftop policies in the last three or four years, which is a welcome move for the sector. However, the extent of the policy and the specifications prescribed vary widely from state to state. CEEW Centre for Energy Finance (CEF) recently analysed the rooftop solar policies of all states and union territories (Can be found here). The analysis found that the limitations on transformer capacity, maximum system capacity, export of electricity, and compensation for surplus have a wide range between states. While some of the states have favourable specifications, some others have very limiting ones. For example, no incentives are provided to consumers who produce more than they consume, in 11 states. Such inefficiencies in policies can act as a deterrent in providing standardised products and scaling up rooftop solar.
Secondly, while the policy looks quite exhaustive on paper, stakeholders also share that on-ground implementation face several challenges in some of the states. These could be due to lack of awareness by the implementation officers, lack of capacity, or perhaps stemming from the resistance among DISCOMs to scaling up of rooftop solar technology.
A more uniform net metering framework across states and regulatory provisions that will further support adoption in the residential sector are needed to promote rooftop solar.
Residential solar rooftop unlike the C&I rooftop is driven by small entrepreneurs. What influence does this have on the market growth?
While there are plenty of well-established small entrepreneurs in the residential market right now who provides excellent products and services, there are also some undesirable effects that prevail due to the presence of large number of small players. Instances of poor quality systems getting installed and poor after-sale services have been known. Also, not all of the players would have sufficient capacity to undertake large scale marketing campaigns and hence, they end up operating very locally. This could also be a deterrent for the accelerated growth of the residential rooftop solar.
What are CEEW’s recommendations to promote rooftop solar in the residential sector?
In order to scale up rooftop solar in the residential sector, it is necessary to create mass awareness and develop supporting market, financial, and regulatory mechanisms. Awareness creation can be done through mobilising local communities through online platforms such as social media and local WhatsApp groups, and offline platforms such Residents Welfare Associations (RWAs). Distribution companies, local governments and civil society organisations should take up such campaigns. Localised campaign models will not only create awareness, it can also be used as a demand aggregation tool. Thus, it can facilitate economies of scale through group procurement and community-based shared systems.
Secondly, to address the market challenges, there is a need for innovative business models. Moreover, the DISCOMS are a crucial stakeholder in the value chain and they are best placed to take up roles that can successfully address the market challenges. They can undertake functions such as demand and supply aggregation, on-bill financing, payment collection, and community mobilisation. Thus, DISCOM -led innovative business models can address the existing market challenges and can accelerate the deployment of rooftop solar in the residential sector.
Thirdly, supporting regulatory environment that incentivises residential consumers adequately and facilitates the scale of rooftop solar is necessary. Virtual and group net metering guidelines notified in Delhi now facilitates shared solar systems for people living in apartments and is one such example of supporting regulatory initiatives.
1 Prayas (Energy Group), Residential Electricity Consumption in India: What do we know? December 2016
2 Saji, Selna, Neeraj Kuldeep, and Kanika Chawla. 2019. Scaling Rooftop Solar: Understanding Consumer Perspectives in East Delhi. New Delhi: Council on Energy, Environment and Water
Selna Saji is an energy and environmental analyst focusing on renewable energy technologies. At The Council, she is working towards developing business models and tools for utilities that will help increase the adoption of solar rooftop in India. An avid believer of evidence-based policy making, she is interested in analysing renewable energy policies, and exploring the role of renewables in a circular and sustainable economy.
Selna will be speaking in the Intersolar India Conference 2019 on “Scaling rooftop solar: Breaking ground in the residential market” on 28th November.