Why India's rooftop solar installation initiative is yet to see the light of success

India aimed to install 40GW of rooftop solar (RTS) power by 2022. However, the nation has installed just 6GW till the end of October 2021

Varsha Torgalkar December 18, 2021 07:50:02 IST
Why India's rooftop solar installation initiative is yet to see the light of success

On 17 September, GST Council decided to hike rates of many components of the solar system from 5 percent to 12 percent. The order, which came into effect from 1 October, will increase RTS's capital cost by 4-5 percent. Image credit: Ajinkya Machale

In 2017, India's Ministry of New and Renewable Energy (MNRE) decided to install 40GW of rooftop solar (RTS) power by 2022. However, India could install just 6GW by the end of October 2021. The 40GW goal is part of India's ambitious target to achieve 175GW renewable energy (RE) capacity that includes 100GW of solar power by 2022.

Maharashtra had been given a target to install 3.3GW of RTS capacity by 2022. The state could install only 988MW, according to an official of the Maharashtra State Electricity Distribution Company Limited (MSEDCL), the nodal agency for RE in the state.

And it is unlikely that either the state or India will complete its target of RTS by 2022. Manufacturers and experts in RE blame regular policy flip-flops by state and central governments for this probable failure.

Hike in GST for solar system components

On 17 September 2021, India's Goods and Service Tax (GST) Council decided to hike GST of many components of the solar system from 5 percent to 12 percent. The order, which came into effect from 1 October, will increase RTS's capital cost by 4-5 percent.

"Government should intimate 5-6 months in advance about proposed changes in policies like in this case GST hike by 7 percent. At least, it should apply old rules for purchases and projects signed before 1 October. Now, I have to pay 4-5 percent more for the equipment I ordered earlier. And my consumers would not pay more according to increased taxes. Here we solar manufacturers lose either money or consumers. At least the GST council should have implemented the changes from the next financial year," said Amit Devtale, a member of Maharashtra Solar Manufacturers Association (MASMA).

Manufacturers are already bearing the brunt of increased prices of solar components since the COVID-19 outbreak. Hike in diesel and petrol prices have also increased costs of all solar equipment.

"The RTS of 100KW that would cost Rs 35 lakh will now cost Rs 43-45 lakh due to all hikes. Why will consumers pay Rs 8-10 lakh more? They will postpone or cancel their installation. I have lost 3-4 customers since 1 October," Devtale added.

Government departments are major customers of these manufacturers. Many approved funding for RTS according to earlier prices. If costs of RTS go up suddenly, they do not pay an increased amount, causing losses to manufacturers.

This is not the first time sudden policy decisions have been made without consultation with solar manufacturers and experts.

Inconsistent rules on net and gross metering

There are two ways in which individuals or organisations with RTS units can make money. Under the gross metering scheme, state power distribution companies (DISCOMS) compensate consumers with a fixed feed-in-tariff for the solar power supplied to the grid by the consumer. And the consumers must pay the DISCOM at a retail rate for they energy they consume. The rate for feed-in-tariff is always lower than for retail tariff. So, consumers who produce RE (called prosumers) must buy electricity at a higher rate than they can sell. If a prosumer produces 50 KW and consumes 25 KW, he must pay at a rate of Rs 10 per KW but sell at a rate of Rs 7 per KW. He makes Rs 100, far less than he would if the rates were the same.

Under net metering scheme, the DISCOM pays consumers the difference between energy provided to the grid and consumed by consumers at a fixed rate. In net metering, the consumer producing 50KW and using 25KW would make Rs 250. Industrial, commercial, MSME, and even residential RTS installers prefer net metering over gross metering.

Why Indias rooftop solar installation initiative is yet to see the light of success

Rooftop solar system installed at a private institution. Image courtesy: Ajinkya Machale

Net metering was limited to 1 MW until December 2020, when the Power Ministry of India cut it to 10 KW. After much criticism, it amended the Electricity Rules 2020 in April 2021. Now net metering for RTS systems is allowed till 500 KW. It must be gross metering above that.

"Policy uncertainty is one of the major issues why India has minuscule RTS installation till now. All states have different rules when it comes to gross and net metering. DISCOMs are generally unwilling to avail gross or net metering as they don't want to lose premium high-paying consumers like commercial and industries (C and I) to solar," says Samrat Sengupta, programme director, Climate Change and Energy, at the New Delhi-based think tank Centre for Science and Environment (CSE).

In 2019, MSEDCL decided to opt for gross metering over net metering for commercial rooftops. It had to reverse the decision in 2020 after a seven-day protest by solar manufacturers.

"Generally, when a prosumer installs RTS, he does not make profit for 4-5 years as he is repaying money of installing RTS. And he makes profit after five years as he does not have to pay electricity bills. But if governments do not have fixed plans, why would consumers invest lakhs of rupees to install RTS?" asks Ajinkya Machale, a solar integrator from Maharashtra.

Pradip Kulkarni of MASMA said, "Manufacturers will invest if there are policies for a fixed duration of at least 3-5 years. But both state and Central governments change policies every few months without prior information to us. Policies are made without consulting consumers or us. MSEDCL or all DISCOMs design policies as per their profit, and they are not at all interested in cutting down greenhouse gas (GHG) emissions. We have to approach state or central ministries, protest, demand for every policy they design. Is this how India will achieve its target to install a capacity of 100 GW by 2022?"

Financing is a major issue

"Commercial, institutions, and residential sectors are keen to install grid-connected RTS by getting bank loans. MNRE has advised banks to give loans for RTS as subsidised rates. However, nationalised banks hardly offer loans to RTS. Thus, many private players have come into the market that offer loans for RTS at higher rates like 10-12 percent. Consumers cannot afford these rates," said Machale.

He also pointed out that financing is a major issue for MSME and residential RTS.

"Commercial and industrial sector easily get bank loans due to their good financial balance. But MSME and the residential sector struggle to get loans for RTS. Under schemes of the World Bank, a few consumers from metros do get loans. But rural areas remain neglected," he added.

The solar consumers and manufacturers also point out MSEDCL's apathy to pay tariffs to prosumers on time and also delayed processes.

"MSEDCL should approve proposals in at least one month but it takes 3-6 months. Not a single time, it pays tariffs on time to prosumers," tells one of the consumers.

This story was produced with the support of the Earth Journalism Network.

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