Introduction

The Indian rooftop solar market grew from a mere 623 megawatts (MW) in 2015 to about 5.9 gigawatts (GW) by June 2020.1 However, there is a shortfall of about 34GW which needs to be fulfilled in the next two years to achieve the Government ofIndia’s rooftop solar target of 40GW by 2022. Recently, distribution companies (discoms), fearful of losing their high paying Commercial and Industrial (C&I) consumers, have been issuing orders and notifications to restrain net metering provisions.

Under net metering, the electricity generated by the rooftop solar system is consumed by the user and any excess electricity is injected into the grid. When demand exceeds the generation from the rooftop solar system the consumer can import electricity from the grid. At the end of the settlement period, the consumer is only charged for the ‘net’ electricity utilised – the difference between the electricity produced through the rooftop solar system and the electricity consumed over the billing period.

Under a gross metering arrangement (GMA), all the power generated by the rooftop solar system is injected into the grid and the consumer is compensated for the exported power at a fixed feed-in tariff. The consumer pays the retail supply tariff for energy imported from the grid for consumption.

Even though the gross metering arrangement has existed for many years, it has found very few takers due to issues related to distribution companies (discoms), such as inconsistency in payments, the administrative processes, and unattractive feed-in tariffs. But with net metering limited to rooftop solar systems up to 10kW, consumer categories – barring small- to medium-sized households – will be left with an economically unattractive gross metering arrangement. This could prove a roadblock for the rooftop solar market, which has just started to pick up pace.

On analysing various net metering and gross metering tariffs payable across leading states, the current compensation rates applicable to net metered or gross metered consumers for export of surplus or entire solar power respectively varies between Rs2-4/kWh. For most states, the sole factor in determining the monetary benefits for the rooftop solar owners across many State Electricity Regulatory Commissions (SERCs) is average power purchase cost (APPC). This is the weighted average pooled price at which the distribution licensee purchases electricity including cost of self-generation. The APPC does not take into consideration the overall cost per kWh borne by the consumer for rooftop solar generation.Furthermore, current rooftop power purchase agreements (PPAs) signed by Tier 1 developers have tariffs in the range of Rs3.5-4/kWh. Developers and corporates would consider any tariff lower than the current PPA tariff unviable. And not only would corporates be reluctant to set up a rooftop solar system for just Rs2-2.5/kWh benefit, under gross metering they cannot use the units generated from their own system for self-consumption. Therefore, the compensation rates offered by various SERCs pushes back the viability of rooftop solar projects.

A net metering arrangement is not available to C&I consumers in three big industrial states, namely, Karnataka, Tamil Nadu and Uttar Pradesh. While in Haryana, Punjab and Rajasthan, no compensation is paid for surplus generation. In fact, at the end of the settlement period, the net excess units exported to discoms in these states are considered ‘lapsed’.

Success Factors in 3 International Markets

To fulfil the 40GW rooftop solar target, India must discover new avenues to evolve its rooftop solar market, and with market enablers devised to overcome the local challenges. Understanding the factors that led to the successes of other international rooftop solar markets and moulding them to tackle India-specific barriers could help uplift the rooftop solar market to the self-replication phase, so that it can thrive predominantly under market demand and supply forces.

California:Ranked as the No.1 solar market in the U.S., California has made remarkable progress in both the rooftop solar and utility-scale segments. The state has been an aggressive proponent of rooftop solar with the launch of the landmark Million Solar Roofs Initiative in 2006 which envisioned the goal of setting up distributed solar systems on residences, businesses and farms. Though California achieved its goal in 2015, it has continued to witness robust development in the rooftop solar segment. As a consecutive wave for renewable energy transition in the state, a new policy termed “Residential Solar Mandate” was effectively introduced at the beginning of 2020. This law requires every new housing establishment up to 3 storeys to install rooftop solar of capacity meeting 100% of annual electricity demand.In addition to this, the solar Investment Tax Credit (ITC), implemented in 2006, has also boosted the growth of the rooftop solar industry. The solar ITC is a 26% tax credit claimed against the tax liability of residential, commercial and utility investors in solar energy properties. The residential and commercial solar ITC catalysed the U.S. solar industry to grow by a year-on-year average of 50% over the last decade.3 Stringent policy measures and attractive investment incentives greatly intensified the development of the rooftop solar industry in California.

Australia:In 2019, Australia had the highest PV installed capacity per capita at 644 Watts per person.4 There are more than 2.3 million rooftop solar systems in the country. This enormous number of rooftop solar installations can be attributed largely to the solarisation of the residential segment. Various federal and state-level policies and regulatory incentives have vastly influenced Australia’s rooftop solar market success. At the federal level, the Small-scale Renewable Energy Scheme, introduced in 2011, consists of a mechanism called Small-scale Technology Certificates (STCs). STC is a subsidy that allows Australian households and small businesses a reduction of around 30% on the upfront cost of PV systems. Moreover, there are some states that offer rebates on solar panels, in addition to the federal STC rebate. In addition to these incentives, rooftop solar-installed households in every state are compensated at a feed-in tariff for surplus solar power exported to the grid.

Vietnam:In 2020, Vietnam’s rooftop solar development skyrocketed due to a government policy update. In just one year, Vietnam’s rooftop solar installed capacity grew about 25-fold from 378MW to a massive 9.3GW by the end of 2020.5 In April 2020, with the announcement of solar FiTs 2.0, the Vietnam government set new FiT rates for solar projects of various categories commissioned on or before 31 December 2020. For rooftop solar projects, the FiT was fixed at US$0.0838/kWh for a period of 20 years. The earlier FiT scheme for rooftop solar projects, which was approved in January 2020, kept the tariff at US$0.0935/kWh for all installations completed till 2021. The superseding solar FiTs 2.0 effected in April 2020 tightened the deadline for availing the rooftop solar incentive, causing the enormous spurt in demand for new capacity addition.

Ways To Boost India’s Solar Rooftop Market

In order to accomplish the national rooftop solar target of 40GW, it is important to find a middle ground between all the stakeholders in the industry including discoms, project developers and end consumers. Some possible solutions to resolve the ongoing issues in the sector are summarised below. Some have already been adopted or have been proposed in some states.

Explore ‘Net Feed-in’ Mechanism

A net feed-in mechanism is similar to net metering except for the tariff calculation. In the Tamil Nadu Solar Energy Policy 2019 net-metering was replaced with a net feed-in mechanism.6 Under this arrangement, for every unit of rooftop solar power used for self-consumption, the consumer is credited at a price equivalent to the retail supply tariff charged by the discom. Meanwhile, the surplus energy exported to the grid is compensated at a net feed-in tariff determined by the relevant SERC.

To illustrate the comparative benefits between gross metering, net metering and net feed-in arrangements, we considered the following sample case.

Assumptions

As seen from this sample calculation, the net feed-in option could offer an alternate solution that would not have any major negative impact on discoms’ revenue and would still be beneficial for the end consumer compared to net metering and gross metering.

Conclusion:As one of the most economical and eco-friendly energy generation technologies, rooftop solar is a highly valuable resource to advance India’s path to sustainability. To promote the industry, it is important to ensure the key enablers are in place and functioning to support the overall ecosystem. But sustained momentum of the rooftop solar industry can only be assured if the foremost enablers i.e. the relevant policies and regulations are designed to provide guidance measures and balance the concerns of all stakeholders.

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