Investment - Opportunities and Challenges in Rooftop Solar Sector

India has a total estimated potential of 748.99 GW of solar power. Despite the achievements in recent years, per-capita, electricity consumption in the country continues to significantly lag that of other major economies. Renewable energy sources especially solar power has emerged as a cheap source of power given the declining generation costs over the years and holds the potential to be a viable source of electricity for the country. The government has an ambitious target of 40GW of rooftop solar capacity by 2022. Currently, only 10 percent of this target has been achieved. Many experts claim achieving such an ambitious target is an uphill task given the pandemic has made this even more challenging with new installations reaching only 883 MW in the first nine months of 2020 against 1100 MW in 2019. Capacity addition has been the lowest in the last six years.

Currently, the renewable industry is relying more on the private investments to fuel the sector this year. The solar sector in 2020 was hit by a lot of roadblocks with projects either being stalled or delayed due to lockdown restrictions, increase in import prices of solar panels, changes in solar policy such as downsizing of net metering cap on rooftop solar projects has had a severe impact. Despite the challenges, the sheer pace of technological advancements in solar PV technology & energy storage will continue to provide multiple investment opportunities in the solar rooftop segment.

Investment Opportunities in Solar Rooftop:

According to industry estimates, as much as Rs 1.5 lakh crore investment is required to build 35GW of rooftop solar capacity. A major chunk of the installations will be led by the C&I sector, state & central government auctions and residential sector. Within this the opex model will be the most preferred form of financing.

Energy Storage

Rapid growth of rooftop solar power generation projects makes India an ideal investment market for energy storage. Currently, the price of energy storage  systems is declining. With increased adoption of technology fueled by restrictive net metering policies there will be an increased demand for energy storage systems. Consumers will become increasingly independent and self-sufficient for their energy needs. Large consumers with limited rooftop solar potential would continue to rely on grid power.

Falling Prices of Solar Power

Technological innovations such as increased power density & efficiency of solar PV modules will continue to reduce the cost of producing solar power. Considering the rise in grid tariffs and need for cost efficiency many more C&I units will be driven to adopt rooftop solar.

Blockchain

With increased adoption of smart meters, storage systems & rooftop solar PV systems, there is a massive change in the way the grid operates. Consumers who are only importers of power have now become suppliers as well. Moreover, with the increased use of time-of day tariffs and technology consumers can be more reactive to pricing patterns with appropriate adjustments in their consumption patterns. The use of blockchain and peer to peer trading there is a real possibility for consumers with solar PV systems to trade amongst themselves.

Business Models for C&I Installations

The Indian rooftop solar market comprises of two business models – Capex & Opex. From a power consumers point of view Capex is a self-financing model while Opex is a third-party financing model. By the end of 2019 Opex accounted for nearly a third of all cumulative rooftop solar installations in India.

Opex Model

Under the Opex model, a renewable energy service company (Resco) funds, builds and maintains a rooftop or onsite solar power plant. While the end-consumer pays for the power generated under a long-term power purchase agreement (PPA) at an agreed tariff for a fixed period which is typically 15-20 years. The use of Opex has increased since the last few years and is preferred model for entities who do not wish to invest in the operations part of managing the plant. PPA tariff for projects installed under Opex model have been on a constant decline with falling module prices & advancement in module output efficiencies.

Defer or Capex Model

Capex model covers more that half of the C&I rooftop installations in the country. It is the first model to be used in rooftop solar installations. Under the capex model the client makes the initial investment and owns the installation. The investment made on the installation by the client is recovered through electricity generated by the plant over a period of 3-5 years. O&M costs are incurred by the consumer. Another emerging model is the deferred capex model where a consumer pays down payment for the installation and EMI’s spanning 3-7 years.

Challenges

Uncertainty in policies

Policy changes have been one big reason hampering the growth of solar rooftop installations in India. DISCOMS view roof-top solar as a viable threat to the monopoly they hold in the market. Roof-top solar reduces the billing generated by high-paying consumers to the DISCOM’s, hence they do not wish to lose out on these consumers. Similarly, the government introduced net metering for rooftop projects on loads upto 5KW. Net metering is a vital policy where consumers can sell their excess generated power from solar rooftop with their DISCOMS. Net metering caps of rooftop solar projects should be increased for the segment to grow. The current net metering cap is restricting the growth of solar rooftop. Removal of caps on net metering will encourage more commercial units to adopt solar rooftop.

Bank lending for solar rooftop projects

The government needs to push lending into the roof-top solar sector. Currently, the banks do not offer rooftop solar specific loans. These loans are only offered when the property on which the solar rooftop is proposed to be offered as collateral. We need a dedicated facility setup through one of our existing central government PSU lenders which will enable rooftop projects to be used as collaterals and that alone to finance such projects.

- Animesh Damani, Managing Partner, Artha Energy Resources