Net-Metering: The Oxygen for Roof-top Solar

Solar has been one of India’s sunshine sectors as it has contributed to boosting the Indian economy significantly over the last decade. The financial benefits consumers receive from Solar are extensive. The Central Government has supported the renewable sector over the last decade as it aimed to curb carbon emissions and fulfil its promises made at the Paris Summit. However, as India gets closer to hitting its solar capacity targets, there is an inclination from the government to reduce incentives that are crucial to building new capacities. 

 

Net-metering is an important policy tool which is critical for the survival and growth of the roof-top solar segment. Net-metering offers a prosumer the option to export surplus power generation from a roof-top installation to be banked with the DISCOM. These banked units can be adjusted to the import of units by the consumers. In effect, the policy allows us to treat the grid as a virtual battery storage mechanism. This is extremely important for both the residential and C&I segment. Solar plants work 365 days with a bell curve shaped generation pattern. This entails that peak generation from Solar happens between 10AM – 2PM. However, the consumption of residences and factories is not the same. Residential power consumption rises in the evening and drops off at night. Day-time consumption is minimal. In industries, 1-2PM is lunch time, which results in a drop in electricity consumption. 

 

Moreover, considering a weekly-off and statutory holidays, the number of offdays in year comes to 70 days (about 2 and a half months). Without a net-metering option, power generation from the roof-top solar system must either be curtailed or stored in expensive batteries. Both are economically unattractive and drive away most of the interested consumers looking at solar. Moreover, operating a plant under captive consumption with zero export requires technical competence at the consumer and installer end. It requires carefully done load estimation studies and designing solar system sizes to ensure minimal wastage of units generated. This results in reduced installation sizes. 

 

 

Many states in India are removing their net-metering policies or imposing charges or additional restrictions on them. Karnataka, Uttar Pradesh are some of the states that removed their net-metering policies over the past couple of years. Ever since, there has been a substantial drop in new installations. In Maharashtra, there was an announcement to remove net-metering which was met with extreme resistance from installers and consumers. Since then, Maharashtra has allowed for net-metering up to 2000MW in the states but has imposed grid support charges to be levied once the target is achieved. Moreover, the draft electricity consumer rights of 2020 propose that consumers can avail Net-metering for loads up to 5KW. For loads above 5 KW, can opt for gross-metering. It is becoming increasingly clear that DISCOMS are not comfortable with net-metering and have been lobbying ERC’s to act against net-metering. Hence, it is important to understand a few of the challenges faced within the ecosystem and viable solutions for the same. 

 

• Challenges & Solutions

 

1. DISCOMs — Reluctance to Promote Solar: The DISCOMS have been increasingly unsupportive and unwelcoming of roof-top Solar projects for self-consumption. They 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. 

 

The consumer should have the right to cheaper power if it’s available. Moreover, the claim is slightly exaggerated. Roof-top solar has limitations on its size due to availability of area and artificial cap on capacity as per net-metering policies. Hence, most of the large C&I consumers can set-off only 4-7% of their annual consumption through roof-top solar. Moreover, states like Maharashtra have been steadily increasing the demand charges which should compensate for minor losses in revenue.  

 

 

2. Treating the Grid as a Storage Device: It is true, the net-metering policy treats the DISCOM network as a storage device without cost. The DISCOMS are completely correct in their assessment here. 

 

A practical solution was found in Maharashtra that announced that it would levy Grid Support Charges on roof-top installations that use the net-metering systems after a 2,000 MW capacity is achieved in the state. This policy is practical as it allows the Rooftop Solar segment to grow to a certain size. After achieving that capacity, it was done right by the DISCOM’s and the consumer by levying Grid Support Charges on the exported units. 

 

Such a policy allows the excess Power Generated by Roof-Top Solar Plants to be consumed and helps DISCOM’s make a fee off these Plants for using their distribution network and infrastructure. 

 

3. Artificial Caps on Plant Size: Most states put artificial caps on roof-top solar plant sizes opting for net-metering. However, there is no uniformity across states as well. Some states allow for Solar Plants until 100% of contract demand, while others allow until 50%. Some states put an additional restriction as per the Distribution Transformer capacity which can vary from 30-70%. Almost all the states have a cap of 1MW under net-metering. These artificial caps reduce the savings a consumer can generate with their roof-top solar plant. Moreover, the technical arguments for why a certain state believes 50% of contract demand is the right number while others are comfortable with 100% is complex and sometimes confusing. There is no merit to these arguments apart from being restrictive in nature and the only possible solution would be for a more technically sound argument for putting restrictions. 

 

4. Timelines and Delay in Net-Metering: Net-metering is a painful process for those who have undertaken it. While Solar plants can be built in 15 days, net-metering takes anywhere between 3 – 9 months for completion. Most states have clearly defined the process for net-metering and have introduced timelines for the same. However, these timelines are rarely followed by the Energy Development authority of the states, let aside the DISCOM. Moreover, there is no system that penalizes the tardiness of the officials in giving approval. To top it all, despite having an online application process, all documents must be submitted in hard copies in most states. The files move from officers to officers, encompassing  more than 12 different officials over a net-metering process. All of this must be done physically. This entails the physical presence of officers, which is difficult to obtain. If the entire process moves digitally and faceless like the changes in our income tax assessment, I believe there will be massive efficiency gains. Moreover, a penalty system or compensation mechanism should be built in to disincentivize and incentivize the DISCOMS and consumers, respectively.

 

In Conclusion:

As Solar is no longer in its early days, the Government’s proposed new caps on net-metering clearly indicate that the trend of policies against solar has already begun. If the Capacity is cut from 1,000 to 5 KW, then the roof-top system is only capable of powering a two-ton Air-Conditioner for ten hours daily, which is a waste of resources and investment. It is a blow to advocates who are constantly fighting against climate change! Moreover, there are many challenges within the net-metering system that need to be ironed out. Net-metering is a beneficial tool not only for the consumer but also for the DISCOM. Net-metering reduces the distribution cost for the DISCOMS as excess power from roof-top installations are fed to the next consuming factory or building. Hence, DISCOMS would be better served by becoming an active proponent and part of the roof-top solar rather than trying to derail. 

 

With storage costs reducing every year and solar panel power density seeing massive upgrades, it is a real possibility that many consumers would be able to suffice their electricity consumption through their Solar + storage system in next 5-7 years. At that point, the DISCOM would have completely lost the consumer and not just a part of it. Hence, it is the benefit of the entire eco system that DISCOMS, ERC, Consumers and Installers work together on win-win solutions. 

 

- Animesh A Damani, Managing Partner, Artha Energy Resources