In February 2019, the centre approved “Phase 2” of the Grid-Connected Rooftop and Small Solar Power Plants Programme to achieve a cumulative rooftop solar capacity of 40GW by 2022. Of this target, 4GW was to come from the residential segment, including households in rural areas. The MNRE offered CFA for residential consumers once again to fast-track capacity addition in the segment.
As of 30 July 2022, the MNRE has allocated 3.1GW of residential rooftop solar capacity of the 4GW target capacity. Of the allotted capacity, a total of 1.4GW has been installed.5
About 63% of the allocated capacity across India has been earmarked for Gujarat. Of these, 60% have been installed by the state under the MNRE’s rooftop solar Phase 2 programme.
In a more recent development, on 30 July 2022, the central government launched a national portal to simplify the procedure for rooftop solar installations. Any consumer from the residential segment is eligible to apply for a rooftop solar system installation via this portal.
residential segment
Note: For subsidized capacity only. Progress as of 30 July 2022.
Source: MNRE, JMK Research
Source: MNRE, JMK Research
Selecting a vendor registered with local DISCOMs, solar modules, solar inverters and other balance of plant and equipment is left to the consumers’ discretion. Further, the central government will credit the subsidy to the consumer using the Direct Benefit Transfer (DBT) mechanism. In addition, it will be available only to those consumers who register on the portal by 31 December 2022.
The portal will also enable an applicant to track the installation process for a rooftop solar plant online, starting from the registration of the application to the credit of the subsidy in the consumer’s bank account (after the installation and inspection of the plant).
Along with the announcement on the rooftop solar portal, the central government also notified a new CFA structure under the simplified national scheme. According to this structure, the subsidy amounts for different slabs of system capacity are fixed and standardised across all states and UTs. The government will release the subsidy only after the relevant DISCOM gives clearance on the successful commissioning and installation of the metering system.
For the first time, the central government will be offering a subsidy for residential rooftop solar systems of 10kW and greater capacity. For any qualifying system with a capacity of 10kW and above, the government will provide a fixed subsidy amount of Rs. 94,822 (~US$1,170).
Source: MNRE
At the State Level
The MNRE’s rooftop solar programme has facilitated many states implementing subsidy schemes for the residential segment. Some even offer their own subsidy schemes (i.e., a subsidy funded from the state’s budgets), which are applicable over and above the central subsidy scheme.
Irrespective of the promoter (centre or state), DISCOMs have traditionally acted as the implementing agencies for these subsidy schemes. They have to issue relevant tenders (to set up residential rooftop solar plants in their respective power distribution areas) and subsequently empanel vendors, pay CFA to the vendors, etc.
Note: The subsidy amounts depicted in the figure are with respect to 1kW systems and the latest state benchmark costs and do not include state-level subsidies for Goa. For more details on the state-level subsidies, refer annexure.
Source: Respective state energy development authority websites, JMK Research
Net Metering Regulations for Residential Segment
In addition to government initiatives, such as financial assistance, the launch of the single-window portal, etc., a strong regulatory environment is critical to the growth of the residential rooftop solar market.
As opposed to the C&I segment, the outlook of state electricity regulators and DISCOMs toward the residential rooftop solar segment has been relatively favourable. Almost all the states provide residential consumers with net metering provisions.
Under net metering, the compensation for surplus energy injection at the end of the settlement period makes the rooftop solar system an attractive proposition for the end consumer. This is especially true for residential consumers, considering their highly variable and unpredictable demand patterns. Due to the mismatch between peak solar hours and peak load demand hours for the residential segment, residential consumers may inject a substantial volume of surplus energy into the grid.
For most states, the surplus energy injection rate lies between Rs. 2/kWh (US$0.024/kWh) and Rs. 4.5/kWh (US$0.055/kWh). This is significantly lower than the prevailing residential OPEX tariff rates of Rs. 5.5/kWh (US$0.067/kWh) to Rs6/kWh (US$0.073/kWh). Notably, several major states, such as Tamil Nadu, Punjab, West Bengal and Haryana, do not provide any compensation for surplus energy injection.
Source: Respective state electricity regulatory commissions, JMK Research
Payback on Rooftop Solar Systems Versus Residential Grid Tariffs
Payback on the investment for residential rooftop solar systems varies across states with respect to the respective grid tariff rates. To analyse the variation in the payback, we have calculated the payback periods for a 1kW rooftop solar system for 10 states (see Figure 8). Considering the states chosen for analysis, the grid tariffs (excluding fixed charges) for residential consumers vary between Rs4.5/kWh (US$0.055/kWh) (Delhi) and Rs8.7/kWh (US$0.11/kWh) (Maharashtra).
The higher the grid tariff, the higher the savings per unit (kWh) for residential solar consumers. Thus, the payback period for a rooftop solar plant in states with higher grid tariffs is typically less than those with lower grid tariffs. The payback period also depends on other factors, such as solar irradiance and generation. Thus, in some states, such as Gujarat (with higher solar generation), the payback period is lower compared to states like Chhattisgarh, which have higher grid tariff rates.
For a 1kW non-subsidised, residential rooftop solar plant, the payback period varies from 3.2 years (Maharashtra) to 7.1 years (Delhi). In addition, the payback periods decrease substantially if the central and state-level subsidies are considered. For example, for a 1kW residential rooftop solar plant linked with the new CFA, the payback period would vary from 2.3 years (Maharashtra) to 5.1 years (Delhi).
Note: The tariff rates in the table represent only the energy charge component of the grid tariff. The final tariff rate is typically 20-30% higher than the energy charge.
Assumptions:
1. Monthly electricity consumption of residential consumers: 300
units (across the 10 states)
2. Capacity of the rooftop solar system: 1kW
3. Cost of the system: INR 52,000/kW
Source: Tariff orders of respective state electricity regulatory commissions, JMK Research
State-Wise Attractiveness Index for Residential Rooftop Solar Sector
In order to analyse the state-wise conduciveness for residential rooftop solar installations, we designed a state attractiveness index. We assigned each state ‘marks’ out of five, with one meaning the ‘least favourable’, across four different parameters: electricity cost savings, net metering favourability, subsidy outlook and DISCOM rating. Further, we allocated these four parameters individual weightages, as shown in Table 5. We assigned these weightages based on insights from JMK Research’s interviews with residential rooftop solar developers and consumers.
We show the final scores based on these parameters (and their respective weightages) for 10 different Indian states in Figure 9. As per the total scores, Gujarat ranked first, while the second and third most attractive states are Haryana and Maharashtra, respectively.
Source: JMK Research
Challenges
Some challenges that act as restraints in terms of policy and regulation are delayed subsidy disbursal and rising solar equipment costs. These have a significant impact on the residential market. There are challenges linked to financing infrastructure and standardised information, which underline the inadequacies in the market.
Policy and Regulatory Bottlenecks
A major challenge that added to the hesitation of installers and consumers in setting up rooftop solar systems was the uncertainty and inconsistency of rooftop solar- related policies and regulations. This is especially true for net metering policies across many states.
In some states, the delay in approving net metering connections by DISCOMs is a huge impediment. This sometimes leads to residential customers reversing their decision to purchase a rooftop solar system.
Under the centre’s Grid-Connected Rooftop Solar and Small Solar Power Plants Programme (Phase 2), the installers received a subsidy. However, DISCOMs often delay subsidy payments to the installers, disrupting the latter’s working capital flow.
Sub-Optimal Benchmark Cost
The benchmark system’s costs fixed by many states every year have been substantially lower than the actual cost of the rooftop solar system. The poor feasibility of installation due to the sub-optimal state-assigned pricing became a major obstacle for many good quality developers or installers. This has been prevalent across all states except Gujarat and Kerala.
In addition, developers have observed that the benchmark pricing determined by most states did not cover the entire cost of rooftop solar system components. It must also be noted that a five-year Comprehensive Maintenance Contract (CMC) and insurance from installers are also integral components of the benchmark cost.
Further, the benchmark costs of rooftop solar systems remained unchanged for 12– 18 months. The MNRE notified the benchmark cost for FY2021/22 in August 2021, posing a severe challenge to installers considering the high volatility of solar equipment prices. Given all these issues, many top-tier installers sidelined the option of setting up rooftop systems via the subsidy route.
However, the new CFA structure fixes subsidy rates for different categories of system capacity that applicable across India, thus independent of state-determined benchmark costs. This has the potential to be a game-changer for the residential market.
Mandate of Domestic Modules under Subsidy Schemes
The mandate of using domestically manufactured, or Domestic Content Requirement (DCR), modules in subsidy- based residential rooftop solar projects has been a deterrent. First, DCR modules are more expensive than imported modules. Second, these modules typically have low performance in terms of wattage, and the energy generation per unit of these modules is underwhelming.
In addition, in the past two years, many residential consumers have opted for solar systems with a high degree of differentiation in terms of quality and aesthetics of solar equipment technologies. Invariably, subsidy-based offerings, including DCR modules, do not fulfil the demands of these consumers. This is especially true for consumers in the high- income category.
Increase in System Cost
The global commodity supply crunch, which struck in early 2020 owing largely to COVID-19-induced market disruption, raised solar equipment prices exorbitantly. In addition, an increase in Goods And Services Tax (GST) and customs duties on such equipment further inflated the cost of solar systems. The per kW cost of residential rooftop solar systems jumped by 10-15% because of Basic Customs Duty (BCD) on imported cells and modules.6
Currently, a residential rooftop solar system costs between Rs. 45,000/kW (US$550.69/kW) and Rs. 65,000/kW (US$795.45/kW).7 The variation in system costs primarily depends on the type of solar module. In subsidy-linked systems using DCR modules, the cost of a rooftop system (before subsidies) varies between Rs. 45,000/kW (US$550.69/kW) and Rs50,000/kW (US$611.88/kW). For subsidy-free systems using high-quality non-DCR modules, the cost would lie between Rs50,000/kW (US$611.88/kW) and Rs65,000/kW (US$795.45/kW).
…To be continued
- MNRE
- Insight from primary research.
- The system cost is inclusive of GST.
Jyoti Gulia is the Founder of JMK Research and has about 16 years of rich experience in the Indian renewable sector. Her core expertise includes policy and regulatory advocacy, assessing market trends, and advising companies on their business strategy.
Akhil Thayillam is a Senior Research Associate at JMK Research. A renewable sector enthusiast, he has experience in tracking new sector trends as well as policy and regulatory developments.
Prabhakar Sharma is a Senior Research Associate at JMK Research with expertise in tracking the renewable energy and the battery storage sector. Previously, he worked with Amplus Solar.
Vibhuti Garg is an Energy Economist and the Director, South Asia, IEEFA. She has advised private and public sector clients on commercial and market entry strategies, investment diligence on power projects and the impact of power sector performance on state finances. She also works on international energy governance, energy transition, energy access, reallocation of fossil fuel subsidy expenditure to clean energy, energy pricing and tariff reforms.
