In order to incentivise the setting up of rooftop solar systems (RTS) in India, the Union Ministry of New and Renewable Energy (MNRE) has released guidelines under the Prime Minister Surya Ghar Scheme. These guidelines are aimed at promoting renewable energy service companies (RESCO’s), and utility-led aggregation models that can increase the penetration of RTS systems either through facilitation or direct investments.
These guidelines are significant in the light of current deficits in RTS installation targets.
There have been several attributable factors for this sluggish adoption such as prevalence of existing subsidies on user tariffs, operational and technical lacunae within distribution companies (DISCOMS), high initial costs of installations and mismanagement on the part of vendors.
The utility-led business models present an opportunity for DISCOMS to maximise their revenues, integrate newer technologies such as energy storage and electric vehicle charging. It will also reduce their operational and non-revenue generating activities and offset large capital investment in power grid upgrades while capitalising on the new emerging demand for renewable energy.
In the last few years the growth in RTS has primarily been driven by upfront user investment models which are referred to as capital expenditure (CAPEX) where the consumer invests in the system’s costs initially and offsets their consumption via reduced energy bills.
The majority of installations, totaling 14 GW, have been in the commercial and industrial segments (C&I) mainly from declining solar costs and high tariff rates by DISCOMS. The residential market has less than 30 per cent penetration (of 14 GW).
While schemes such as PM Surya Ghar Muft Bijli Yojana have promoted adoption with increased subsidy allowance and eased business facilitation procedures via digital interfaces. The potential largely remains untapped since most residential consumers are price (tariff) conscious with low overall energy demand (contracted load) to make a viable business model for three primary stakeholders —
DISCOMS who have to accommodate RTS systems while managing operational and technical aspects without raising power tariff.
For the project developers to arrive at a feasible price structure which will increase user adoption based on affordability.
Prospective consumers who require further awareness, transparency and trust in opting for RTS.
In order to create viable business models by regulating and structuring investment costs, ownership mechanisms such as lease third party ownership and facilitating user demand aggregation by utilities.
While the scheme provided attractive subsidies towards incentivising prospective rooftop owners for installing solar panels at home. This dominant ownership model however excludes prospective buyers who may not have their own roof space or share with others, or are reluctant to invest in RTS systems for many such reasons.
The project developers also face challenges because of their inability to reach a wide consumer based, small size of systems which prevent demand aggregation, limited track record in project implementation, contractual and payment risks from consumers.
The role of DISCOMS as an enabler and facilitator for the RTS policies while mobilising consumers and acting as the interface between consumers/user and developers becomes very significant.
As the electricity generation mechanisms become more decentralised, DISCOMS have to factor in intermittency in energy generation from renewables, emergence of prosumers (as consumers and generators), grid maintenance and modernisation costs etc all while recalibrating their business viability and increasing additional sources of revenues.
The utility-centric business models mentioned in the guidelines promote a facilitation approach via aggregating projects (such as multiple rooftops under a cluster agreement), standardisation of services (reducing operational tasks and monitoring in a planned manner), ensure payment security to reduce risks of defaults by all stakeholders while meeting national and state renewable energy mandates.
The regulations detail two primary models, RESCO based and Utility Led Aggregation (ULA). In the RESCO mode the consumer neither funds nor is the owner of the RTS system, instead the RESCO owns, operates and maintains the system (for at least five years) while only paying for the electricity consumed from the RTS to the RESCO and also earning some compensation such as rooftop rentals.
Additionally, the RESCO in an arrangement with the DISCOM utilises the sale of balanced power to the grid. The consumer benefits from lower tariffs and rooftop rentals while the developer sells power to DISCOMS at attractive feed-in-tariffs. The DISCOM can source power within its network and increase revenue by reducing distribution losses.
In the ULA models, any state entities (government agencies), DISCOMS can install RTS systems on behalf of the individual users via incorporating existing funds/resources. The mode (customer owned or developer owned), ownership after five years, and bill collection can be decided by the concerned DISCOM utility.
These models allow aggregation of collective RTS demand to be executed and installed under an engineering procurement and construction (EPC) model. Giving DISCOMS the opportunity to source power from a large network of prosumers locally while not wholly owning or maintaining the systems.
This model is akin to large-scale power procurement from national power generators. A competitive bidding model emphasised under these guidelines shall be similar to large-scale power procurement which is currently being witnessed in the land-based solar and wind energy. Both models mentioned in the guidelines retain central financial assistance (CFA) to the individual owners based on the current subsidy structure under the RTS scheme.
In order to reduce risks of payment defaults, the National Programme Implementation Agency (NPIA) for administering and implementing PM-Surya Ghar Scheme shall manage and administer a corpus of Rs 100 crore.
This fund worth Rs 100 crore shall be collected via various project developers as a one-time service fee (Rs 2000/installation) and assure a state guarantee to developers in the case of payment defaults or risks by the concerned utilities.
DISCOMS should identify and compare business models based on least cost framework
The guidelines are a welcome move towards pushing for RTS adoption in India in a multi-format phased regulations to navigate the complexities of the RTS segment. Since operating in such a decentralised manner shall require further impetus of the NPIA in clarifying various implementation procedures.
The move from conventional CAPEX business models to proposed ones shall require detailed cost-benefit analysis framework for the DISCOMS.
This framework must take into account consumer categories (based on estimated energy consumed), cost of power generation for the RTS system based on levelised cost of energy (average rate per unit of electricity to recover overall system costs over the project lifetime), capital costs based on current installation prices and debt-equity ratio towards funding the system over repayment period have to be detailed.
This will be essential to decide the tariff applicable to the consumer categories and thereby decide the feasibility of any business model outlined.