Can rooftop solar projects help states achieve their renewable purchase obligation targets?

Many of the renewable-rich states in India, such as Tamil Nadu, Uttar Pradesh and Odisha, are not able to meet their renewable purchase obligation (RPO) targets. 

RPO is a mechanism in which the obligated entities are mandated to purchase a minimum of their total power consumption from non-conventional energy sources such as solar and wind, according to the Electricity Act, 2003. 

For 2023, the government has mandated RPO compliance of 24.61 per cent, and for 2024, RPO compliance has been set at 27.08 per cent.

Renewable energy service company (RESCO) -based Rooftop Solar Photo Voltaic (RTS PV) would help utilities achieve their RPO targets.

RESCO is one of the models of RTS PV installation in which the project developer installs the RTS PV on the consumer’s (rented to the project developer) rooftop, and the consumer does not have to pay an upfront cost for installation.

In a RESCO model, an energy provider delivers electricity produced by a solar power project to the grid or the consumer whose property in which the project is installed.

RTS PV in the RESCO model would help the utilities achieve their RPO targets, reducing the need for renewable energy certificates (REC). In order to bridge the gap in fulfilling the RPO targets, distribution companies (DISCOMs) resort to buying RECs. 

Source: Ministry of Power

For 2022-2023, 46 per cent of the country’s total renewable energy supply of 354 billion units (BU) is generated by large hydropower plants, according to the Ministry of New and Renewable Energy statistics.

The dependence on solar power has increased significantly recently, with a 29 per cent contribution in the current financial year, followed by wind energy.

An analysis carried out by the Delhi-based non-profit Centre for Science and Environment recommended RTS PV should be deployed in areas with high transmission and distribution (T&D) losses.

DISCOMs can calculate the maximum value of the T&D loss beyond which the RTS PV can be beneficial for them. The per unit savings of the DISCOMs improve as T&D losses in the region increase. The RTS PV penetration level, however, increases the total savings for the DISCOMs.

DISCOMs can be useful in many ways, such as lowering the tariff for the end-user, lowering the cross-subsidy charges, lowering the direct subsidy charges and profit sharing with end-users, among others.

RTS PV can benefit low-paying end-users by lowering T&D losses in areas that have been difficult for the utility to manage. RTS PV systems facilitate local generation and distribution, incurring fewer losses as compared to the total T&D loss for the DISCOMs.

Although there is currently no definitive information on the overall residential rooftop capacity to date, based on the information available in the public domain, residential RTS PV has a very nominal share. Nearly 2 gigawatts account for about 20 per cent of the overall RTS PV capacity. This does not indicate confidence in the residential sector, which is riddled with various challenges.

Solar-based generation plays a predominant role in achieving RPO targets. This makes a compelling case for the states to pursue and scale up solar PV, maximising the potential for ground-mounted and rooftop solar PV.

DISCOMs in states with strong financial status should work as producers, developers and financiers. The consumer database of the utilities is equipped with the knowledge of the T&D losses and the rooftop availability.

They are up to date about the end-users behaviours and manage grid interconnections, metering, inspections, billing cycles and engineering procurement construction services.

The solar PV production cost continues to fall, which means the PV market and the end-users will find a way to keep RTS PV moving forward regardless of the role played by the utilities.

Given the potential of the residential, commercial and industrial RTS PV developments, it is critical to consider scaling rooftop solar PV in the residential segment to increase the share of clean power generation.

This requires experimenting with various models involving multiple stakeholders. Most importantly, distribution companies with access to every grid-connected household/consumer in their respective jurisdiction of power supply can play the leading role in terms of mobilising consumers.

Thereby, they can aggregate the potential and demand for rooftop solar PV, which would also augment their reliance on non-conventional energy sources in terms of procurement and supply, especially in rural areas.

DISCOMs can partner with multiple stakeholders, such as developers and consumers, to conduct the feasibility analysis of projects, followed by project development through appropriate models such as CAPEX, OPEX (RESCO) and DISCOM-facilitated community projects.

Considering the security of a long-term contract, renewable energy service companies (RESCO) have ranked low-paying end-users as ‘low.’ The tariffs on rooftop solar PV power are relatively high compared to the subsidised power that the low-paying end-users receive. Both these scenarios make the RESCO model unappealing for such end-users.

The eventual alternative is the DISCOM-based model, but DISCOMs do not want to fund the system inherently. They are debt-ridden, with a weak financial position.

One of the challenges faced by the Indian power sector is the compelling issue of aggregate technical and commercial losses (AT&C), which is lowered by RTS PV as generation and consumption are co-located. The places where AT&C losses are high can deploy RTS PV.

In the third party or the RESCO model, the renewable energy service company invests its funds in solar PV projects and sells the power to the owner/end-user at a price that is lower than the grid charges at a profit margin. 

This model is also called OPEX, as the owner/end-user pays for the system’s operation cost over several years. The ‘third party’ refers to the relationship of the RESCO with the owner and the utility as a third party. The key benefit of this model is that the RESCO bears the technical risk and the end-user does not have to make capital investment in the project.

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