Kerala’s draft solar regulations may impede rooftop adoption, raise consumer costs

Recently, the Kerala State Electricity Regulatory Commission (KSERC) promulgated draft guidelines on Renewable Energy and Related Matters Regulations 2025 applicable to electricity grid-connected renewable energy systems, consumers and ‘prosumers’ (customers with their own rooftop solar energy generation and consumption).

The regulations include provisions on metering and billing arrangements which may be deemed contentious towards scaling rooftop solar in India by restricting the size and billing-related mechanisms under the rooftop solar metering arrangement provided.

Mechanisms to maximise benefit from rooftop solar (RTS)

There are three metering arrangements available to consumers which detail the quantum of electricity exchanged and, based on the applicability, consumers are free to opt for one. Under the net-metering mechanism the costs of exported and imported power remain the same and are net-adjusted at the end of the billing cycle / month based on consumption.

Other metering mechanisms devolve the tariff costs based on a pre-determined feed-in tariff (for exporting energy from rooftop solar to the grid) as compared to overall average power purchase costs or electricity retail supply costs.

Under the draft regulations, consumers shall be allowed to install net metering for capacities under 3 kW only, and up to 5 kW for consumers installing rooftop with storage capacities of at least 30 per cent of the consumption (behind-the-meter storage), reducing from the previously permissible limit of 1 MW which allowed large consumers to also avail of net-metering benefits.

Further, it has introduced net-billing for consumers under the 500 kW limit and 3 MW in the case of gross metering. They were also excluded from banking, cross-subsidy charges and electricity duty which have been levied, including application of feed-in tariff rates as per Solar Energy Corporation of India (SECI)’s discovered prices, which are as low as Rs 2–2.5 / kWh as compared to currently applicable tariffs of Rs 3.59–3.26 / kWh (control period FY2022–FY2024).

Various states, as per directives from the electricity regulatory commissions, sanction limits on the size of the net meter based on household consumption (sanctioned load). The most benefits in terms of electricity bills emerge from the net-metering mechanism as compared to gross or net-billing metering arrangements. There are limits applicable based on the sanctioned load size (kW) and permissible load categories under metering arrangements.

For example, under net metering a few states sanction sizes under 500 kW while others may permit up to 2 or even 3 MW. Usually, higher sanctioned load sizes are permissible under gross metering while net metering and net billing are applicable under lower sizes. Since almost 90 per cent of domestic consumers fall within 3 kW size, net metering has been allowed and preferred.

The 3 kW sanctioned load size limit on net metering mentioned in the Kerala draft regulations shall mainly impact prospective domestic consumers who were opting for rooftop solar and benefiting from lower electricity tariffs.

Changes in regulatory policies can destabilise growth of RTS

The rationale for reducing net-metering limits has not been provided. As per established research studies, utilities bear maximum losses under the net-metering mechanism as compared to the other two, but it is most beneficial for users given the high import tariffs provided (same as conventional retail tariffs) whereby net monthly costs can often be zero.

A safe rationale to assume is the dynamic pricing structures of electricity tariffs (of supplied power) and time differentials (as costs vary based on time zone of supply). For example, levy of higher charges during afternoon and evening peak hours.

Absorbing excess exported power from rooftop solar creates demand-side challenges for the utilities, especially in periods of high peak demand, low power availability and others where utilities (DISCOMs) tend to procure power from spot energy markets and exchanges, leading to high cost of power procurement. This leads to utilities incurring losses for supplying power during those time zones, especially in periods of unanticipated demands (seasonal factors). Since the net-metering mechanism bills power supplied at retail tariff rates, it creates additional financial pressures for the utilities to manage and supply power.

Often, they have to procure power from spot exchanges costing as high as Rs 10–15 / kWh, besides paying fixed costs to other generators irrespective of power drawn. As more and more customers shift towards RTS, utilities continue to bear losses (AT&C), affecting the overall operational and financial performance of the utility.

Given the sensitivity of electricity tariffs and the limited ability of consumers to bear higher costs, utilities continue to incur losses for supplying power during those periods, and often wish to shift these costs to consumers, including those without rooftop solar, thereby indirectly hampering the growth of rooftop systems.

Emerging scenarios from application of KSERC regulations

Deliberating on the consequences further, at the outset it negatively affects prospective consumers and existing ones as well. A consumer (irrespective of load size and type; residential, commercial, industrial) shall have to bear either additional on-premises storage costs which are currently Rs 16,000-18,000 / kWh, thereby incurring a further expenditure of at least Rs 40,000-50,000 besides the cost of rooftop solar systems.

The battery storage systems currently happen to be not covered under any subsidy / CFA programme.

Besides, users are also expected to pay grid support charges (for higher than 10 kW size), and reduction in settlement rate for banking (mechanism to send excess power units exported to the grid and later withdraw within a specific pre-decided time interval) from current APPC costs to 75 per cent of tariff cost (capacity weighted) in SECI-discovered tariffs. Therefore, two scenarios arise for customers both new and existing:

• Additional capital costs for on-site battery storage besides rooftop systems, which for 3 kW systems excluding subsidy shall be close to Rs 2.5 lakh. Besides initial costs, user costs for electricity usage shall also increase since the exported power is now billed differently and shall range between Rs 2.1-2.6 / kWh from the current Rs 3.59 / kWh. This shall reduce the overall savings which a customer was earlier benefiting from. The regulation clauses mention energy export costs based on time zone which shall lead to a near 30 per cent reduction from current models.

• For users with higher capacities upwards of 5 kW to 500 kW, net billing shall apply automatically as per the regulation, which shall be calculated based on a formula mentioned in the regulations. This hints at the applicability of higher tariffs in order to nudge consumers towards opting for on-site storage rather than reliance on the grid.

The ‘intent’ behind the regulations seems to factor in certain modalities.
First, the bulk of residential consumers shall be covered under 3 kW sizes for which net metering has been retained. However, they shall be subjected to time-variable tariffs and may not avail of existing low electricity billing as compared to previous, or currently in other states.

Second, inclusion and detailing of the net-billing mechanism clearly hint at deviation from the net-metering practice (and thereby reduce additional costs to utilities), while keeping electricity supply tariffs high and reducing the tariffs for electricity withdrawn from the grid. Additionally, inclusion of fixed and grid support charges shall further raise the cost of monthly power consumption whereby users shall automatically be prompted to adopt on-site battery storage systems.

Third, inclusion of parameters such as virtual net metering, virtual power purchase agreements, vehicle-to-grid, inclusion of rooftop solar and storage renewable purchase obligation targets signal movement towards higher RE capacities and market development in the state. While earnest in intent, without due diligence towards working out the marginal costs of power procurement and thereby of retail tariffs ahead, this signals uneasiness in the rooftop solar and wider RE segments.

Exploring alternate existing market mechanisms to integrate storage

Given the rapidly falling costs of battery energy storage systems and recently released storage tender prices for renewable energy procurement, Kerala State Electricity Board and Kerala State Electricity Regulatory Commission should also deliberate on costs from shifting storage from consumers to distributor transformer levels (distribution side).

Several studies, including a recent publication by Delhi-based think tank Centre for Science and Environment (CSE), have highlight benefits from revenue realisation and technical management of power from investing in utility-led RTS programmes with storage. There have been established studies highlighting the role of storage (especially batteries) in arbitrage services (peak shifting, reactive power support, ancillary services, etc, which help manage excess power during low demand times and vice versa) which can immensely benefit utilities in managing intermittent power from RE sources.

Also, given the overall quantum of power procurement from RE sources to displace thermal as per net-zero trajectories, inclusion of storage modalities is a must on the distribution and transmission side of the utilities. Examining the recent tenders awarded by various utilities in India (Haryana, Gujarat, Maharashtra, Tamil Nadu) which have opted for BESS based on time-of-use optimisation principles, which the draft regulations seem to address. KSEB is also better placed towards adopting and rationalising storage than completely shifting it onto its consumers by signalling higher tariffs and banking guidelines.

The RTS penetration in Kerala is one of the highest in the country with close to 15 MW of installations monthly, which have reduced to 5–6 MW since the release of the draft regulations. Policy uncertainty has been one of the biggest reasons for laggards in the RTS sector. Therefore, CSE suggests due deliberation and consultation processes towards scaling RTS in the state by relevant stakeholders, especially consumers, project developers and research institutions.