By Tarun Khurana, Partner, Loop Solar, 7 October 2019, New Delhi
Before we get into the dynamics of India’s rooftop solar market, let us first look at the basics of power demand in the country. Demand for power in India can broadly be categorized into four segments — industrial, commercial, residential and agriculture. Commercial and industrial (C&I) consumers pay the highest power tariffs and account for the largest share of the overall demand. By contrast, residential and agricultural power tariffs are often subsidized. As rooftop solar adoption is primarily driven by economic viability, C&I consumers have been responsible for a bulk of the rooftop solar installation capacity till date.
Residential rooftop solar market, on the other hand, has been small, and its installation ecosystem fragmented. However, this status quo may be about to change in 2020.
Key reasons why 2020 will be the breakout year for residential solar are:
2020 will be the best year for a homeowner to install rooftop solar
Installation costs for rooftop solar installations have been falling at a compounded annual rate of 14% for the last 5 years while average power tariffs have gone up by a CAGR of 4%. This has helped improved economic viability considerably even without any government incentives. To add cherry on the cake, the latest guidelines for phase 2 of India rooftop solar scheme provide unprecedented capital subsidies as high as 40% to residential consumers for a limited time period. This is expected to front load demand into 2020 with some spill over into 2021.
Bidding to discover prices
Until now, a residential customer has had little bargaining power with the installers. However, this too is about to change as power distribution companies are calling for tenders to discover prices. Initial estimates suggest that the capital cost to install a 3 kWp residential rooftop solar after subsidy will come out to be just 50% of MNRE’s benchmark cost for 2019–20. This will be a bonanza for the consumers.
Convenience for customers
The conditions set out under the phase 2 of the rooftop solar scheme state that consumers only need to pay the net amount after subsidy — taking away the waiting time before subsidy is released. Also, for the first time, the central government is incentivising power utilities to offer net-metering and move the entire process online.
Quality concerns to be addressed
As stated above, the current market for residential rooftop solar is extremely fragmented. It is estimated that over 3,000 companies offer residential rooftop solar installations. While the nature of the market desires a significant number of companies, there is currently no barrier to entry, and this can result in poor quality of supply and service. Tender based empanelment of companies should create some benchmark for selection. This should, however, not be overdone to ensure fair participation of local service providers.
True potential for residential rooftop solar is much greater than that for C&I
What often gets ignored in the current status-quo is the fact that vast amount of real estate in India dedicated to low-rise housing. Most residential consumers can easily meet 70–80% of their power demand from rooftop solar as compared to just 5–15% for a typical C&I consumer. This means that the overall potential for residential rooftop solar is much greater. An analysis of cities with a population greater than 100,000 shows that 64 GW of residential rooftop solar can be installer — just in these cities.
Unleashing of pent up demand
In 2019, a change in policy and economic slowdown have resulted in a pent up demand that will be unleashed in 2020 as implementation of the new phase of the policy begins.
Even though I am personally very optimistic about the prospects of a residential solar market breakout, there are also some concerns that need to be addressed to make this a reality:
Interface with Discom officials should be minimized with an online process
There is widespread anticipation that giving too much control to the Discoms can lead to corruption and unnecessary delays. It is therefore recommended that the process should avoid physical interaction between customers/ installers and Discom officials where possible. Inspection of a plant should be based on a pre-described checklist and not left open to interpretation.
Price manipulations by solar cell manufacturers should be monitored
The new policy has mandated use of domestic cells and we know that India’s manufacturing capacity of high-quality cells is limited. This means that there will be limited competition which can lead to price manipulation by manufacturers. The government must closely monitor the gap between domestic modules which are with and without domestic cells.