Rooftop solar market in India is beginning to realize its potential. Yearly capacity addition is expected to scale up to over 2 GW by 2019 and over 3 GW by 2020 presenting attractive growth opportunities for all market participants…….
In 2014, India’s Prime Minister Narendra Modi announced a goal to increase solar power capacity to 100 GW by 2022—five times higher than the previous target. Out of which 40 GW has been targeted to come through rooftop solar installations. Till date, considerable efforts have been put in place to develop the rooftop solar photovoltaic sector in India by the government, regulatory commissions and concerned agencies. Basic framework now exists in the country and implementation of rooftop solar power plants has started in true sense. Still currently the large utility scale solar plants dominate the Indian solar landscape, accounting for more than 90 per cent of the installed solar capacity.
The evolution of solar rooftops in India has witnessed a significant transformation to reach a phase where all but one Indian state has issued net metering guidelines to promote solar rooftops. In terms of technology, the quality of components has increased and there have been drastic reductions in costs. However, there is still a huge gap to fill in to take forward the development of the rooftop solar market and addressing the barriers faced by the stakeholders in the sector. Recently, the Standing Committee on Energy (2016-17) of the Ministry of New and Renewable Energy has said in its latest report tabled in Parliament recently – that the rooftop solar targets of 40 GW by 2022 is unrealistic and it is highly unlikely that this target will be achieved.
As per set targets, the 40 GW is to be achieved by 2022 from grid connected solar rooftops in residential, social, institutional and government sectors in the country. However, the progress in implementation of rooftop solar is taking place at a much slower pace – as can be seen from the total installed rooftop solar capacity in India of 1.4 GW as of March 2017, which is about 3.5 per cent of the targeted 40 GW by 2022. In order to propel the market, the Government has further instituted multiple enablers such as a 30% capital subsidy on the system cost for systems being implemented on residential rooftops, benefits of accelerated depreciation of 40%, encouraging financing of systems under the priority sector and lower interest rates.
To propel the rooftop market,
the Government has further instituted
multiple enablers such as capital subsidy;
accelerated depreciation; financing under
priority sector and lower interest rates.
The good news is that over the past two years, the rooftop solar market in India has shown impressive growth which could be directly linked to the improvement in price competitiveness of rooftop solar power vs grid power. India added 678 MW of rooftop solar capacity in FY 2016-17, growing at 81 per cent Y-o-Y. Strong market fundamentals including falling costs and improving debt financing mean that the market will continue strong growth trajectory for many years to come.
Currently, there are now around 1,000 rooftop installers in the country who have been certified as channel partners by the Ministry of New and Renewable Energy and have been classified under various categories based on their performance parameters. Further, there are now multiple innovative mechanisms of rooftop implementation such as projects being financed by the Developer itself under the RESCO mode and then ownership being transferred to the site owner after a fixed number of years. Also, large players such as Tata Power and Hero Future Energies have established separate divisions that cater only to rooftops installation to gain an early entry into the massive 30 billion USD market in the project development space alone.
Though, the most promising method of implementation is currently the RESCO mode. However, as the risk of this mode is on the developer they are not willing to implement systems under this method with beneficiaries that do not have an impeccable rating or previous track record. Systems under such mechanisms are hence typically installed only on big corporate houses and not on smaller consumers. The market share of smaller consumers is what needs to be captured here, but the decentralised nature of installation of small systems at multiple locations does not result in significant returns for the developer and economies of scale.
As per the latest edition of the India Solar Rooftop Map report released by renewable consultancy firm BRIDGE TO INDIA – Commercial and Industrial customers (C&I) remains the biggest market segment as economic viability is most pronounced for such customers. With 65 per cent of total installed capacity, C&I remains the biggest market segment. These consumers account for more than 50 per cent of India’s total power demand and make savings of up to 50 per cent through rooftop solar systems as their grid tariffs are typically between INR 7-10 (US₵ 11-16)/ kWh.
Public sector segment is also expected to show robust growth in the coming years because of a strong government push combined with 25-30 per cent capital subsidy. In contrast, the residential segment is expected to grow relatively slowly because of poor economic viability and lack of financing solutions. According to Bridge to India, the OPEX model has been gaining market share, and is expected to continue on the growth drive for the next few years on account of large public sector procurement programs. OPEX (or BOOT) business model, where a third-party investor owns and builds the system under a long-term PPA with the site occupant, saw new capacity addition of 162 MW in FY 2016-17, accounting for 24 per cent of total market (up from 12% in FY 2014-15 and 19% in FY 2015-16).
|OPEX MODEL : Top 5 Players Market Share Percentage|
|CleanMax Solar||24 %|
|Consolidate market share of top 5 players||60%|
This market is fairly consolidated where top five developers account for over 60 per cent market share – though, access to capital remains tight and on-the-ground execution is challenging. However, going forward the consultancy firm believes that this model will continue to grow but will be increasingly driven by tender-based public sector projects.
On the other hand, EPC for rooftop solar continues to be highly fragmented with over 1,000 registered installers and 35 largest players accounting for less than 35 per cent market share. Only three companies have more than 2 per cent market share – Tata Power Solar (6.4%), Sure Energy (2.5%) and Fourth Partner (2.2%). While in the inverter market, just two companies account for over 60 per cent market share – Delta Electronics (36%) and SMA (including Zever Solar, 25%). ABB, KACO and Fronius are other noteworthy suppliers with about 5-6% market share each. An increasing market share for ABB and entry of companies such as SolarEdge and Huawei may result in minor changes in the leader board in future.
Overall, the consultancy firm believes that rooftop solar market in India is beginning to realize its potential. Annual market size greater than 1 GW in the current year will be an important milestone for the market. Yearly capacity addition is expected to scale up to over 2 GW by 2019 and over 3 GW by 2020 presenting attractive growth opportunities for all market participants. India is expected to build a total rooftop solar capacity of 13.2 GW by 2021 – as per Bridge to India’s report.
These systems are end-user oriented and have more transactional and institutional layers as compared to large solar plants. The major obstacles include lack of economies of scale, weak local distribution infrastructure and poor social outlook. Major institutional reforms, social awareness programmes, technology up-gradation and innovative policy mechanisms need to be implemented to reach the ambitious targets in the next 5 years.
Further, as per a survey conducted in November 2016, although there are net metering guidelines in place but because of lack of experience and maturity in the market, participants from 12 states and 6 UT’s mentioned that their distribution licensees are still at a stage of announcing the detailed procedures to grant connectivity to rooftop solar plants. Further, across the states, it may take 3-4 months from the date of application to receiving grant of connectivity even for a residential rooftop solar system.
There are further shared approvals and clearances between multiple departments such as the regulatory commission, state nodal agencies, DISCOMs, urban local bodies, etc. which may cause delays. In terms of distribution, there are limits on the total amount of electricity that can be injected in the grid at one point owing to the transformer capacity at that location. Though this is not a significant barrier currently but may emerge in future when the number of installations goes up.
From a consumer perspective, there are complexities involved in procedures of various departments, because of which they have to take out significant time from their day to day activities to get the project installed, avail CFA, apply for grid connection and follow up on bill settlement by the distribution licensee. Another major challenge is the non-availability of skilled and trained manpower. This couples with loosely drafted rooftop leasing agreement and sharing of roles and responsibilities between the developer and the rooftop owner.
The need of the hour is to address issues and challenges hampering the growth of solar rooftops across the country as there are multi fold benefits associated with rooftop solar PV systems. For a developer if offers reduced land and interconnection costs, higher tariffs due to increasing commercial and industrial tariffs, and increased profitability. One of the biggest benefits is the reduction in peak demand during daytime for the Discoms that helps in cutting down the T&D losses as the power is consumed at the point of generation. Further, commercial benefits in avoiding investments in transmission system are huge. According to PwC analysis, more than 10,000 MU of electricity will be saved as avoidance of T&D losses alone in year 2022 alone if 40 GW of rooftop PV target is achieved.
Finally and most importantly, it reduces the dependence on grid power, diesel generators and is a long-term reliable power source for consumers. It has been almost 2 years since India’s ambitious solar scale up targets were put into place. The progress on implementation till now has been commendable. We can be confident that the sector has gained significant momentum and attention to reach a level from where it is very unlikely that its growth will slow down in the near future.