How governance barriers are preventing India from reaching its solar energy goal

As India's solar industry grows rapidly, what needs to change in India and it's governance?

Residential solar by Nivedita Bansal

India’s ambitious solar industry is growing rapidly and has enjoyed policy and investment boosts in recent years. But for India to expand its current non-hydro renewable energy capacity of 90 Gigawatts (GW) to the government’s 2022 target of 225 GW, rapid solar uptake is necessary. A crucial component of this effort will be to increase rooftop solar installations. In addition to the environmental benefits, residential rooftop installations can increase energy access across the country and provide energy security in regions with volatile supplies. However, residential solar only accounts for ~3% of installed solar capacity. Although the sector has received recent policy support, institutional governance hurdles continue to stymie the potential of residential solar in India. Resolving the regulatory disconnect between central and state administrations, ensuring effective subsidy disbursement, and allowing flexible financing of projects can help unlock the potential of residential solar in India.

(Also read: India, Green Cities, and Good Governance: Addressing the Mismatches)

Residential solar installations are one of the two main sub-groups of rooftop solar systems – which are distinct from utility-scale solar systems that supply large regions. The other sub-group is commercial & industrial solar, where panels serve business operations. Commercial solar currently represents more than 80% of India’s rooftop solar. This is partly because the savings on highly-priced commercial electricity offset the capital cost of installing solar panels in a short time period. This ‘payback period’ is much longer for residential solar, as households pay highly subsidized electricity rates and hence save far less by installing solar panels. The key goals of a residential solar growth effort must then be to (i) ensure that a financial incentive for solar uptake is maintained, and (ii) reduce institutional barriers to solar permitting and access.

The main policy approach toward aiding residential solar has been to reduce the cost of installing panels by providing financial assistance. But beyond this subsidy, solar regulations do not do enough to value the surplus power generated by solar and remain volatile on the state level. Net metering involves measuring the energy output and intake of a building with a solar array and charging an electricity bill for the net intake. This is opposed to gross metering, where the grid buys the array’s output back at a fixed-rate lower than the retail electricity rate. A recent Ministry of Power regulation introduced a cap of 10kW -- below which net metering is permitted, but beyond which the practice gives way to the less favourable gross metering.

Another mechanism, energy banking, allow renewable energy producers to exchange surplus energy they create in high-productivity periods (like summer for solar) for the same amount of energy in low-productivity periods (like the monsoon for solar). State-wise energy banking policy has been extremely volatile, and several states have scrapped energy banking facilities or tightened restrictions. As long as policies pertaining to the valuation of surplus solar energy output remain unpredictable and restrictive, solar arrays will not be seen as the income-generating assets they could be. As a result, they could continue to appear as risky investments for households.

Solar subsidies have also faced implementation obstacles. While subsidies have improved solar growth in states like Gujarat, other states distributed only fractions of the funds allocated for this purpose by the centre. A potential stumbling block here is the government’s decision to appoint state power Distribution companies (Discoms) as the nodal agencies for rooftop solar. The move intended to resolve the lack of clarity of solar schemes, but in fact, may have introduced complications as solar developers are seen as competitors by Discoms. Discoms depend on commercial buyers of costly power to offset the cheap power they sell to households; so solar uptake by industry takes a large bite out of their revenue. Furthermore, solar panels are not a reliable backup energy source for Discoms. Peak energy demand occurs in the evening to night when solar panels are not producing energy. For this reason, Discoms harbour concerns about managing electricity demand spikes in a scenario with significant solar adoption. Bringing the state-run Discoms on the same page as private solar developers is essential and can be done by promoting the value of rooftop solar as a local energy source that harbours minimal infrastructure cost for Discoms.

Although utility-scale solar produces far more electrical output and commercial solar is a more financially prudent option, residential solar deserves to be a vital part of the energy mix due to its potential to increase energy access. Residential and decentralised installations can spread the benefits of solar to a wider base than simply those who live in areas serviced by a solar park, and they can even be set up off-grid in areas where connectivity is a challenge. Although the high capital costs might seem to restrict the market for solar, varied financial and leasing options that absolve the burden of an upfront payment are gaining popularity among consumers. A common example is a solar developer-owned array that the homeowner simply pays regular electricity bills on. Facilitating creative solutions through multi-sector governance could facilitate greater energy access but may not inspire as much confidence in returns for developers as safe projects for urban, high-income consumers. The private-public interface in residential solar must develop to allow private developers room to innovate with financing while providing incentives or obligations to cast a wider net with their consumer base.

The solar industry is certainly on the up in India, but this growth cannot be considered sustainable change if it is not inclusive. Positive strides have been made toward decreasing the cost barrier of solar uptake and encouraging domestic manufacturing of panels, but rooftop solar still lags behind the target of 40 GW capacity by 2022, at only 6 GW today. The influence of an entrenched and politicized conventional energy system and unclear policies have stunted the effect of encouraging policies. Government resources need to be delivered in a deliberate, targeted manner, and direct private sector efforts towards a more inclusive energy transition.

(Also read: Sustainability is a club, and you’re not invited)

References

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2) Dash, S. (2021, January 28). India needs to add massive amount of solar and wind power capacity this year to meet its first target. Business Insider. https://www.businessinsider.in/budget/news/india-needs-to-add-massive-amount-of-solar-and-wind-power-capacity-this-year-to-meet-its-first-target/articleshow/80496138.cms

3) Garg, V., & Buckley, T. (2019, May). Vast Potential of Rooftop Solar in India (Publication). Retrieved https://ieefa.org/resources/vast-potential-rooftop-solar-india

4) Current Status | Ministry of New and Renewable Energy, Government of India. (2020, March 31). Ministry of New and Renewable Energy. https://mnre.gov.in/solar/current-status/

5) Bhaskar, U. (2020, December 29). Gujarat announces new solar policy. Mint. https://www.livemint.com/industry/energy/gujarat-announces-new-solar-policy-11609235603705.html

6) ET EnergyWorld. (2021, February 18). India’s new net-metering limit risks stalling progress on rooftop solar target: Report. ETEnergyworld.Com.

https://energy.economictimes.indiatimes.com/news/renewable/indias-new-net-metering-limit-risks-stalling-progress-on-rooftop-solar-target-report/81090270

7) Saur News Bureau. (2020, September 28). Restrictive Banking Provisions aren’t Helping Renewable Adoption in India. Saur Energy International. https://www.saurenergy.com/solar-energy-news/restrictive-banking-provisions-arent-helping-renewable-adoption-in-india