Why rooftop solar failed to find its legs in India

Poor and piecemeal implementation of net metering policies is a major roadblock for the uptake of rooftop solar system in India, according to a new report by Asian Development Bank.

Rooftop solar adoption has failed to gather the desired momentum in India despite the government push. Major reasons are policy conundrums, ill-designed institutional and governance structures, distorted market mechanisms and technical challenges such as those involving grid connectivity, according to a new report by Asian Development Bank.

Against the ‘40 GW by 2022’ rooftop solar target, India achieved a meagre 12% (4.4 GW) by December 2019. Out of the total RTS deployed in the country, the residential sector has been the worst performer, at 16%, compared to other competing sectors such as industrial and commercial.

The report cites persistent policy-level inconsistencies as a primary cause of the slowdown. Poor and piecemeal implementation of net metering policies at the sub-national scale is a major roadblock for the uptake of RTS PV in India. Most of the state regulations on net metering set the maximum capacity limit at 1 MW per metering point for RTS systems to be connected to the distribution grid, which hinders large-scale deployment. Often this capacity ceiling is imposed based on the poor financial health of the distribution utilities. These arbitrary caps hinder the uptake of RTS PV.

Apart from regulatory and technical constraints, there are also societal and informational constraints. Poor understanding of the benefits of RTS among users is a major challenge, which is compounded by the high upfront capital cost to deploy such projects, particularly for residential consumers.

The report stated while RTS systems require bottom-up approaches focusing on intense consumer engagement, the current policy and regulatory regime is designed on the principles of a top-down approach with a uniform set of policies and regulations that lack flexibility. The most recent evidence of such policy-level obstruction is the withdrawal of net metering policies in certain states for commercial and industrial consumers. There is no adequate understanding of how the existing intervention types are performing in varying policy, regulatory, and governance environments.

The existing information asymmetry is a major challenge for the large-scale uptake of RTS projects, especially in the residential segment. Poor understanding and information of the benefits of RTS by users have become the prime reasons for unwillingness to deploy such systems. In one study surveying five Indian cities, close to 50% of respondents were found to be unaware of the RTS technology and its applicability in household context.

In addition to the general information asymmetry, there is also a substantial lack of knowledge about the specific products, processes, and approval systems inherent with these systems. Lack of credible and objective sources of information has led to consumers relying on vendors for information.

This lack of information is further compounded by the high upfront capital cost to deploy these systems, as these are often not within reach of the larger section of the society. Although there has been a dramatic reduction in the RTS cost in recent years, the initial cost continues to be a major hurdle even for small projects.

Further, banks and financial institutions are reluctant to lend funding for these projects due to their small scale. Traditionally, banks charge a high interest rate to developers (10%–12%, or up to 14%) depending upon the associated risks, nature of the project, and credit rating of the borrower.

Lack of technical capacity often acts as a barrier to scaling up these interventions, particularly in rural settings. The needed market eco-system has not been created, and the much-needed supply chain has not yet been established.

Recommendations

The report stated policy-level inconsistencies could be addressed by modifying the net metering policies and their obstructive provisions. The removal of capacity constraints would be attractive not only to existing consumers, but to new consumers as well.

Even if it is not possible to have uniform policies across states, policies could be formulated considering state-level nuances characterised by factors such as unmet RPOs and the strength of distribution utilities, it added.

A  structured approach could go a long way in arresting some of the challenges currently encountered. The best way to minimise the regulatory burdens and procedural complexities is to institutionalise a single window facility for the entire eco-system of RTS PV deployment that would encompass connectivity, net metering, electricity inspection, and limitations on sanctioned load.

Author: Uma Gupta

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