New scheme for solar rooftops (GS Paper 3, Environment)
Context:
- Recently, the government announced the Pradhan Mantri Sarvoday Yojana (PMSY), a scheme specially designed to give a boost to rooftop solar systems for poor and middle-income households.
- The scheme will provide a solar rooftop system to one crore households that will provide 300 units of electricity per month free of charge.
Gaps:
- This scheme makes no mention of the capacity that is being targeted.
- However, going by thumb-rule, if one were to provide 300 units of electricity per month, one would need a capacity of a little under 3 kilowatts (kw) and if one crore such systems are to be installed, the total capacity would be 30 gigawatts (GW).
- Of the target of grid-connected 175 GW of renewables by 2022, the share of the solar sector was 100 GW, which included a solar rooftop capacity of 40 GW. Out of this, we have only about 11 GW in place.
- Moreover, most of the solar rooftops are in the commercial and industrial sectors and the share of the residential sector is only around 21%. If one talks about potential capacity (technical) of solar rooftops in the country, a think-tank in Delhi (CEEW) has estimated it to be about 637 GW covering about 25 crore households.
- Of course, all such estimates have a lot of accompanying assumptions and are not really cast in stone, but is definitely indicative and it shows that as of today, we have installed less than 2% of our potential.
Why India is unable to meet its targets?
Information dissemination:
- Information dissemination amongst households, especially lower-income households, is poor. The general feeling is that solar rooftops are an expensive proposition (which is true) with too many uncertainties and are difficult to maintain and operate.
- It is also plagued by poor after-sales service. Moreover, this sector has had too many ‘fly-by-night’ operators who cheated their clients.
Finance:
- Getting banks to provide credit on easy terms has been difficult, especially on occasions where the consumers cannot provide collateral.
- In the case of other sectors where banks provide credit, the asset being built (including the land) can be hypothecated to the lender. In the case of solar rooftops, there is no resale value of the used components like the solar panels, inverters etc.
Distribution of subsidies:
- Subsidies are being provided by the central and some state governments.
- All such subsidies are routed through the distribution company (discom). For consumers, it has been harrowing to avail the same.
Metering:
- Another major impediment for solar rooftops which merits a separate mention is that of the metering being offered by the discom, net or gross.
Gross metering:
- Under gross metering, a feed-in tariff is decided by the state and the consumer is paid at that rate for the units fed into the grid.
- The consumer is separately billed for the units that she has consumed at the normal retail tariff rate. For example, if the consumer has consumed 600 units from the grid and has generated 250 units and fed into the grid, she will be billed for the 600 units at the normal retail tariff rate and the discom will adjust for the 250 units that has been fed to the grid on the basis of the feed-in tariff.
Net metering system:
- In contrast, under the net metering system, the discom will bill the consumer for only 350 units (600-250). Since tariff rates are telescopic, the consumer falls under a lower tariff schedule when she is billed for 350 units vis-a-vis 600 units. Moreover, the feed-in tariff is usually lower than the retail tariff and therefore, the consumers always prefer net metering.
- By the same logic, the discoms prefer gross metering and to strike a balance between the interests of the consumers and the discoms, the union government, in its Electricity (Rights of Consumers) Rules 2020, stipulated that rooftop solar systems below 10 kw will have net metering and anything above 10 kw will be gross metering.
Implementation of PMSY:
- Coming back to PMSY, the scheme will be implemented through Renewable Energy Service Companies (RESCOs). Under the RESCO model, all capital cost is borne by the RESCO (which also maintain the system) and the consumer pays a per unit cost decided through a contract, something akin to a power purchase agreement (PPA).
- Under PMSY, however, the consumer gets 300 units free of charge and the balance (ie. over and above 300 units) is fed into the grid. What is earned by feeding into the grid will be used to pay off the loan.
- There are nine central public sector units (CPSUs) who will act as RESCOs. After the payback period (which can range from 4-5 years), the asset will be transferred to the consumer, whose only responsibility was to provide rooftop space.
- This will no doubt get rid of the problem of finance, collateral etc. but the moot point is whether the nine CPSUs will be able to cater to one crore households despite having the option of setting up new special purpose vehicles (SPVs)/subsidiaries to do this job. The transactions cost involved will be enormous as it implies supervising one crore PPAs.
- Another related issue is whether the consumer, especially from the poorer lot, have the wherewithal to maintain the system after the asset transfer.
Impact on DISCOM:
- Finally, a grid-connected solar rooftop does not have a battery. So, the consumer will depend on the discom for power during non-solar hours.
- Consequently, the discom will not be able to alter its PPA with the generator and continue to pay for the fixed charge and simultaneously lose revenue, since many residential consumers would have switched to solar during the day hours.
Way Forward:
- If PMSY turns out to be successful, it could worsen the financial health of the discom which, in turn, will adversely affect investor sentiments.
- This downturn may affect meeting our target of 500 GW of non-fossil fuel generation capacity by 2030, as practically all investments in the renewable sector is through private hands. Nevertheless, PMSY does address some of the lingering problems of rooftop solar and must be given a fair try.
