How Cash-Strapped Power Distributors Are Holding Back Rooftop Solar Power

In 2018, the city corporation had planned a 42-megawatt peak capacity solar photovoltaic installation to be distributed between its water treatment plants, pumping stations, streetlights, buildings and gardens, said Sunil S. Navghare, an engineer at the NMC's electricity department. But the project has been delayed for almost two years. "We have ironed out almost all issues now and hope this year it will be up and running," said Navghare.

The apathy towards clean energy is notable because Nagpur enjoys 300 days of sunshine a year and was declared one of India's 60 solar cities in a move to promote sustainable energy. It also explains why India has been slow in achieving its target for rooftop solar energy even as it pushes for a substantial switch to sustainable energy. Under its Nationally Determined Contributions pledged in 2015 to combat climate change, India has set a target of 175 GW renewable energy by 2022. Of this, as much as 100 GW is to come from solar energy, including 40 GW of rooftop solar.

The government is aware that the rooftop solar sector is nowhere near this target. During the first phase (2015-2020), 2,071 MW was installed against a target of 4,200 MW by January 31, 2021, the Ministry of New and Renewable Energy told the Lok Sabha in February 2021.

What are the reasons for the tardy growth despite the many advantages of solar rooftop systems?

The first of our two-part investigation into this issue dealt with consumer complaints about pricing and red-tape in subsidy payment and application and installation processes. In this concluding part, we explain how the red-tape of state governments and the reluctance of power distribution companies to encourage rooftop solar power are holding the sector back.

As we pointed out in our first story, consumers are keen to use rooftop installations. In Nagpur, for example, the city's public sector units, central government offices, corporate offices, industrial units, commercial units and even big hospitals have been installing rooftop solar systems, with or without the funds offered by the Central Financial Assistance (CFA) to promote solar energy over the last decade. For example, last year, the Reserve Bank of India completed a rooftop grid-interactive 55 KWp SPV system for its staff quarters in the city. And Nagpur Metro has installed rooftop solar systems at several of its stations, rails, depot boundary walls and sheds.

"So far, to promote solar rooftop, the government has relied on subsidies to residential households. This approach does not address the main bottlenecks: high up-front costs and lack of financing; discoms' reluctance to support installations; low comfort with technology; and bureaucratic hurdles," said a 2019 report of the Centre for Science and Energy, suggesting the setting up of Renewable Energy Service Companies (RESCOS) to offer long-term supply contracts to households.

Maharashtra gets the highest target

Six months after it assumed power in 2014, the Modi government approved the setting up of 1,000 MW grid-connected solar photo-voltaic (PV) power projects with viability gap fund support of Rs 1,000 crore on the condition that all PV cells and modules be made in India. Among other decisions, it also approved setting up of 25 solar parks of 500 MW each and an ultra-mega solar power project with central financial support of Rs 4,050 crore.

As we said, India has set a target of 175 GW for renewables by 2022 and of this, 40 GW is to come from rooftop solar. However, as per MNRE data, as on March 31, 2021, the cumulative installed RE capacity was 94.43 GW, including 40.09 GW solar capacity. (No break-up of rooftop solar is available). These targets comprise state-wise targets, which in turn comprise city-wise and sector-wise targets--rooftop solar, windmills or large solar plants and so on.

Under the phase II of its grid-connected rooftop solar PV programme, the MNRE announced that 40,000 MW of grid-connected rooftop solar projects in the residential sector would be set up with the CFA scheme by 2022. It set a 2022 target of 4,700 MW rooftop solar for Maharashtra, the highest for any state or union territory. with annual and state wise targets. As per the second phase of the CFA scheme, the state's primary discom, the Maharashtra State Electricity Distribution Co. Ltd. (MSEDCL), or Mahavitaran, was to get 25 MW worth of subsidies. The package included rooftop solar systems with and without subsidy in residential and commercial/industrial structures.

Maharashtra itself has set an ambitious target of 2,000 MW by 2025 for grid-connected rooftop solar projects as part of the State Renewable Energy Policy 2020 announced on December 31, 2020.

Yet, the state ranks only eighth on solar installations, as per the MNRE's 2019-20 annual report. It scored only 52.0 (out of 100) and was ranked ninth in the 'SARAL: State Rooftop Solar Attractiveness Index 2018-2019' worked out by MNRE.

The Maharashtra government has failed to make it compulsory for its new buildings to have rooftop solar, which was a major recommendation in the 28th report of the Parliamentary Standing Committee on Energy (2016-17), National Solar Mission – An Appraisal. "The Ministry (MNRE) should pursue all the States/UTs to make Rooftop Solar compulsory on new buildings by making changes in building byelaws," the report said.

No new target was set for 2020-21 as the previous year's target had not been reached and as of October 11, 2020, there was no disbursement of subsidy as none of the projects had been completed by then.

Reluctant discoms

The role of discoms features repeatedly in all discussions on the problems faced by the rooftop sector. In part one of the series, we had referred to allegations by the Maharashtra Solar Manufacturers' Association (MASMA) and others that MSEDCL has been sabotaging the expansion of the sector. Inconsistent policies, procedural hassles and lackadaisical response to consumer needs are some of the problems MASMA pointed out.

Why are discoms key to the rooftop sector? Power discoms supply electricity via grids for which they are paid by consumers. Since rooftop installations cannot not offer round-the-clock power supply for various reasons, consumers find it useful to link up with the grid through a system called net metering. If the consumer generates extra solar power, its value is adjusted against the next months' consumption by the discom.

Discoms have argued that the rise of the rooftop sector could end up causing them revenue losses. Though no official at the MSEDCL was willing to go on record on the subject, enough communication has been put out by the agency to explain its reservations.

"Large amounts of rooftop solar make it difficult for utilities to maintain the stability of the local grid," the MSEDCL said in its comments on the 2018 amendment to the net metering regulation. "Utilities maintain the distribution voltage within specified limits to provide reliable power to their customers. However, conventional grids were not designed with solar in mind and some solar generation characteristics, such as intermittent output and safety-triggered circuit trips, aggravate voltage instability."

The MSEDCL also spoke of its anxieties about the revenue loss caused by cross subsidising of the rooftop sector. "At present, only high-end consumers are opting for roof top RE through net metering arrangement and although, it is beneficial for such consumer (sic), it reduces the ability of the Distribution Licensee to subsidize low end consumers. The same may destroy the delicate cross subsidy balance mechanism provided in the Electricity Act 2003 and will push the rate of electricity for small and poorer consumers very near to average cost of supply."

MSEDCL is referring to the fact that the bills of high-paying consumers are used for cross-subsidising low-paying or no-returns consumers such as agricultural consumers or those in the least consumption bracket. So, if these high-paying consumers start using solar power, thus effectively reducing regular power bills, who will bear the cost of the cross-subsidy?

It is not that the government is not aware of the hurdles facing the rooftop sector. The 28th report of the Parliamentary Standing Committee on Energy (2016-17) titled 'National Solar Mission – An Appraisal' has dealt with its under-achievements. Responding to the appraisal, the MNRE had cited: "Reluctance of DISCOMs to operationalize net-metering regulations as rooftop solar systems may reduce their income from high paying customers; lack of consumer awareness; tedious process for project commissioning and subsidy disbursement and frequent changes in Government Policies."

Another issue is grid support charges (GSC) to be levied on consumers once solar power generation in the state reaches 2,000 MW.

'Need a fair, just and balanced risk and reward framework'

What is a grid support charge? If high-use power consumers migrate to solar power, it reduces a discom's earnings. To make up for this loss, MSEDCL suggested an additional fee, the grid support charge. It proposed a GSC of Rs 3.60-Rs 4.08 per unit for high tension (HT) and a maximum of Rs 8.60 per unit for low tension (LT) consumers.

Stakeholders reacted with dismay saying this would make solar rooftop unviable for users. The MERC too rejected the proposal but to compensate MSEDCL, it allowed the discom to impose a banking charge (charges for supply of electricity using the grid infrastructure)--7.5% for high tension (HT) and 12% for low tension (LT) consumers. Banking charges would only apply to consumers with net installed capacity above 10 kW. However, the issue remains unresolved.

A lot of commercial and industrial (C&I) consumers in Maharashtra keen to switch to solar rooftop are dismayed by these frequent policy changes that they allege only protect discoms. "Why do you want to kill that market? With such uncertainties, you are making it more and more unlucrative for the developers to even think about it," said Vibhuti Garg, energy economist at the Institute of Energy Economics and Financial Analysis (IEEFA).

Solar consultant Sudhir Budhay objected to the formula being used to calculate GSC, in accordance with this December 2019 regulation, but admitted that banking charges can be justified because the "grid is utilised for banking of power during daytime".

The question of finding a balance between discoms' earnings and protection of solar consumers' interests is not unique to Maharashtra. "There is no one perfect answer to this, but geographies are evolving their own responses to this emerging situation and the answer certainly does not lie in blanket bans or restrictions on rooftop solar, but by evolving a fair, just and balanced risk and reward framework for all stakeholders," said Ashwin Gambhir, fellow at Pune's Prayas Energy Group. "As prices of rooftop solar drop, there is no doubt that consumers would want to benefit from the same. But similarly, discoms need to be compensated adequately for the risks and services provided to promote RE and facilitate sales migration."

He said net metering should be promoted as a form of energy storage for the unused power generated by consumer's rooftop solar installations, without extra charge to the consumer, one that avoids battery costs too.

"This needs to be coupled with larger changes in the sector with a movement towards Time of Day (ToD) and seasonally changing tariffs even for residential consumers," Gambhir said. ToD tariffs incentivise consumers to use electricity when its demand is lower, by lowering its price, and disincentivise power use by raising prices when demand is high. This helps discoms use the minimum load of power they are mandated to buy even if there is no demand for it, and limit the amount of extra electricity they need to buy because of extra demand.

This story was supported by a grant from the Earth Journalism Network.

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