What is driving the historic growth in India's rooftop solar power sector?

What is driving the historic growth in India’s rooftop solar power sector?

New Delhi, India – According to data from the renewable energy ministry, India’s sleepy rooftop solar power sector has sprung into action after many years of slumber, with more than 1,000 megawatts (MW) of rooftop solar capacity added in the last six months alone.

According to the most recent ministry data, 8,877 MW of rooftop solar capacity was added on March 31, 2023, up from 7,520 MW on September 30, 2022. According to industry stakeholders, the main reasons for this are increased awareness among residential consumers and government subsidies for the residential segment.

According to Gagan Vermani, MD and CEO of MYSUN, a Noida-based tech firm, there is a significant upward trend in rooftop solar capacity addition, which has accelerated in recent months.

He stated that the C&I rooftop market was a little slower earlier due to a variety of factors, but that the residential solar market has been doing quite well.

“We have seen robust month-on-month growth and plan to increase our sales 5X in the coming year 2023-24 over this year.” “We plan to expand our business to more cities in the coming year,” Vermani added.

According to Hetal Gandhi, Director of Research at CRISIL Market Intelligence and Analytics, solar rooftop additions have increased over the last two years.

He stated that the C&I rooftop market was a little slower earlier due to a variety of factors, but that the residential solar market 

 “We have been seeing robust growth on a month-on-month basis and have plans to increase our sales 5X in the coming year 2023-24 over this year. We would also be expanding our business to more cities in the coming year,” added Vermani. 

According to Hetal Gandhi, Director of Research at CRISIL Market Intelligence and Analytics, solar rooftop additions have increased over the last two years.

“Solar rooftop additions have increased in the last two years, with average installations exceeding 2 GW as of this date, compared to average installations of only about 1.3 GW in FY20 and FY21.” Total number of additions

The Ministry of New and Renewable Energy’s grid-connected rooftop solar scheme aims to achieve a total installed capacity of 40,000 MW by 31 March 2026. Subsidies are provided to residential electricity consumers under component-A, and incentives are provided to discoms under component B of this program.

Component A provides a subsidy to the residential sector for 4 GW of capacity, while Component B provides incentives to discoms for an initial capacity of 18 GW.

Subsidies for the residential sector have been restructured, with 40% CFA available for capacities up to 3 kW and 20% available for capacities greater than 3 kW and up to 10 kW.

Why the massive acceleration?

According to Gaurav Keswani, associate vice-president, HomeScape – Amplus Solar’s residential rooftop solar arm – the pace of rooftop solar installations in India’s residential segment is being accelerated by factors such as rising demand for cost savings and increased awareness of the benefits of solar power among residential consumers.

“Prior to COVID-19, one of the main obstacles to the adoption of rooftop solar installations in India was the lack of consumer awareness. However, there has been a significant shift in consumer behavior and demands after the pandemic,” said Keswani.

He went on to say that this has resulted in a significant increase in demand for rooftop solar installations and that the rooftop solar market in India is expected to grow further in the post-COVID era.

According to Vermani, the primary reason for this sudden increase could be the government’s announcement to exempt solar panels from the ALMM requirement until March 2024.

“This has eased the module availability situation and the prices have also softened a bit. Also, towards the financial year-end, there is always a rush for C&I clients to complete their projects to claim depreciation benefits,” he added.

Aside from increased customer awareness following COVID-19, a drop in module prices due to COVID-led lockdown, as well as subsidies from the federal and state governments for the residential segment, have all aided solar rooftop additions.

“But, due to the recent surge in module prices in the first half of FY23 and implementation of 40 percent basic customs duty on imported modules decreased the rooftop additions to 1,843 MW – April to February – from 2,046 MW for the same period in FY22, a decline of about 10 percent,” Gandhi added.

Rooftop solar rankings

Gujarat and Maharashtra lead the way in solar rooftop additions, accounting for nearly half of the total installed capacity of 8,488 MW. According to CRISIL’s Gandhi, these two states accounted for 58% of rooftop additions in FY23 (April to February).

“Presence of industrial players in these states helped rooftop additions to grow significantly, as industrial players account for nearly half of the solar rooftop additions. Also, subsidies provided by respective state governments to the residential segment also helped rooftop additions to grow,” she said.

Surya Urja Rooftop Yojana in Gujarat offers 40% and 20% state subsidies for installations up to 3 KW and 3-10 KW, respectively. By March 2022, the scheme was able to target rooftop installations for 8 lakh consumers. Under its new solar policy, which is likely to encourage solar installations, the state also allows consumers to rent their premises to third parties for electricity generation.

“Additionally, the micro, small, and medium enterprises policy that Gujarat released in September 2019 allows the installation of solar projects with more than 100 percent of sanctioned load or contract demand. Under the scheme, MSMEs can sell excess power to the state government at Rs 1.75 per unit, leading to increased installations,” she added.

Similarly, the Maharashtra government provides a 40% subsidy for domestic consumers ranging from 1 kW to 3 kW and a 20% subsidy for consumers ranging from 3 kW to 10 kW. In addition, housing societies and resident welfare associations receive a 20% subsidy on project costs ranging from 1 kW to 500 kW. 

The Maharashtra State Electricity Distribution also allows solar rooftop net-metering, which allows excess electricity generated by solar rooftops to be sold to the distribution utility.

C&I versus the residential sector

C&I space installations, primarily open access, are outpacing residential, owing to lower costs and ESG targets.

“Solar rooftop tariff would range between Rs 3-4 per unit whereas grid tariff would range between Rs 6-12 per unit depending on discom connected to, clearly showing benefits for rooftop installations. With enough area and capital availability, C&I consumers with high load capacity can install solar rooftops at a bigger scale,” said Gandhi. 

Now, one would ask why the costs have been reduced. The reason is the decreased capital cost which has fallen to Rs 35-45 million per MW.

 “With large solar module capacities installed in China in 2015 and 2016, global solar module prices started declining. Solar module prices declined by 11 percent and 27 percent in FY17 and FY18, respectively, which reduced capital cost for solar capacity set up for both rooftop and ground-mounted,” according to Gandhi. 

Another reason for the rise in C&I, she added, is that residential consumers are dispersed, with less area available for solar rooftop installations.

 “Net zero targets, non-availability of green power, or even higher tariffs for states where separate green power is provided further encourages C&I installations,” she said. 

During the COVID-led lockdown, which began in 2021, solar module prices continued to fall, resulting in a continued drop in capital expenditure, allowing for lower rooftop solar tariffs. However, due to supply chain constraints, the recent increase in module prices in FY23 has increased the required capex per MW. According to Gandhi, this has resulted in lower rooftop additions in FY23.

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