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Why the rooftop sector is lagging in India’s race for solar energy

June 16, 2022
Vibhuti Garg

Key Findings

Rooftop solar installations in India, having grown rapidly in the past five years, still fall short of the national target

Commercial and industrial installations far outweigh residential set-ups

Lack of consumer awareness, inconsistent policy and financing are among handicaps to broader uptake

As of December 2021, India had 11 gigawatts (GW) of rooftop solar capacity and is likely to add ~4GW of capacity by December 2022, implying a shortfall of 25GW from the 40GW rooftop solar target.

Rooftop solar installation grew at a compound annual growth rate (CAGR) of 54% between 2017 and 2021, but still the pace of deployment relative to the target has been slow.

Commercial and industrial (C&I) consumers lead India’s rooftop solar growth with a 75% share of the market, compared to about 25% by residential consumers. High C&I retail tariffs make rooftop solar attractive for this class of consumer but subsidised retail prices mean that residential consumers have less incentive to shift to rooftop solar

What’s holding back rooftop solar growth?

Tepid growth of rooftop solar relative to utility scale solar can be attributed to lack of consumer awareness, inconsistent policy frameworks in centre and state governments and absence of non-recourse financing.

Policy uncertainty and regulatory pushbacks have been a major limiting factor

Policy uncertainty and regulatory pushbacks have been a major factor limiting growth in rooftop solar. Adding to confusion for developers and investors, the centre has issued guidelines while various states have adopted different policies with respect to net metering and banking.

More importantly, restrictions and/or ambiguity on provisions such as banking of electricity and net metering have undermined rooftop solar opportunities in India.

Cost savings are the main driver for consumers to adopt solar. However, with lowering of net metering and limiting of banking provisions, the opportunity for cost savings is significantly reduced, especially for large and medium industrial consumers.

Similarly, imposing undesirable constraints on banking provisions removes incentives for C&I consumers, at least while storing excess generated power in energy storage systems (ESS) remains an unviable option.

Access to finance is still a challenge. MSMEs face major deterrents

Access to finance is still a challenge. Large C&I consumers with BBB+ credit ratings can get access to finance but for Micro, Small & Medium Enterprises (MSME), credit schemes from banks for rooftop solar have been typically unattractive.

The turnaround time for a loan grant is three to six months for MSMEs. Further, high interest rates (>14%) and scarcity of non-collateralised finance schemes have presented major deterrents for MSME consumers to instal rooftop solar.

Unlocking the full potential of rooftop solar requires formulation of a uniform and consistent policy framework. These further measures could help to expand the sector:

  • Restrictions on banking need to be revoked at least until rooftop targets are achieved. Instead of returning power to the end consumer/developer, distribution companies (discoms) could simply pay for the banked energy after each month at their lowest cost of procurement.
  • State regulators should allow such procurement of the banked energy to be counted towards discoms’ Renewable Purchase Obligation (RPO) compliance.
  • Unrestricted access to net metering is vital to help the growth of rooftop solar, especially in the MSME segment.
  • Novel means must be explored to attract more streams of concessional finance to help cushion project risks while also expediting disbursal of unused concessional credit lines.

This article first appeared in SolarQuarter India magazine

Vibhuti Garg

Vibhuti Garg is an energy economist and IEEFA Director, South Asia. Vibhuti’s focus is on promoting sustainable development through influencing policy intervention on energy pricing, adoption of new technologies, subsidy reforms, enhancing clean energy access, access to capital and private participation in various areas of the energy sector. 

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