Asian Development Bank Proposes Business Models for Rooftop Solar in India
The four business models cater to domestic as well as C&I consumers
The Asian Development Bank (ADB) has suggested various business models for the deployment of rooftop solar systems in India on a larger scale with utilities as the primary stakeholders.
It has cited the country’s poor performance in rooftop solar installations as a reason to try different models. At the end of 2022, India has only achieved 21% of targeted installations at just 8.3 GW against the government target of 40 GW.
Earlier, the conventional business models depended on consumers to invest in and deploy rooftop solar systems under net metering, gross metering, or net billing arrangement, as defined by state regulations.
The four models that have been proposed by ADB are:
- Utility as a facilitator for the deployment of rooftop solar systems
- Roof-leasing with utility investment
- EPC-annuity payment basis with partial stakeholder investments
- Utility as a Renewable Energy Service Company (RESCO)
Utility as a facilitator
Under this model, the consumer invests and installs the rooftop solar system, whereas the utility undertakes the price discovery along with the standardization of technical specifications for the system.
The utility can consider either of the two options under this model:
- It can invite interest from consumers for the installation, and after conducting the feasibility study, can bid out the capacity to rooftop EPC companies.
- The second option states that the utility can empanel EPC companies and discover the price for the installation of rooftop systems. The consumers can select an EPC provider from the list.
This model offers the utility the advantage of selecting a specific consumer category. The consumers’ payments to the EPC companies can be routed through the utility and central financial assistance can be handled and disbursed by the utility.
High-paying consumers are the primary revenue generators for utilities and low-paying consumers are cross-subsidized. Therefore, it is important for the utility to serve low-paying consumers along with continuing service to high-paying consumers to maintain the balance in revenue requirement of the utility.
Roof-leasing with utility investment
Under this model, the utility installs and maintains a rooftop solar project on the consumer’s roof through a gross-metering arrangement. The consumer will get a rebate on the utility bill in the form of energy credits for part of the system’s generation. There is a minimum lock-in period of five years to protect the utility’s investment. The rebate will be based on a cost-benefit assessment for all stakeholders.
The rebate to the consumer will be given in terms of units of electricity. Therefore, for the same number of units, the revenue loss from high-paying consumers will be higher than the revenue loss from low-paying consumers. The model is perfect for the domestic consumer category.
Consumers will have the benefit of no capital investment, and will also save on utility bills based on the electricity generated from the grid-connected rooftop solar systems.
EPC–Annuity payment model
This model involves partial contribution from all stakeholders as described below.
- The consumer will contribute a portion of the capital needed and receive a rebate on the electricity bill in the form of energy credits, based on a percentage of the total generation from the rooftop solar system.
- The utility will invest the remaining capital and procure all the power generated from the rooftop system at no cost.
- The developer will install the rooftop system and undertake the operation and maintenance (O&M) for five years. The developer will be paid two-thirds of the EPC cost at the time of commissioning and the remaining will be paid on an annuity basis during the O&M contract.
This business model targets domestic consumers as rooftop system capacities in the domestic sector are small. Rooftop solar requires high capital cost and RESCOs do not prefer to implement such small individual projects (1–3 kW) due to economic viability challenges. Therefore, it becomes difficult for low-paying consumers to install the projects. This model will address these challenges and is recommended for small domestic and residential consumers with a monthly consumption of up to 200 kWh.
Utility as a RESCO
Under this model, the utility acts as a RESCO. It installs the rooftop system and collects tariff from the consumer at a predetermined rate.
The purpose of this model is to retain high-paying C&I consumers, for whom solar works out cheaper than grid supply.
Under this model, the utility installs and invests in a rooftop solar system and sells its power to high-paying consumers at a tariff that is 10-20% lower than the grid rate.
The consumer benefits from a lower tariff and reliable power supply, while the utility benefits from retaining the high-paying consumer and using a cheaper power source. This model can also be implemented through RESCO developers chosen through competitive bidding by the utility.
Consumers do not have to invest in this business model as they can sign a PPA with the utility, and receive power generated by the rooftop system at a predetermined tariff.
Recently, the Union Power Minister power minister had highlighted the lack of initiative from state-owned power distribution companies as the primary reason for tepid growth in rooftop solar installations.
India installed over 1.2 GW of rooftop solar capacity in the first nine months of the calendar year 2022, a decline of 11% year-over-year, according to Mercom India Research’s Mercom India Rooftop Solar Market Report Q3 2022.
In June last year, the World Bank had approved $165 million in additional financing to accelerate the adoption of rooftop solar by residential consumers in India by making it more affordable.