C&I Customers Need to Think of Solar Installations Below 1 MW to Avoid Net Metering Hurdles
While net metering is available on paper, DISCOMs are likely to create more hurdles in granting approvals as their revenues shrink amid the pandemic
India’s rooftop solar capacity stood at 4.6 GW at the end of Q1 2020, against the target of 40 GW by 2022. Out of the total capacity, nearly 70% came from the commercial and industrial (C&I) segment. This segment is key to unlocking the rooftop target for 2022.
Given the high C&I tariffs, the savings on electricity bills has become the primary driver for C&I customers shifting from grid-based conventional power.
While states have introduced several policies targeting the rooftop sector, there has been a lack of on-ground support leading to sluggish growth. Many states have been mulling the removal of the net metering policy, causing widespread discontent among the stakeholders. The implementation of the net metering policy in various states has been problematic primarily because DISCOMs do not want to lose premium customers in the C&I segment that pay high tariffs and are a major source of their revenue.
We spoke to several installers to assess the realities on the ground for net metering and rooftop solar since the outbreak of COVID-19.
Speaking on the need for net metering for the rooftop sector, Sameer Gupta, Chairman and Managing Director, Jakson Group, said, “Concerns for climate change and health will leave all stakeholders with no other alternative but to adopt renewables. Solar rooftop solutions with or without storage are a perfect answer – it brings down the energy cost; there are no transmission losses; it has low maintenance cost and long-term sustainability. We need to look at the larger picture. As a country, we would need another wave of policy reforms and state DISCOMs need to ease out the adoption of net metering, which can give a big push to this sector and facilitate wider adoption of rooftop solar.”
Several states have a limit (usually 1 MW) on the size of a rooftop solar project that can avail net metering, which restricts the number of C&I consumers going for rooftop solar. This further implies that the growth of rooftop solar installations, which could have been driven by this segment to reach the 40 GW target, is willfully restricted by the DISCOMs. Although most commercial and industrial consumers can afford and require larger installations (greater than 1 MW capacity), the unavailability of net metering benefits adversely affects their return on investment.
For example, in an instance like the lockdown due to the COVID-19 situation, and with businesses shutting down, the unused electricity from the rooftop solar system with a net metering facility could be supplied to the grid (DISCOMs), and help the businesses earn revenue. However, without net metering during such a situation, there is no scope for revenue generation from such rooftop systems.
Commenting on the C&I customers opting for net metering, Jay Kumar Waghela, Head-Business Development (North & East), Fourth Partner Energy, said, “As far as 1 MW restriction is concerned for applicability of net metering facility, our understanding is that it is linked with two factors. One is the operational aspects of the facility, i.e., whether the facility works on all seven days of the week or observes weekly offs. If the percentage of offtake is lower than 95%, then customers prefer to opt for a net metering option. The other one is the available shadow-free roof space, which means that if the maximum solar capacity at the facility that can be accommodated is up to 1.5 – 1.6 MW, then customers prefer to opt for 1 MW and avail net metering. Based on the above two factors, the customers decide whether net metering is beneficial or not, and therefore, the capacity of the project is determined accordingly. We do not believe net-metering approvals will be the sole reason for a C&I customer to restrict capacity to below 1 MW.”
For projects above 1 MW, getting open access is another arduous task. The open access segment comes with its own share of complications and inconsistencies. Read Mercom’s in-depth analysis of the open access segment here.
Several installers have mentioned to us that C&I customers are moving towards rooftop projects of below 1 MW to avoid net metering hassles.
Stressing the need for a consistent policy across states, Jakson’s Gupta added, “Liberalise net metering policies and promote rooftop solar for C&I customers. There is a capital investment subsidy which varies from state to state – this can be made aggressive and uniform to promote more rooftop installations. We need to create more awareness among users on merit and benefit of having rooftop installations.”
While DISCOMs were already creating hurdles for rooftop solar installations, the ongoing coronavirus crisis has aggravated the matter. The lockdown imposed across the country has cut down the revenues of DISCOMs, which are now likely to be more averse in granting net metering approvals to the C&I segment.
“DISCOMs are definitely concerned about their financial health, and this trend of safeguarding revenue loss from subsidizing C&I consumers was visible even before the pandemic. Post COVID-19, we do anticipate delays and more hurdles being raised by the DISCOMs and state regulators. We are hoping this trend does not get accentuated further because it is a true deterrent to the center’s renewable energy goals. States like Maharashtra, Rajasthan, Karnataka, and Tamil Nadu have completely or partially restricted net metering or introduced additional charges, thereby distorting the market,” noted Waghela.
The outbreak of the COVID-19 pandemic and the subsequent lockdown has hugely impacted the C&I segment. While rooftop installers are concerned about the lull as most of the facilities are shut down, they are optimistic that things will turn for the better.
Commenting on the ensuing COVID-19 pandemic and its effect on the C&I segment, Fourth Partner Energy’s Waghela, said, “ COVID-19 has impacted businesses across the globe – while many sectors have been adversely affected, others have been affected positively. Organized retail, like multi-brand stores and malls, are facing a hit, while simultaneously, e-commerce has shown an uptick. During the lockdown, the production in most of the industries, except for pharma and essential services, came to a halt. Post lockdown, these operations across other industries are steadily increasing and reaching 50–70% of pre-lock down levels. One thing we must factor in is that the virus is here to stay, at least for the foreseeable future – the trend of state governments imposing localized lockdowns and stop-start-stop directives is likely to be the norm.”
That said, the adoption rate of rooftop solar amongst C&I customers is likely to increase in the near future, as they are now keener to reduce their operational costs. For credit-worthy C&I customers, it’s a no-brainer since it involves no investment from their end and provides an opportunity to replace expensive grid electricity with cheaper and cleaner renewable energy.
“For businesses, the cost of production is going to be higher, as productivity will be lower. Industries will face additional costs due to enforcing social-distancing, periodic sanitization, increased medical insurance cover to employees. One sure way companies can offset these increased costs is by reducing their electricity bills – and the easiest solution is by opting for on-site or off-site solar solutions, which are cheaper than conventional grid tariffs. Not to mention, it’s a whole lot better for the environment,” Waghela added.
Speaking on the current market environment, Prakash Rai, head of on-site business at Amp Energy India, said, “The customer queries for solar rooftop has been more or less the same in the last 3-4 months. But what is important to note is that solar is naturally insulated from the impact of lockdown across the country since it does not require any fuel to operate, proving that it can operate efficiently in any scenario. However, we believe that rooftop solar should not be restricted with an upper ceiling on capacity if we want to increase the uptake of solar rooftop in the country. Additionally, the expedition of project approvals and compliances would ensure that India reaches its renewable energy target in a timely manner.”
To help the country meet its rooftop solar capacity installation targets, the government would need to consider the removal of the capacity cap on system sizes to secure a net metering connection. It may be challenging to bring all the states on board, but the regulators can formulate policies that allow larger capacity sizes for rooftop solar in states with higher unmet renewable energy purchase obligations. Notably, in the cases of Southern Railway and Noida Metro Rail Corporation, exceptions were made when the state electricity regulators approved net metering for a 4 MW and 10 MW project, respectively.
Given the unprecedented times, the government must support the rooftop solar sector so that the country’s solar dream does not come undone due to the pandemic.