Karnataka Promotes Third-Party Investment for Rooftop Solar Projects

Low tension domestic consumers exempted from paying cross-subsidy surcharge


The Karnataka Electricity Regulatory Commission (KERC) has decided to encourage third-party investments in solar rooftop projects on consumers’ rooftops in a bid to accelerate capacity additions in the rooftop solar segment.

The commission issued a discussion paper that proposes various business models. The commission also felt that there is a need for a proactive and constructive role by the distribution licensees to facilitate smaller consumers to install solar systems at an optimal cost, either through investment from the consumers or through third party investments by the distribution licensees themselves.

In the paper, the commission broadly categorized the different models – utility centric business model, consumer-centric, or third party owned (RESCO), models.

In response to the discussion paper, various stakeholders, including some of the distribution licensees, submitted their suggestions.

After examining the inputs from all the stakeholders, the commission decided to approve the following models:

  • Consumer-owned model – This model will apply to all the categories of consumers under the net or gross metering arrangement. The distribution licensee will select the contractor through a reverse bidding process and facilitate setting up of the rooftop solar systems for which the onus of bringing the funds will be on the consumers. The distribution licensee will monitor the project implementation charging a facilitation fee
  • Consumer-owned model – Though it shares the same name as the model described above, there is a slight difference. The difference is that under this model, the EPC contract will be between the consumer and the distribution licensee
  • Utility-owned model – Under this model, the distribution licensee will set up, own and operate projects on the rooftop of the interested consumers. It will use its funds after signing the PPA with the consumers on a gross metering basis paying the consumer a rent for the roof utilized
  • Third-party owned model – Under this model, the third-party developer who is selected based on the lowest quoted tariff in the reverse bidding will set up, own, and operate the projects

After taking into account the suggestions from all the stakeholders, the commission noted that from the operational point of view, there is no change in the rooftop project developed under consumer-owned systems and third-party investment model. The various parameters applicable in the development of the project, such as capital cost, borrowing costs, operation and maintenance expenses, and capacity utilization factors are dependent on the market conditions and will not vary depending upon the type of model adopted.

The commission, in its order dated August 1, 2019, had determined the generic tariff for solar power projects for the FY20 as detailed below:

  • For grid-connected megawatt-scale solar power projects of less than 5 MW capacity, the set tariff was ₹3.08 (~$0.043)/kWh
  • For solar rooftop PV projects between 1 kW and 2,000 kW, the generic tariff was set at ₹3.07 (~$0.043)/kWh (without capital subsidy) and ₹2.32 (~$0.033)/kWh (with capital subsidy)
  • For rooftop projects between 1 kW and 10 kW for domestic consumers, the generic tariff was set at ₹3.99 (~$0.056)/kWh (without capital subsidy) and ₹2.97 (~$0.042)/kWh (with capital subsidy)

The commission also noted that the sale of energy by a third-party investor to the consumer attracts the payment of cross-subsidy surcharge and additional surcharge. The commission observed that the exemption from levying such charges for a limited period might be granted in case of all low tension (LT) domestic consumers. However, for other consumers with gross metering, the question of levying cross-subsidy surcharge and additional surcharge does not arise.

Moreover, the commission noted that the levy of cross-subsidy surcharge and additional surcharge would discourage investment by the third party for implementing the solar projects.

As a promotional measure, the commission has decided to exempt cross-subsidy surcharge and an additional surcharge for rooftop solar projects of LT domestic consumers under the third-party investment program for three years for projects commissioned within March 31, 2021.

This order came into effect from December 9, 2019.

According to Mercom India Research’s newly released Q3 2019 India Solar Market Update, rooftop solar installations declined by 16% quarter-over-quarter (QoQ) in Q3 2019, totaling 245 MW compared to 292 MW in Q2 2019.

Rooftop solar installations fell by 44% year-over-year (YoY) compared to 435 MW installed in Q3 2018. The top 10 states accounted for 77.4% of total rooftop solar installations in India. Gujarat stood at the top position, and Karnataka was second.

According to central government estimates, Karnataka has emerged as the best state in India for rooftop solar projects. A few months ago, the Ministry of Power released a survey report titled ‘The State Rooftop Solar Attractiveness Index’ (SARAL), which reveals that after Karnataka, Telangana, Gujarat, and Andhra Pradesh have taken the second, third and fourth positions respectively. Karnataka’s score stands at 78.8 and has been assigned A++.  Telangana scored 72.2, followed by Gujarat, which scored 67.9, and 66.1 was assigned to Andhra Pradesh.

Previously, Mercom reported that the KERC had published a discussion paper with regards to tariff determination and other norms for rooftop solar projects and invited comments from all stakeholders.