Removal of 1 MW Cap on Net Metering Crucial for India’s Rooftop Solar Growth

Increasing the cap can spur rooftop solar installations and help achieve the lofty 40 GW goal, according to industry stakeholders

September 19, 2019


The rooftop solar market in India has been growing steadily over the last five years. According to the recent Q2 2019 India Solar market update published by Mercom India, cumulative rooftop solar installations have reached ~3.8 GW as of Q2 2019, representing 12% of total cumulative solar installations. But the growth streak ended this year as rooftop installations declined by 42% year-over-year in the first half of 2019.

At this point, rooftop installations are only at 10% of the government’s goal to install 40 GW rooftop solar capacity installation target by 2022.

Though there are plenty of challenges, net-metering can be one of the primary facilitators of the rooftop solar market in the country.

However, state-level implementation of net metering policy has been patchy at best. In most states, the maximum capacity limit for rooftop solar systems is capped at 1 MW for a single metering point to qualify for net-metering. Mercom reached out to rooftop solar project developers to find out if this capacity cap is a major policy hurdle and is limiting the country from achieving its potential in terms of scaling rooftop solar and the answer was an overwhelming yes.

Philippe Flamand, CEO of Candi Solar, a rooftop solar company that focuses on commercial and industrial clients, said that “In our view removing any limitation around net metering would be a positive step. While Candi typically focuses on SME clients with smaller system sizes we believe it makes sense to seriously consider increasing the capacity limitations at this stage, given the state of the rooftop sector and the government’s 2022 targets. That said, as with all net metering policies aimed at spurring the uptake of rooftop solar, clarity, consistency and ease of implementation will remain the crucial recipe for success.”

Although most commercial and industrial consumers can afford and require installation of large rooftop projects (greater than 1 MW capacity), they cannot do so due to this policy constraint. One of the primary reasons for the capacity ceiling is to protect the financial interests of distribution companies (DISCOMs) so that they do not lose out on large scale commercial and industrial power procuring clients.

Commenting on the issue, Manu Karan, Vice President, CleanMax Solar said that “The objective of the net metering policy was to make solar electricity more accessible while ensuring that the surplus power generated is supplied back to the grid. But the current policy framework is restricting the growth of rooftop solar on account of the 1 MW cap on system size. An increasing number of companies are looking at independent energy generation options such as rooftop solar to meet their energy needs; however, most of these commercial and industrial consumers need more than 1 MW of electricity to meet their requirements. So, the removal of a cap on the size of the project will accelerate the adoption of rooftop solar in India and help the sector reach the lofty goal of 40 GW. Moreover, the financial impact to DISCOMs is identical to improving energy efficiency as well as it will help them meet their RPO obligations”.

In more advanced markets like the United States, net metering capacity caps depend on the state, type of consumer, technology, and system type. For example, some states in the U.S. allow net metering connections for system sizes up to 80 MW, and some don’t have a cap at all. This is a more robust method of implementation of the policy, and it can catalyze the rate and scale of adoption of rooftop solar.

Ritu Lal, senior vice president, institutional relations at Amplus Solar said, “The capacity cap of 1 MW has restricted several consumers from utilizing their solar capacity to the fullest potential. As it is, the rooftop solar segment is not growing in line with the country’s rooftop target of 40 GW by 2022. Such arbitrary caps only add additional roadblocks. The removal of the capacity cap will not only help the existing consumers to expand their capacity but will also enable new consumers to adopt solar. If at all any caps are instituted, they should be based only on technical parameters.

At the same time, policies and regulations need to be balanced to ensure that all stakeholders – consumers, developers as well as DISCOMS stand to benefit from the growth in rooftop solar. Net billing at an agreed and fair tariff for solar power that’s generated onsite can be explored as a solution to ensure that DISCOMs do not suffer revenue or cross-subsidy surcharge losses due to rooftop solar.”

In order 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 net metering connection. It may be challenging to bring all the states on board, but the regulators can formulate policies which allow larger capacity sizes for rooftop solar in states with higher unmet renewable energy purchase obligations (RPO). According to a report by the Indian Brand Equity Foundation, the manufacturing sector in India is expected to grow to over $1 trillion by 2025. With this, the appetite of industrial clients to install large scale rooftop solar projects will also increase, however, this may not happen if the government does not propose amending net metering policies to allow higher capacity of rooftop solar projects on a state by state basis.

“Net metering currently exists for the sake of it in many states. A robust net metering program can unleash rooftop solar growth and spur economic activity in the SME and MSME’s and provide jobs to thousands of installers around the country,” said Raj Prabhu, CEO of Mercom Capital Group. Removing caps on net metering capacity has the potential to act as a much needed economic stimulus at a time when the market really needs it.

In May 2019, Mercom analyzed why a serious policy push is needed to bring India’s rooftop solar market to the next level. Mercom has also been reporting on how net metering regulations are limiting the growth of this fledgling sector.