Unlocking the Economic Potential of Rooftop Solar PV in India

The rooftop solar photovoltaic (RTS) sector plays a crucial role in achieving India’s ambitious renewable energy targets by 2022 and beyond. However, the progress of residential, commercial and industrial applications has been slow compared with utility-scale solar PV and onshore wind power. Policy, regulatory and administrative challenges at both central and state levels, as well as limited financing options and reluctance of utility distribution companies (DISCOMs), hamper the faster expansion of rooftop installations. To discuss and address some of these challenges, the International Energy Agency (IEA), in collaboration with the Council on Energy, Environment and Water (CEEW) and the Ministry of New and Renewable Energy (MNRE) of India, organised an online workshop titled “Unlocking the economic potential of rooftop solar energy in India” on 12 October 2020. The workshop brought together the central and state-level policy makers of India, business communities, regulators, and DISCOMs, along with international experts from Australia, Brazil, Germany and the United States.

This report is based on the insights of the workshop’s participants, supplemented by the outcome of additional analysis by IEA and CEEW. It aims to answer six key questions regarding the acceleration of RTS expansion in India, and offers detailed policy options, business solutions and administrative modifications for the rapid deployment of RTS. Most of the proposed solutions could accelerate the deployment of RTS in the next one to two years, and do not require the implementation of structural changes in the central or state regulatory frameworks. These quick-effect solutions are presented below.

• Enhancing economic incentives for DISCOMs to support RTS deployment: Includes promoting DISCOM-led business models focused on aggregating demands for RTS systems by taking advantage of the existing relationships of DISCOM with customers, developing methodologies for the assessment of RTS benefits in DISCOMs’ grids and enhancing central performance-based incentives for DISCOMs.
• Improving access to finance options for consumers interested in RTS investment: Includes increasing the involvement of private and public institutions in providing affordable loans and guarantees, standardising RTS loan applications and their appraisal and assessment processes, and simplifying the rules of sectoral lending programmes.
• Optimising net and gross metering rules regarding system integration and remuneration: Includes increasing the limits on the allowed system capacity without jeopardising grid stability, balancing revenues of RTS owners, and levies for grid utilisation. The objective is to ensure an attractive return of investment in all consumer segments, and promote self-consumption through designing new remuneration rules.
• Streamlining disbursement of subsidies and the overall investment process for small RTS:  Includes relaxing requirements to avail subsidy schemes for residential consumers, reducing responsibilities of DISCOMs in promoting RTS, disbursing subsidies and simplifying the investment process from the consumer’s perspective.
• Expanding promotion of RTS among residential and small and medium-sized enterprise (SME) consumers and boosting their confidence in RTS: Includes expanding education campaigns, simplifying administrative procedures, increasing the availability of information on the RTS market, and promoting high-quality equipment and services.

The above-mentioned proposed actions result in benefits for both DISCOMs and RTS owners. DISCOMs would be rewarded for fully engaging in RTS adoption in their area of operation. On the consumers’ side, policies facilitating the implementation of existing rules and access to affordable financing would increase their interest. Overall, policy design should offer attractive remuneration to RTS owners, while providing enough revenues to DISCOMs for the maintenance of distribution grids and preparation of necessary infrastructure for rapid expansion of RTS.

In addition, this report also includes guidelines on how the regulatory and market environment could evolve in India to support the RTS sector over the medium and longer terms. Implementation of these solutions is more demanding, although necessary to achieve a sustainable growth of RTS and reach the long-term renewable energy and climate targets:

• Adopting new approaches towards system operation, electricity market design and energy policy: Includes harmonisation of rules for supporting RTS across the country, facilitating open-access power procurement for RTS systems, stimulating the demand for rooftop projects through suited building codes and city-planning procedures, and reducing cross-subsidies in electricity tariffs while providing protection to vulnerable consumers through other channels.

Long-term electricity market reforms in India should take a comprehensive approach, aiming to efficiently integrate all distributed energy resources (DERs) and prepare the Indian electricity system for significantly larger roles of electric vehicles and battery storage. Experiences from highly advanced power markets suggest that reaping the full benefits of DERs requires changes in the structural system such as implementation of dynamic tariffs and market-based, demand-oriented management techniques, and enabling participation of DERs in short-term balancing markets. Long-term policy should also support grid investments; digitalisation; widespread deployment of smart, real-time metering; and development of advanced capabilities for dynamic system control, analysis, modelling and forecasting. Supporting further integration of DERs will enable India to create an efficient power system of the future.

India has already made significant efforts in creating a favourable policy and regulatory environment for development of RTS. The introduction of only limited changes in the existing policies and regulations, and their implementation, could allow significant and rapid acceleration in the growth of RTS capacity, as observed in several other countries. Success in enhancing the adoption of RTS could be a cornerstone of building policy and technical framework for a new, sustainable, reliable, secure and more efficient Indian power system driven by DERs.

This study was conducted by the International Energy Agency (IEA) Renewable Energy Division in the Directorate of Energy Markets and Security in collaboration with the Council on Energy, Environment and Water (CEEW).