ICRA on the Rooftop Solar Power Sector

Strong growth potential for solar rooftop PV projects; regulatory issues persist over implementation of net metering regulations: ICRA

ICRA believes that the recent 500 MW SECI tender for award of rooftop solar PV projects is likely to jumpstart the domestic rooftop solar power expansion programme. The same is also likely to be facilitated by the falling capital cost of solar projects and the trend of increase in retail tariffs, which is making rooftop solar competitive for certain consumer categories. Given that existing grid connected solar rooftop capacity is at 166 MW as on Feb 2016, tendered capacity by SECI implies a significant jump.

The Solar Energy Corporation of India (SECI) has recently issued the single largest tender for award of 500 MW rooftop PV projects across states. Bidders are to be selected through a competitive bidding route, wherein the bid variable is quoted as the project cost and the levellised energy tariff respectively, and the same cannot exceed the pre-determined ceiling levels in both the routes. We note that implementation of such projects by the bidders in the stipulated timeline (which is 12 month from the date of allocation in the 500 MW SECI tender) remains critical, given the clause of liquidated damage for delays in place. Further, the ability to maintain the operating performance within the stipulated parameters remains crucial for the bidder, both for recovery of subsidy as well as performance bank guarantee from SECI, says Mr. Sabyasachi Majumdar, Senior Vice President, ICRA Ratings.

The tender for award of these 500 MW rooftop PV projects is through a mix of two routes- namely the CAPEX (300 MW) route and the RESCO (Renewable Energy Service Company) route (200 MW). The successful bidders are also eligible for subsidy support from the Ministry of New and Renewable Energy (MNRE), GoI. For both the CAPEX and RESCO models, the bidders are to be selected through a competitive bidding route, and the bid variable in both models remains the aforesaid parameters. With subsidy support in place, SECIs tendered quantity is entirely domestic content-based.

With the target of 100 GW of solar power capacity, comprising 40 GW of grid-connected roof-top based installations and 60 GW of grid-connected utility scale solar projects by FY2022 under the National Solar Mission (NSM), the Government of India (GoI) in December 2015 had increased the budgetary allocation for subsidy support to the roof-top solar segment from Rs 600 crore to Rs 5000 crore till FY2020 which is expected to facilitate roof-top capacity addition by about 4200 MW.

However, the implementation of net metering regulations remains a key regulatory concern for the solar roof-top PV segment. The regulations are yet to be finalized in some key states and in states where they are finalized, there is a wide variation in terms of allowed project capacity, eligibility criterion, exemptions provided, tariff rate for the power exported to the grid, and settlement period.

Further, there is a likelihood of state-owned distribution utilities (discoms) resisting due to loss of revenue from cross subsidizing industrial /commercial consumers adopting the roof-top solar segment. We are of the view that effective implementation of the rooftop solar PV projects would thus require support from discoms, overall consistency in net metering regulations across the states, as well as upgradation of infrastructure by the discoms so as to effectively integrate the surplus power exported by the consumers to the grid, Mr. Majumdar further adds.

While there is no subsidy support for roof-top installations by industrial and commercial (I&C) segments, the improved cost competitiveness of solar PV energy (at about Rs 5.5/KWh), led by a fall in PV module prices, makes it economically feasible for I&C customer segments, given that the prevailing HT and commercial grid tariffs are high, in the range of Rs 6/KWh - Rs 10/KWh across states.