pv magazine: India’s rooftop solar sector is dragging its heels. With three years to go, roughly 10% of a 40 GW national rooftop PV target has been achieved. What ails Indian rooftop solar?
Damian Miller: Rooftop solar for commercial, industrial and institutional customers is a new concept and how fast it is adapted depends on various factors, including awareness and the availability of easy finance. Most C&I [commercial and industrial] customers are unaware that a typical rooftop solar system offers a three to four-year payback on their investment, with effectively free power after that, and that finance options are emerging to help them ease the upfront cost of solar. The PPA [power purchase agreement] model, the dominant approach in the corporate sector, seems to be an approach that excludes the vast majority of C&I customers, particularly SMEs [small and medium enterprises], who do not have the right credit rating.
In its latest report, Deloitte said India’s micro, small and medium enterprise (MSME) sector is expected to contribute significantly to achieving the 40 GW rooftop solar target by 2022. Do you agree? If so, can you elaborate on the possibilities for the MSME sector?
An estimated 40% of India’s industrial output comes from SMEs and there is huge potential for the MSME and SME sector to contribute to the goal. The big roadblock is the fact that in many states the local discoms [energy distribution companies] are not supportive of rooftop solar – providers and customers face inordinate delays from the discoms when it comes to synchronization of their systems, and many states do not have favorable feed-in regimes for rooftop solar. However, in our company’s largest markets – Karnataka and Andhra Pradesh – the discoms have been very supportive.
Is there an urgent need for policy changes and incentives for the MSME sector? What’s on your wish list?
I do not think the C&I rooftop solar segment benefits from capital subsidies. That will only limit growth by compromising the cashflow of rooftop solar providers. Instead, the best way to give an incentive is through accelerated depreciation [granting higher tax deductable amounts immediately after a PV system is purchased and declining amounts as it ages]. Today, accelerated depreciation is at 40%. If this could be returned to 100% accelerated depreciation for SMEs that would make a huge difference to uptake, as the SME sector likes to buy and own their own rooftop system, as opposed to leasing through a PPA, and so SMEs would directly benefit from this enhanced tax break.
Is targeting industry clusters the best way forward?
Yes, this is a good way to raise awareness. But many SMEs in such a cluster will still need finance. As mentioned above, these industries will need to see a favorable feed-in regime to decide to go for solar.
The Indian rooftop solar market is not geared at the moment to implement large scale rooftop solar projects under the operational expenditure model in the MSME sector without institutional or financial interventions. What is the solution?
I don’t think PPAs are the solution. I think this is a high-risk business model, particularly if extended to the SME sector. It takes a long time for a provider of a PPA to achieve payback and it’s risky to extend long tenures, such as 15 to 20-year PPAs, in the SME sector. I think many SMEs are happy to buy and own their own rooftop solar system, particularly at today’s lower prices and improved paybacks. So why would they take a PPA even if they had access to it? If you look at the lifetime costs of a PPA versus a rooftop solar system that is financed to own, you will see that customers pay between two and three times more for their solar system over its lifetime, depending on the PPA terms.
At Orb Energy, you also provide finance. Tell us more about this business offering.
We offer customers the opportunity to buy and own their own rooftop solar system with a 25% down payment and an interest rate of 11-12% for the three to four-year loan. We have our own credit assessment process and can take a decision on whether to fund within seven days. The big difference is that we do not ask the SME for any collateral.
Recently, Orb Energy launched Phase III of one of India’s largest multi-site rooftop installations, at Klene Paks. Give us the narrative about Klene Paks’ shift to solar, in terms of cost, electricity bill savings and the break-even term.
Klene Paks is among India’s largest manufacturers and exporters of PP [polypropylene] woven fabrics, with a production capacity of 60,000 MT per annum. Like many Indian enterprises, they face rising costs of electricity and the cost of power is at par with their raw material costs. Once Orb completes the third phase installation, Klene Paks expects to produce an average of approximately 38,000 units of clean solar electricity per day and save more than Rs6.5 crore per annum from their electricity bill, and achieve payback in less than three years.
According to the Orb website, the company has sold more than 160,000 solar systems, with cumulative installations of nearly 65 MW of rooftop capacity. How easy is it to convince SMEs to switch to solar? And what is Orb Energy’s rooftop solar target for 2022?
The large majority of our 160,000 systems sold are historically to residential customers. Orb’s roots are in residential but the residential market is simply not a high potential market in India, as most residential customers pay much less than C&I customers for their power and have a different load profile. Now, about 80% of our business is C&I solar. Here we have recently increased our cumulative installed capacity to more than 60 MWp, and we hope to hit the 100 MWp mark by the end of this year.
By 2022, we can expect to reach 250-300 MWp of installed rooftop solar capacity.