Indian states are rushing to block net metering connectivity for rooftop solar systems. After the Ministry of Power’s policy guidance to restrict net metering to system sizes up to 10 kW, Karnataka and West Bengal have already announced net metering system size caps of 10 kW and 5 kW respectively. Rajasthan is believed to be mulling similar restrictions. More states are expected to follow suit.

• The new curbs effectively mean that net metering would henceforth be available only to small residential consumers;
• The restrictions would significantly affect smaller C&I consumers and slow total adoption by up to 20%;
• We expect levy of CSS and grid charges to be the next policy battlefront for rooftop solar;

Many states including Haryana, Uttar Pradesh, Gujarat, Maharashtra and Tamil Nadu have previously imposed other restrictions on net metering connectivity for C&I consumers as seen in the chart below.

Figure: Net metering restrictions in key states

Source: BRIDGE TO INDIA research

One heartening aspect of these policy changes is that the older installations have been left unaffected. We understand that in Uttar Pradesh, Tamil Nadu and West Bengal, systems completed under older policies would continue to avail net metering benefit.

We expect net metering for C&I consumers to be largely phased out across the country in the next two years. Since gross metering is not a viable proposition – tariffs payable by DISCOMs (INR 2.00–4.00/ kWh) are not remunerative – new installations by C&I consumers are increasingly being set up in an alternate grid-interactive configuration whereby power export to the grid is completely blocked. All power output is either used by the consumer or lost, for example, on holidays or at other times when consumption is less than power generation. This approach has been used extensively over the years to get around other size restrictions on net metering (1 MW absolute cap plus other cap of 50-100% of connected load). This configuration is reasonably attractive as even with loss of some power output, say 10%, effective cost of power from a rooftop solar system is below INR 4.00/ kWh, nearly 50% of grid tariff for most C&I consumers. But it requires consumers to undertake careful system sizing and demand profile analysis to minimise output loss.

While larger C&I consumers would be able to effectively mitigate loss of net metering possibly with slight system downsizing, the change would be harder for small and medium size consumers, where adoption has already been relatively low. Overall, we expect total market volumes to reduce by 10-20%. Shrinking market volume is evident in Uttar Pradesh, where C&I rooftop solar capacity addition fell by 58% in two years after removal of net metering in January 2019 as against a fall of about 35% in states with no policy change. Logically, net metering removal should lead to growth in adoption of battery storage as seen in other countries, but high cost would be a deterrent over next 2-3 years.

Resistance of state distribution utilities to rooftop solar is not new. As cost of solar power has fallen and volumes grown, net metering and other incentives have been gradually withdrawn in most markets. Levy of grid charges is expected to be the next significant policy front for rooftop solar. Gujarat and Karnataka have already proposed to levy CSS and other grid charges on rooftop solar installations, and other states are expected to follow suit.