Last week, Amplus Solar announced a foray into the residential rooftop solar market. The company, so far focused only on C&I consumers, plans to offer standard rooftop solar solutions backed by a long-term warranty and integrated financing solution.
- Residential rooftop solar accounts for a tiny 16% share of the total rooftop market in India;
- Long payback periods, lack of standard financing and technical solutions have held the market back but the outlook is beginning to improve;
- Falling costs, improving supplier interest and favourable policy stance should see market growth outstripping other segments;
Unlike in most other countries, residential consumers account for a tiny 10% share of rooftop solar market in India. As of March 2019, total installed capacity in the residential segment is estimated at only 690 MW. Average annual installations are estimated at only about 187 MW per annum. The market is not only much smaller than the C&I rooftop market (1,500 MW per annum) but has also been growing erratically. Many factors explain this tepid state of affairs – long payback periods, high upfront cost, lack of standard financing as well as technical solutions backed by reputable vendors. These factors continue to hold the market back, but there are some encouraging signs of the market opening up.
Figure: Residential rooftop market growth
Source: BRIDGE TO INDIA research
We expect growth to pick up in the next 2-3 years on the back of improving project economics and supply eco-system, increased consumer awareness and favourable government policy. Payback period on investment can be as high as 10 years depending on consumer tariff and rooftop system cost but we expect it to fall to an average of less than five years by 2022 as grid tariffs rise in response to poor DISCOM finances and system costs fall. In any case, retail consumers have lower return expectations and are happy with overall returns of about 10% on their investment.
Improvement in supply side eco-system and consumer awareness may be other game changers. While the C&I market continues to grow rapidly, intense competition and low profitability is pushing players to look at newer opportunities. There seems to be growing interest in the residential market both from start-ups and corporate players. Even the financiers, disenchanted by high risk in the utility scale market, are beginning to explore this market. Moreover, as consumers see more rooftop installations on their office premises, local metro stations and schools, hospitals etc, rooftop solar is moving from a technical curiosity to a proven energy system. Once the early adopters move in, the network effect should take over.
Favourable government policy should also help. Capital subsidies have been withdrawn from all consumers bar residential consumers, who can still avail capital subsidies of 20-40% depending on system size. The Indian government has set aside INR 66 billion for capital subsidies for residential consumers over next three years. We expect DISCOMs to offer less resistance to net metering for residential consumers because of lower applicable grid tariffs.
States are jumping in. Gujarat recently announced a scheme to install 800,000 residential systems aggregating to 1,600 MW capacity by March 2022. Other states are likely to follow providing a major boost to the market.
