Rooftop solar market hit hard by COVID

BRIDGE TO INDIA has just completed the latest round of data compilation exercise for rooftop solar. 1,140 MW of new capacity is estimated to have been installed in the 12-month period to June 2020, down 40% over previous year. Installation activity was tracking fairly well up to January 2020, after which the COVID effect hit the market. Activity levels fell sharply from February onwards initially because of delays in equipment shipments, but later because of extended lockdown, shortage of labour and related reasons.

C&I consumers are hesitant to make buying decisions amid ongoing business uncertainty;
Residential and MSME market segments are constrained by lack of financing solutions;
Rooftop solar faces limited growth prospects in the short-to-medium run due to risk of economic downturn, potential import duties on solar equipment and withdrawal of net metering;

The slowdown came at the worst possible time as Q1 is by far the busiest quarter for new installations. Progress across states and consumer segments was consistently down across the board. The only exceptions were Madhya Pradesh and Telangana, both benefitting from some large C&I installations.

Our quick checks with top contractors and developers across the industry show that business activity has picked up significantly in the last few months. Installation interest seems even stronger amongst C&I consumers because of attractive savings potential of rooftop solar but closures are slow. Companies are hesitant to make buying decisions amid ongoing concern around business operations, power demand and financial status. Discussions are also getting protracted because of risk of import duties on modules (and, possibly inverters). There is a discernible shift in preference towards OPEX model as businesses are reluctant to incur capital expenditure for non-core operations.

Figure: Capacity addition by consumer segment, MW

Source: BRIDGE TO INDIA research

Meanwhile, we understand that the residential market, expected to be on an upswing due to government subsidies and policy thrust, remains weak particularly in larger cities. Rooftop solar is not a priority for households at a time of rising health concerns and financial uncertainty. The MSME market is also highly constrained due to lack of affordable financing solutions. Weak growth in these segments is disappointing as the market’s over-dependence on private C&I consumers makes it prone to growth shocks.

Going forward, rooftop solar faces three main risks in the short-to-medium run. Adverse impact of COVID on consumer finances and liquidity in the banking system could last for 2-3 years. Imposition of import duties would be a major dampener as contractors renegotiate prices or consumers delay installation decision. An escalating duty structure, as conceived by MNRE, could keep costs high for the foreseeable period. And finally, DISCOM resistance to free net metering is bound to get stronger. Even the Ministry of Power has proposed withdrawal of net metering connectivity for all systems bigger than 5 kW.