19 August 2014 | BRIDGE TO INDIA
After a long delay, the Ministry of New and Renewable Energy (MNRE) has finally received a budgetary allocation to go ahead with sanction of 30% capital subsidy for a 25 MW rooftop solar capacity under the Central Financial Assistance (CFA) scheme (refer). This allocation has been deferred for a considerable time period, leading to adverse impact on the sector. Since there is already enough back-log of projects to be sanctioned, new projects are unlikely to get any sanctions.
- Due to budgetary constraints MNRE has reduced the maiximum project size to 100kW
- The restricted availability of subsidies, reduces effectiveness of the subsidy process
- Industry stakeholders believe that the subsidy mechanism in its current form is doing more harm than good
In the guidelines for phase two of the rooftop subsidy scheme, released in June 2014 (refer), MNRE had fixed the maximum project size eligible for the subsidy at 500 kWp. However due to budgetary constraints, this criterion has now been reduced to 100 kWp. Also, residential installations have not been included within the scope of this scheme.
BRIDGE TO INDIA and many other industry stakeholders believe that the subsidy mechanism in its current form is doing more harm than good for the rooftop solar market in India. The market for unsubsidized rooftop solar installations in India is already much larger than 25 MW in a year. It already makes sense for many commercial and industrial customers to invest in solar just based on fundamental commercial merits. The accelerated depreciation benefit can make it even more attractive. According to BRIDGE TO INDIA’s market model, if there is no subsidy available for rooftop solar, the market would add around 47 MW in 2014 and grow at an impressive pace of 66% (CAGR) until 2018 to achieve a cumulative rooftop solar capacity of around 1.6 GW.
The rooftop subsidy scheme stifles the development of this market by creating an expectation among power consumers that often cannot be met. In the past, the subsidy has not been disbursed in many cases. Thus, everyone is waiting for a subsidy that may never come and the market is put on hold.
Though most observers agree that solar will play a large role in India’s energy supply, it is important to note that timing is vital in the transition process. Whereas, we have witnessed that project delays are the main concern prevalent in the Indian solar market.
The restricted availability of subsidies also comes at a cost. While unsubsidized grid tied rooftop solar installations are priced at around INR 75 (USD 1.23)/kWp for an average 30 kWp system, the installers with access to subsidies are quoting INR 90 (USD 1.48)/kWp pre-subsidy. Post 30% subsidy, these systems are then priced at around INR 65 (USD 1.07)/kWp. Select channel partners are netting the difference between INR 90 (USD 1.48)/kWp and INR 75 (USD 1.23)/kWp. The justification often given for this extra cost is the risk these channel partners are taking with regard to disbursement of the subsidies. Overall, this reduces effectiveness of the subsidy process.
BRIDGE TO INDIA recommends that the government should scrap the MNRE rooftop subsidy mechanism altogether and instead use these funds for cheaper and more accessible financing for the sector or even expanding the scope of (SECI) rooftop scheme. These options would strengthen and create market enabling mechanisms for promotion of solar installations.