March 2017

Bottlenecks experienced in Solar Rooftop Progression

India will find it difficult to achieve its ambitious target of 40 GW of installed solar rooftop capacity by 2022, if it continues to rely solely on policy and incentives. Till date, the solar rooftop capacity stands at 1.1 GW. In order to achieve the 40 GW target, an 86% growth/year is expected which is even faster than the growth in mobile phone connections. One of the major factors affecting the purchase decision of a solar rooftop plant is the quantum of investment involved in it. To facilitate this investment, the government of India had announced various incentives and policies. These incentives included, accelerated depreciation benefit, 10 year tax holiday, capital and interest subsidies, net metering policies etc.

Even with presence of such policies, the solar power sector is expected to find it difficult to achieve the desired target. This can be accounted to various reasons as cited below:

  1. Accelerated depreciation: Till date, accelerated depreciation had been crucial for the growth of solar rooftop industry wherein the major buyers which include profit making companies are interested in claiming 80% tax benefit due to accelerated depreciation. As per Union Budget 2017, this benefit has been scaled down to 40%, which will surely dampen growth in this sector.
  2. Sunset clause(10 year tax holiday): Sunset clause under section 80 IA (10 year tax holiday for power generation, transmission and distribution investments) till March 2017 has also been maintained. Removal of this benefit will impact the private PPA based market and cause a shift of solar power sector from non-traditional investors to pure power companies.
  3. Central financial assistance: Capital subsidies in terms of 30% central financial assistance have failed to create an impact on the market due to limitation of funds at disposal. Procedural hurdles due to presence of multiple agencies like MNRE, State nodal agency, Electrical inspector, DISCOM has slowed the subsidy disbursal mechanism.
  4. Net metering: Net metering has been a promising development for the rooftop solar market. However, the implementation of this policy has been rather slow with no standardization of policy among various states.  Many states have arbitrary restrictions based on offtake voltage or transformer capacity or unreasonable rules about meter locations which prevent simplest of solar power plants from availing the net metering policy.
  5. Loan disbursal process: Various international agencies, are committed to funding the solar rooftop sector, through their partners banks or non-banking financial companies, but speedy disbursal of loan still remains a challenge.

To accelerate further growth in this sector, the government should adopt time bound and single window clearance for subsidy disbursal and net metering applications, assist in educating loan disbursement agencies and create standardized loan application review process with more rigorous campaigning of the available schemes and benefits of solar power among citizens. 

Despite the roadblocks, if all stakeholders work hand in hand to support the National solar mission, the 40 GW solar rooftop target will be achieved by 2020. On the financial front, the government is already looking at multiple funding options to increase investments in the solar energy sector. They have been successful in getting the World bank, KFW, ADB and NDB to sanction a total of 1300 million dollars.  Recently, Solar Energy Corporation of India issued large tenders for government building rooftops, educational buildings for 1000 MW. The installation of these large capacities in 2017, will indeed increase volume in these segments, making significant growth likely, with parallel growth in the industrial and commercial rooftop segments. Hence, with the right policy support and financial aid, the 40 GW target can be achieved by 2020.

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