The Indian solar residential market is at the cusp of taking off19. February 2014 By: Karanraj Chaudri
Karanraj Chaudri of Bridge to India examines India's rooftop market, which is set to grow dramatically in view of increasing demand and the recent introduction of new incentives, such as state-level net-metering policies.
The small scale solar rooftop market in India is still in its infancy. As per Bridge to India estimates, the market size stands at around 110 MW of cumulative installed capacity (for system sizes between 1 kWp-10 kWp) so far. This capacity is split between residential systems, telecom towers and small commercial systems (used widely in ATMs, banks and petrol pumps). Of this, residential rooftop is the single largest segment at around 45 MW. So far, most of these systems have been either off-grid or hybrid (with a small battery back-up for power outages). The power generated is used only for self-consumption. Feeding excess power into the grid has so far not been incentivized.
The current market size is only a fraction of India’s potential for residential systems. Large parts of India do not have access to a reliable grid, and a significant number of urban residential consumers already have battery based storage at their homes. These consumers are likely to install hybrid solar systems that rely on the grid but also have some storage to provide uninterrupted power during grid outages. The overall diesel powered market in India is estimated at 60-70 GW, with the residential segment at around 6 GW. The rising costs of diesel power would further increase the market potential for residential solar systems. In Delhi alone, the Bridge to India – Greenpeace study estimated the potential for residential systems at 1,214 MW. Barring some of the larger installers such as Su-Kam (a large local supplier of battery backup products) and TATA Power Solar, which have a wide distribution base, the market has been highly fragmented and is dominated by local, regional installers. However, in the last year a number of international players have become active in this market including Borg Energy. This is a promising sign. Other leading global solar companies, including tier-1 Chinese module manufacturers, are also planning an entry with India-specific, pre-designed solar kits (including modules, inverters, BOS and/or batteries).
Traditionally, India’s solar policies have been directed towards utility-scale solar. Now, policy trends indicate a fundamental shift: many states are introducing regulations to encourage distributed PV. Kerala, Tamil Nadu, Uttarakhand, Delhi, Andhra Pradesh, Punjab, Karnataka and Gujarat have announced or are implementing net-metering policies in India. All new regulations have been notified in 2013.
In addition, some states are complementing the Ministry for New and Renewable Energy’s (MNRE) 30% capital subsidy to residential consumers with their own incentives. Kerala, for example, offers an additional subsidy of 20%. Over 6,000 systems of 1 kWp each have been installed in Kerala under this scheme and around 4,000 more will likely be installed by the end of 2014. The timely implementation of this scheme may be attributed to streamlined processes in terms of vendor selection, dual subsidy mechanism (central and state policy subsidies), price benchmarking and quality assurances. Owing to the successful implementation of this policy, Kerala has also announced a similar policy for 25,000 additional rooftop systems. The starting date is yet to be decided.
The Uttarakhand rooftop scheme allows systems of more than 300 W to be connected to the grid and avail a preferential feed-in-tariff of INR 9.2/ kWh (€0.11; $0.15) (in addition to the MNRE subsidy). The Tamil Nadu, Andhra Pradesh and Gujarat state governments are all working on residential rooftop policies.
The emergence of these new framework policies and regulations is setting the stage for the first round of large-scale adoption of residential solar in India. However, very little of the MNRE subsidy has been released to residential consumers with most allocations going to projects with a system size above 30 kWp. The subsidy process itself has been in limbo over the last six months and disbursements are yet to materialize. Bridge to India believes that new entrants in the market can bet on the non-policy market to provide sustainable growth. While policy based growth can serve as a possible upside to any such decision.
In Bridge to India's assessment, for the next couple of years, the demand for residential rooftop systems will be driven by incentives, as and where available, and by a genuine need for another source of power in locations, where the grid is unstable and power is unavailable for several hours in a day.
By 2018, Bridge to India expects that the non-policy driven, cumulative residential rooftop market in India will be 620 MW. As per our market model, we expect Maharashtra to emerge as the largest residential rooftop market owing to the high power tariffs and large demand. The next largest markets will be Tamil Nadu and Andhra Pradesh. Adoption will likely be fastest in Kerala, Delhi, Punjab, Goa, Tamil Nadu and Maharashtra. Based on our analysis, the higher adoption for a state means that consumers in these states will be the easiest to convince for going solar. This is based on a number of factors such as per capita power consumption, per capita state GDP, current power tariffs and future tariff trends.
Karanraj Chaudri is a manager with the consulting team at Bridge to India and a former associate with the Valuation & Strategy group at PricewaterhouseCoopers.
For a more detailed analysis, see Bridge to India's decision brief on the residential market in India, due to be released in March. To interact with residential customers and vendors in India, you can visit www.indiasolarhomes.com.
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