RENERGY 2014 closes with calls to remove PV subsidies

RENERGY 2014, in Chennai, Tamil Nadu concluded with calls for the removal of the 30% Ministry of New and Renewable Energy (MNRE) capital subsidy for rooftop projects.

Since funds have been exhausted, the MNRE has stopped taking applications for the subsidy, yet the absence of a formal removal has inhibited the deployment of subsidy-free solar PV.

RENERGY 2014, organized by the Tamil Nadu Energy Development Agency (TEDA), sought to bring industry minds together and increase awareness of renewable energy with the three-day conference and expo featuring 75 speakers, 200 exhibitors, and more than 15,000 visitors.

To target commercial and industrial building owners, the expo included a green facilities pavilion where factories, hotels, hospitals and other commercial units could understand how to reduce their energy costs through the use of sustainable energy sources.

Despite these attempts to increase PV adoption in the residential, commercial, and industrial segments, there was talk of an unsuspecting culprit slowing the adoption of rooftop PV in India: the 30% MNRE subsidy.

The subsidy applies to rooftop PV system below 100 kW, but the MNRE has not taken applications for the subsidy since February 2013.

A recent report by the Times of India stated the MNRE has a INR 3,200 crore ($536 million) subsidy backlog. An earlier Times of India article quoted the managing director of Solkar Solar Industry as saying: "Our company is yet to receive over INR 50 lakh ($83,000) for projects approved over the last year."

Empty words of support for solar

A few installation companies speculated the government does not want to formally remove the subsidy, even if it has run out of funds, because supporting renewable energy, if only in words, makes the government look good.

In reality, the political vanity of the Indian government is having a very negative effect on the rooftop PV market.

Potential customers who have viable rooftop projects without subsidies still want try their luck with a subsidy application and are willing wait a few months or even a year.

Even when PV installation companies tell them the subsidy wonÂ’t come, they prefer to hold out for the potential 30% cost reduction. After the end of that waiting period, the customer’s interest in solar PV has waned. Without a sense of urgency, once-promising leads burn.

Despite the uncertainty and financial stress caused by MNRE subsidy uncertainty, there are programs like net metering being developed in several states that may boost the rooftop PV market. However, the internal cross-subsidies of the electricity market undermine the effectiveness of many net metering policies.

Commercial and industrial customers have the highest electricity rate in India because they subsidize residential and agricultural users.

The high electricity rates make solar power an attractive investment for commercial and industrial users, but since these users are the main revenue source of the already indebted utility companies, state governments are uninterested in letting commercial and industrial customers use solar PV to opt out of the cross-subsidizing residential and agricultural users. Tamil Nadu approved a net metering policy in November, but the policy excludes commercial and industrial customers.

Cross-subsidy tax penalises commercial PV

Some states levy a cross-subsidy tax on commercial and industrial users utilizing solar power, making potential projects uneconomical; other states have allowed solar to be built without the cross-subsidy. Since the electricity market depends on the commercial and industrial cross-subsidy, the opt-out policy for the cross-subsidy is not sustainable in the longer run.

In solving this problem, several speakers at RENERGY 2014 suggested solar power may be able to provide an alternative route. Agricultural customers pay almost nothing for electricity, and yet there is great scope to use solar power to meet their electricity needs. A panel discussion estimated there to be as much as 125 GW of irrigation demand coming from the 25 million irrigation pumps in India.

Powering these 125 GW worth of irrigation pumps with solar would relieve utility companies of the burden of virtually giving away nearly 15% of all electricity in India. This would dramatically improve the state-owned distribution companies’ balance sheet and reduce the need for cross-subsidization from commercial and industrial customers.

While solar power can solve many problems in India, the challenges stemming from the MNRE subsidy demonstrates the importance of effective policy. As the new government headed by Narendra Modi starts unveiling its reform of the power sector, the PV industry should make their calls for the removal of market-distorting subsidies heard beyond the halls of the RENERGY conference and in the halls of government.

Dustin Zubke is the Thomas J Watson Fellow for 2014.