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Discovering a People-Centric Energy Transition

In the ongoing discussions around the clean energy transition, there is a need to ensure that the transition is just and inclusive. The importance increases with India declaring its target to achieve net-zero by 2070 and install 500 GW non-fossil electricity generation capacity by 2030 at COP 26 (PIB 2021). Therefore, charting a pathway for people-centric energy transition where communities subsume a centerstage is essential. But, how do we achieve that? One way is through distributed renewable energy (DRE) that helps bring the energy transition closer to communities by making them prosumers. Distributed renewable energy sources are generation units closer to the point of use. The users are also the producers (such as individuals, small businesses and/or local communities) (Vezzoli et al. 2018). These systems can be either grid-connected or off-grid.

Though India achieved almost 100% village electrification (Saubhagya Dashboard), the quality of power supply remains a challenge. DRE provides the opportunity to have access to power supply even in remotest places and helps provide better quality power supply. It helps improve healthcare facilities in rural areas, better education facilities, access to the internet, increases livelihood opportunities, and builds grid resilience against extreme climate events (Sengupta 2021; Purkayastha, Gavarraju, and Gautam 2021). Access to electricity only for lighting is necessary but not sufficient for rural livelihood development as per the United Nations Development Programme (UNDP)’s “Energy Plus” framework (Krause 2011). Therefore, there is a need to promote energy access combined with productive electricity use for income generation and livelihood upliftment. In addition, the installation of distributed solar is a labour-intensive exercise and thereby creates livelihood opportunities. A recent study by CEEW reported that 43000 cumulative jobs are generated by installing 6.5 GW of rooftop solar (RTS) until FY21 and has the potential to generate 2.8 lakh jobs by 2030 (Tyagi et al. 2021).

Furthermore, transitioning to clean energy also offers a great value proposition to discoms such as avoided power purchase cost, generation and transmission cost, reduction in transmission and distribution losses, compliance with RPO target, and driving the economy away from subsidies. Tracking the sectoral progress

In the transition towards clean energy, trends are more inclined towards utility-scale renewable energy (RE) than DRE. Though India recently achieved 100 GW of RE installed capacity, the share of rooftop solar is minuscule and currently stands at 6.4 GW. The growth rate of rooftop installation has been marginal over the years, with maximum installations under the CAPEX model (Bridge to India 2020).

Rooftop solar installations are primarily concentrated in a few states such as Gujarat, Maharashtra, Haryana, and Rajasthan. Despite exemplary performance compared to other states, even the top-performing states are far behind the allocated capacity share under the 40 GW target by 2022. States are aiming to make up for the lag in installation by focusing on large scale projects. Therefore, projects in the pipeline for utility-scale projects are much higher than DRE, which further explains the disparity.

Figure 1: Renewable Energy Mix in India (in GW)Source: (MNRE 2021)

Rooftop solar installations are skewed with commercial and industrial consumers, contributing 70-80 per cent of rooftop installation. This is primarily due to the perceived risks in the residential sector – low payment security, smaller demand sizes, higher operational costs, and lower margins for vendors. Within the residential segment, the market is more tilted towards the urban consumer with greater economic viability, higher awareness levels and access to quality solar installers. The installation in the agriculture segment is also limited (despite policy push) for several reasons such as infeasible business models, lower discovered benchmark prices, subsidised electricity, high upfront cost, etc. Presently, the participation of low paying residential and agriculture consumers is limited in the energy transition.

Figure 2: Mapping State-wise Rooftop Solar Achievement (as of 31 July 2021)Source: Authors’ Analysis based on MNRE data (2015, 2021)
RTS ecosystem an enabler or deterrent for residential consumers?

The uptake of rooftop solar in the residential sector has been limited so far. Despite significant policy push to accelerate, the sector’s performance continues to be dismal. The question arises – Is the current ecosystem an enabler or deterrent to RTS adoption in the residential segments? The existing ecosystem does not enable consumers to be active participants in the energy transition. The critical barriers impacting the ecosystem are listed below:
a. Consumer awareness – Lack of consumer awareness is recognised as one of the barriers to RTS adoption. The Ministry of New and Renewable Energy (MNRE) assigned discoms the responsibility to build awareness under phase II of the RTS scheme. However, due to insignificant efforts made by discoms, RTS continues to form a smaller share in the discom portfolio. b. Prohibitive regulatory ecosystem – The challenge of limited access to rooftops can be solved with innovative business models which could allow willing consumers to participate. However, the regulatory ecosystem prohibits the same. There are restrictions on capacity installation introduced in net metering regulations. It varies across states in terms of minimum and maximum capacity allowed, limitations on transformer capacity, voltage level, and others. There are procedural delays in issuing enabling regulations (such as virtual net metering, group net metering).

c. Limited financing options – MNRE, under the phase II RTS scheme, offers subsidies for systems above 1kw up to 10 kW. However, consumers need financing to pay for the balance amount which is significant especially for rural and semi-urban consumers. Subsidy offered under the phase II scheme also doesn’t cater to households with less than 1 kW demand. There are limited financing options available for the consumer with no dedicated financing instruments. Banks are unwilling to lend to residential consumers compared to commercial and industrial consumers. This is primarily due to small loan ticket sizes resulting in high cost of servicing these consumers and a high risk of default. Micro financing institutions (MFIs) offer loans without collateral requirements, but the interest rate is too high for consumers. Also, there is a lack of clarity on whether such MFI loans could be offered for rooftop systems. In addition, the COVID-19 pandemic impacted consumers’ buying power. This will further delay the adoption as RTS is not considered a necessity.

d. Lower vendor participation – Access to electricity has improved in rural areas, but the availability of reliable and quality power supply continues to be a challenge. DRE could help resolve these issues and enable them to participate in the clean energy transition. However, vendors are unwilling to service these consumers as the risk of default and cost of servicing these consumers is high compared to the benefits. Also, vendors are reluctant to install subsidised systems due to delays in subsidy disbursement, further restricting consumers with limited finance from participating.

Switching gears to accelerate RTS adoption

Compared to other segments, the residential segment is unique – smaller demand sizes, subsidised grid electricity, difficult access to loans, and the need to convince about potential benefits. Therefore, there is a need to find innovative solutions to address the challenges and fast track their growth in the segment. Some of the areas which require targeted interventions are highlighted below:

● Innovative business models – There is a need to introduce innovative business models supported by regulatory provisions (such as virtual net metering, fastening the process of net metering application), which solves consumer challenges such as access to rooftop, limited resources, demand below 1kW, etc. One such example is the community solar model suitable for semi-urban consumers as it helps aggregate demand and increases the feasibility of a developer deploying the system.

● Utility led awareness campaigns – Demand aggregation campaigns need to be rolled out to create awareness among consumers about potential benefits and reduce the cost of consumer acquisition. This also solves the challenges of the economic infeasibility of smaller system sizes faced by developers. In addition, discom led communication is the most trusted source of communication by consumers. ● Bridging the financing barriers for residential consumers – Banks and other financial institutions may be directed to devise dedicated instruments for rooftop solar locally, with suitable mechanisms for evaluating the consumers’ creditworthiness. Such financial entities could provide a dedicated finance facility such as a line of credit available to C&I consumers dedicated towards residential RTS adoption. In addition, financing institutions can introduce new financing mechanisms where discom and developers raise capital for aggregated demand. DRE provides an opportunity to bring the energy transition from margin to the mainstream by handing over the baton of clean energy to residential consumers. Therefore, there is a dire need to create an enabling ecosystem by addressing the challenges faced by the sector to take full advantage of the opportunity and enable a people-centric energy transition.

MS. Bhawna TyagiProgramme Associate, Council on Energy, Environment and Water (CEEW)

Footnotes1. CAPEX model refers to the model where consumers have to make upfront payment for installation of rooftop solar and have to bear all the capital expenses through self finance.getRandomImage(‘People-Centric-Energy-Transition’)
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