India’s new net metering limit risks stalling progress on rooftop solar target

India’s new net metering limit risks stalling progress on rooftop solar target

Report by IEEFA and JMK Research

A new regulation that excludes rooftop solar systems over 10 kilowatts (kW) from net metering will stall adoption of larger installations in India, undermining progress towards the government’s rooftop solar target of 40 gigawatts (GW) by 2022.

The very consumers driving rooftop installations are also the ones most likely deterred by the net metering limit.

According to a new briefing note from IEEFA and JMK Research & Analytics that says a provision in the Ministry of Power’s new rules for electricity consumers which mandates net metering for rooftop solar projects up to 10kW and gross metering for systems with loads above 10kW will likely make rooftop solar commercially unviable for big residential and commercial and industrial (C&I) consumers.

Currently, India only has around 6GW of installed rooftop solar capacity, the majority of which has been developed by C&I consumers. So the very consumers who are driving rooftop installations in India are also the ones most likely to be deterred by the 10kW limit on net metering.

India already has a long way to go to meet its critically important 40GW target, and if limiting net metering to 10kW makes the rooftop solar space unattractive for C&I consumers, it is unlikely that we will be able to achieve that target.

The report analysed the net and gross metering tariffs payable across leading states. They found gross-metered consumers are compensated for the export of solar power to the grid at rates of Rs2-4/kWh. However, current rooftop power purchase agreements (PPAs) signed by Tier 1 developers have tariffs in the range of Rs3.5-4/kWh.

Developers and corporate consumers would consider any tariff lower than the current PPA tariff unviable. If consumers have to buy electricity from discoms at a high tariff and at the same time the feed-in tariff they receive is low they will have no incentive to set up rooftop solar at their premises.

A net feed-in mechanism is a “win-win” solution for consumers and distribution companies.

Also, under gross metering, corporate consumers would not benefit commercially from using the power generated from their own system for self-consumption.

Both C&I consumers and developers will find their payback periods will be much longer and the investment will become riskier, delaying the roll-out of this strategically important, cost-effective technology solution.

Distribution companies (discoms), on the other hand, will notionally benefit from the shift to gross metering for installations with loads above 10kW, paying less for the same amount of energy. Except those benefits will be dissipated because there will be no material new investment by C&I customers, say the authors.

The note points out that although it is up to states to implement the central government’s restriction on net metering, many are likely to do so to address the loss-making discoms’ concerns over high-paying C&I consumers shifting to rooftop solar.

Several states have already started to implement the new regulation in different forms. West Bengal has issued amendments that allow net metering for consumers with sanctioned loads of up to 5kW and gross metering for contract demand above 5kW. Karnataka has also proposed a gross metering arrangement for rooftop solar projects over 10kW capacity at a Rs.2.84/kWh tariff.

In their note, the authors propose a net feed-in mechanism as a “win-win” solution for all the stakeholders, explaining that it would not have a major impact on discoms’ revenue and would still be beneficial for the consumer.

A net feed-in mechanism is very similar to net metering with the exception of tariff calculation. Under a net feed-in arrangement, rooftop solar power used for self-consumption is charged at the retail tariff, and surplus (net) energy exported to the grid after self-consumption is credited at a net feed-in tariff determined by the state.

The net feed-in mechanism is a middle ground option that meets the needs of both consumers and discoms, creating a win for both, and for India.

Under the net feed-in option, the consumer pays less to the discom than they would under gross metering but the discom receives more than they would under a net metering arrangement.

We urge the Ministry of Power to consider the interests of all stakeholders – developers, consumers and discoms – in resolving the challenges of the net metering restriction while also stimulating private investment to boost adoption of low cost, zero emissions distributed capacity.

Read the report: The Impact of the 10kW Net Metering Limit on India’s Rooftop Solar Market

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