Why India’s cuts to rooftop solar subsidies could be a good thing

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Reports of reduced subsidies are not uncommon on PV Tech but the halving of support for rooftop solar in India has bucked the trend by being welcomed.

The Ministry of New and Renewable Energy (MNRE) announced on 1 January that subsidies for projects would be cut from 30 to 15%. It also said that hospitals, care homes and other public service building will be given priority over commercial and industrial premises. The scheme covers installations from 1-500kW.

The government has an ambitious target to install 40GW of rooftop solar in the next five years. A reduction in support could be seen as counterproductive.

Indian consultancy Bridge to India has broadly welcomed the changes but has in fact called for even deeper cuts to the rooftop scheme’s support mechanism.

“Bridge to India has been arguing for quite some time that the funding available for the subsidy mechanism does not nearly meet demand and that this makes it actually counterproductive,” it said in a statement.

“The earlier subsidy scheme has arrested growth even for those industrial and commercial consumers in the country for whom rooftop solar was already a viable option even without government support. The vague (and ultimately unfulfilled) promise of getting subsidies has led customers to just wait and see,” it said.

“However, we believe that overall, the proposed new policy is still flawed. Just like the water heater subsidies, the subsidies for industrial and commercial customers could have simply been revoked altogether,” the firm said.

According to the statement by the MNRE, such rooftop projects can now produce electricity at a cost of INR7/kWh (US$0.11/kWh) without a subsidy. As a result, an inefficient support scheme does more harm than good, according to Bridge to India.

“According to a recent Bridge to India analysis, so far less than 15% of the installed rooftop solar capacity has made use of the subsidy, around 40MW out of 285MW. Even within that, currently the EPC companies that are able to avail the subsidy attach a premium to the project cost. This is broadly on two accounts: firstly, they have to use Indian modules that can be 5-10% more expensive and secondly, they put a value to all the hassles, delays and risks associated with the subsidy disbursement.”

As a result, the consultancy claims that a 15% subsidy will only level the playing field between projects that opt out of it.

“Its only function might then be to protect domestic manufacturers in a niche market of ‘subsidised rooftop solar’ worth perhaps 50-100MW, depending on the actual subsidy amount made available,” it added.

India’s ambitious solar programme includes an objective to attract US$100 billion of investment and a deployment goal of 100GW by 2022.

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