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Government's Suggestion to Expand Gross Metering May Adversely Affect Rooftop Solar Energy Sector

Editor, TRANSFIN.
Nov 24, 2020 9:57 AM 4 min read
Editorial

On September 9th, the Ministry of Power unveiled the draft Electricity (Rights of Consumers) Rules, 2020. This included proposals to streamline power supply and distribution.

If the draft is approved, residential rooftop solar projects of capacity up to 5 kW will fall under net metering, and projects above 5kW will come under gross metering.

What are Net Metering and Gross Metering?

When consumers install solar panels on their properties, there are two things they can do with the solar energy they generate - (1) consume it within their premises or (2) sell it to power distribution companies aka discoms.

To calculate the amount of electricity that goes either way (from consumer to discom and vice-versa), meters are used.

Now, in a net metering system, the consumer is able to consume the electricity they generate from their rooftop installations. Any excess electricity is fed back into the state grid - and the consumer is compensated for this by discoms based on a fixed feed-in tariff.

The idea is that the consumer’s electricity bill can get downward adjusted if he’s able to locally produce (through rooftop solar panels, for instance) a part of his power requirement. This set-up is generally measured by a bidirectional meter.

Government's Suggestion to Expand Gross Metering May Adversely Affect Rooftop Solar Energy SectorAlternatively, in a gross metering system, the consumer is required to sell the entirety of electricity generated at the feed-in tariff. And for the electricity units consumed, the consumer pays the discoms a fixed retail tariff.

Translation: the consumer’s electricity bill stays the same and doesn’t get downward adjusted irrespective of any local power production. The consumer can however sell the excess power he locally produced separately. This set-up is generally measured by two unidirectional meters.

Government's Suggestion to Expand Gross Metering May Adversely Affect Rooftop Solar Energy SectorNow, coming back to the new rules proposed by the Government, gross metering is evidently being given preference over net metering. But this has left many people unhappy - and worried that it may force the solar rooftop sector to “come to a grinding halt”.

 

Producers vs Distributors

Three crucial points to note:

  1. The feed-in tariff is usually lower than the retail tariff.
  2. Consumers stand to gain from net metering. By one estimate, consumers’ electricity bills would be over 70% lower under net metering.
  3. Since it doesn’t involve any significant revenue loss, discoms stand to gain from gross metering.

Installing solar panels on the roof of your home, office or factory is essentially an investment. You take a chance with the high capex one-time installment fees expecting a return-on-investment (ROI) in the near-term.

If consumers are faced with a system where the ROI is considerably lower due to gross metering, they would be happier investing their capital in mutual funds, fixed deposits or equity markets.

In fact, some states tried to phase out net metering in the past. Consequently, demand for rooftop solar dropped. Something no company in the solar energy sector wants.

At the same time, the dire straits discoms are in is no joke. Mounting debt, lack of liquidity, ageing infrastructure, binding agreements with non-solar energy producers… The list of problems faced by Indian discoms is a long one. Net metering only adds to this pile of pain.

The impact of the coronavirus pandemic cannot be ignored. Economic downturn means consumers are less reluctant to invest in non-traditional avenues like rooftop solar. It also means discoms’ balance sheets are further stressed, they have less money to expand their solar capacities, and that the cash-strapped Government may be less inclined to divert capital to meet its solar energy commitments.

 

Some Perspective…

While we’re talking about rooftop solar, it may be pertinent to recognise where India is and where it aims to be in the future.

In Q2 2020, there were about 85 MW of rooftop solar installations, a dismal 56% QoQ and 71% YoY drop. Meanwhile, India aims to reach 100,000 MW of solar power capacity by 2022 - 40% of which is expected to be from solar rooftop.

That’s 40,000 MW within the next two years. And where are we at? As of June 30th 2020, the country’s total installed solar rooftop capacity was a meagre 5,953 MW.

That’s a lot of ground of cover in a very short period of time!

Add to it the structural problems plaguing the sector, the COVID- and slowdown-induced demand dips, and the general operational inefficiencies and regulatory impediments, and it may seem as if India’s rooftop ambitions are no longer grounded in reality.

The industry now fears the draft Electricity (Rights of Consumers) Rules will further exacerbate conditions for rooftop solar. And yes, the draft rules still allow for net metering in projects below 5 kW. But as of the last quarter, the share of small-scale residential solar installations was a mere 3% of all rooftop installations in the country.

The Government may be eager for the proposed rules to be the white knight for a promising sector. On the contrary, the new rules may be the final in the coffin for a sector in perennial duress.

FIN.

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