Building on the success of the PM Surya Ghar: Muft Bijli Yojana, the government has issued guidelines to further promote rooftop solar (RTS) installations under the renewable energy service company (RESCO) and utility-led aggregation (ULA) models. Launched in February 2024, PM Surya Ghar: Muft Bijli Yojana has achieved remarkable success with over 8 lakh RTS installations in just one year.
The new guidelines expand central financial assistance (CFA) to include the RESCO model for new residential RTS installations up to 3 kW. However, this support is subject to conditions — only domestic solar modules and cells can be used, and it is not available to existing solar users and non-residential consumers.
To be sure, the RESCO model, which involves third-party developers to install and maintain RTS systems, has not been as successful as expected. Of the total 16.9 GW rooftop capacity as of June 2024, RESCO-based projects accounted for only 19%.
Primary challenges with this model are:
- Small project size: RTS projects, especially in the residential category, are often small. Additionally, the 25-year power purchase agreement (PPA) tenure is too long for small-scale projects, limiting their commercial attractiveness
- Creditworthiness of offtakers: Limited credit information/ratings on small consumers increases the risk of delayed payments for developers
- High operations and maintenance (O&M) costs: The distributed nature of these assets across various locations increases the O&M cost for developers
RESCO will continue to face challenges due to high transaction costs associated with consumer identification, and system commissioning and maintenance. Furthermore, as the PPA tenure is reduced from 25 years to 5 years, the landed tariff of RTS for the consumer may increase up to two times, leading to higher costs compared with utility supply, especially in states having low energy charges.
The ULA model, on its part, offers two approaches — utility-owned assets, where utilities own and manage solar systems; and consumer-owned assets, where households own the systems with utility support. This model can be implemented by distribution companies (discoms), state governments or designated entities.
ULA addresses the creditworthiness issue of offtakers and provides a payment security mechanism, reducing the risk for developers and easing financing. A total of Rs 100 crore has been earmarked for the payment security mechanism, managed by the National Program Implementation Agency. This fund can be accessed by ULA proposals executed under RESCO, with a contribution of Rs 2,000 per installation. A state guarantee is also required for utilities to access the fund.
Table: Summary of guidelines
Source: MNRE, Crisil-Bridge To India research
Historically, utilities have followed a model similar to consumer-owned assets, aggregating consumers for RTS and selecting developers for installation and commissioning, thereby achieving competitive price discovery. While the guidelines propose that consumers invest only up to 10% of the benchmark cost, with additional grants available, the availability of state funds remains uncertain.
Some states have implemented unique utility-led models. For example, Kerala’s state utility, KSEBL, has invested in setting up RTS on consumers’ roofs under the Soura programme launched in 2019. The programme implemented a rooftop lease model for residential consumers, where the discom invests in setting up the RTS and procures entire power from it. Consumers receive a roof lease benefit equivalent to 10% of the solar generation as an energy rebate on their utility bills. KSEBL awarded 46.5 MW capacity under this model and has successfully commissioned it.
Another unique utility-led model was designed by Andhra Pradesh, which targeted low-paying residential consumers. Here, the AP discom tied up with a bank for financing RTS projects, with less than 10% contribution from consumers. To ensure payment security for the bank, the discom collected the EMI as part of the consumers’ utility bills. Although this business model received approval from the state electricity regulatory commission, it did not materialise due to institutional challenges.
To sum up, while the guidelines aim to address the challenges associated with RESCO-based projects, standalone RESCO models may continue to face issues due to high transaction costs.
The ULA-based model, on the other hand, offers a promising alternative by addressing creditworthiness issues and providing payment security. Furthermore, the reduced PPA tenure and increased CFA availability would help boost participation from developers and consumers in the RTS sector.
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