While solar power is fast approaching what is called “grid parity” in some regions of the world – a situation where the cost of unsubsidized solar power is less than or equal to the cost of grid power – solar power still costs more than grid power for substantial parts of the world. This is the case for many parts of India too, where currently the cost of solar power is higher than that of grid power.
For these regions, this disparity of solar power being costlier than the grid is likely to exist for the next 3-4 years. Until that time, external incentives, usually from the central and/or state government, are likely to play a vital role in the growth of solar power adoption for these regions
Thus, one of the frequently asked questions is – What are the incentives available for rooftop solar installations in India?
Well, the answer for this of course could vary with time as policies and regulations change, but as of end Jul 2015, the following are the four most prominent rooftop solar incentives:
For profit making enterprises installing rooftop solar systems, 80% of total investment can be claimed as depreciation in the first year. This will significantly decrease tax to be paid in Year 1 for profit making companies.
Let us say your company has total profits of Rs 3 crores. Let us also say you are investing in a rooftop solar power plant of 200 kW that costs approximately Rs 2 crores. 80% of your capital investment can be depreciated the first year which implies that you can bring down the taxable profits by Rs 1.6 crores (thus you need to pay taxes only on Rs 1.4 crores, 3 – 1.6). At the corporate tax rate of 35%, this profit reduction amounts to an actual cash saving of about 56 lacs (1.6*0.35) for the first year of the installation.
Look at it another way. For a total project cost of Rs 2 crores, you would be putting in an equity of about 30%, which amounts to 60 lacs, Through accelerated depreciation, you are able to recover almost all that amount in the very first year – your equity payback period is thus just one year (or less, depending on when you implemented the project)!
Accelerated Depreciation (or AD as it known in its short form), had been one of the prime movers of wind energy capacity addition in some parts of India, especially the state of Tamil Nadu. Now, it appears that AD is all set to play an important role in the growth of the solar power sector as well.
Note however that AD as an incentive is applicable only for commercial entities and not for the residential sector. Besides, in order to benefit from the AD benefit, a commercial entity needs to be making profits, as AD essentially is a tax saving device, and there is no tax to save if a company is not making profits.
The concept of capital subsidies is really simple – the government gives back a certain % of the upfront capital cost. Thus, if your total capital cost is Rs 1 lac and the government gives back 30%, your effective capital cost is only Rs 70,000 (1 lac – 30%* 1 lac).
- Capital subsidies are applicable to rooftop solar power plants, up to a maximum of 500 kW.
- While the original capital subsidy was 30%, it has recently been reduced to 15% for the residential rooftop sector, citing the reason of reduced cost of solar panels. This is applicable for Systems ranging between 1 kWp to 500kWp.
- Further, recent policy announcements by MNRE (the Ministry of New & Renewable Energy) have abolished capital subsidies for rooftops for commercial and industrial sectors, and the reduced capital subsidy mentioned above will be available only for select residential and a few other related segments.
How does the Government fare in disbursing these subsidies?
It is critical for the Ministry to disburse subsidies on time. The subsidies create an expectation among the beneficiaries and if timely dispersal does not occur, it could significantly affect the cash flows and working capital expenses of the installers. For instance, the budgetary allocation for Installation of Solar Power Generators above 3 kWp up to size of 100 kWp under the Central Financial Assistance (CFA) scheme was delayed for a considerable period of time, adversely affecting the sector. It was only on 12 August 2014 that MNRE finally received the allocation to proceed with the sanctioning of the 30% capital subsidy. The above mentioned delays in capital subsidy disbursements hamper the implementation of the rooftop scheme severely. The ministry now has asked project developers to go ahead with their projects without waiting for subsidy allocation via Aadhaar Linked Account or interest subvention.
Renewable Energy Certificates
Renewable Energy Certificates (RECs) are tradable certificates that provide an incentive to those who generate green power by providing financial incentives for every unit of power they generate. These are available separately for solar power as well. While it appears to be an attractive avenue for solar power generators, two aspects make it challenging for rooftop solar power producers:
- One, there are restrictions that enable only some rooftop solar power generators eligible for RECs
- Two, the demand for solar RECs in the exchanges have been quite poor since these were introduced, though this could change in future with recent tightening of regulations and enforcements.
Owing to the above two, Solar Mango feels that RECs could provide attractive financial incentives in future, but for now, rooftop solar owners should not expect much from these.
Net Metering Incentives
Let us consider a grid-tied rooftop solar system that is synchronized to work with the grid – this is the architecture commonly used by industries and commercial units. Such a grid-tied system does not usually have batteries.
For this system, when there is excess power generated over and above required by the load, the power is exported to the grid. So far so good. But the question is, do you as the rooftop solar owner get incentivized for the power that you are now supplying to the grid?
This is where things get interesting. Whether you get incentivized and how much you get incentivized depend on two aspects:
- Whether a Net Meter is installed
- Incentive policy of the utility company (in India, typically, the state electricity board)
Net Meter – A Net Meter is a measurement meter that measures how much electricity you have exported to the grid after your internal consumption (as the name implies, it is a meter that measures electricity Net of consumption). Unless you have a Net Meter installed, your utility will not be able to measure how much electricity you have exported to the grid.
Incentive Policy – Even if you are able to measure the amount of electricity exported to the grid, it is necessary for the utility company to have a contractual agreement that it will pay a certain amount of rupees for every unit exported. Depending on the type of incentive policy, the incentive could either be a reduction in your electricity bill corresponding to the number of units exported by you, or it could be a special tariff provided by the state for the number of units your rooftop solar power system feeds to the grid. Net Metering incentive policy / feed in tariff is not yet common in India and has made a start in a few states such as Tamil Nadu and Karnataka.
Thus, if your state has a Net Metering incentive policy and if a Net Meter is in your rooftop, you stand to get financial incentives for the power generated even when your establishment is not working.
What are the additional measures taken by the Government to promote the rooftop solar sector?
As per the current Home Loan and Home Improvement Loan schemes, Solar PV is not covered among items against which loan can be availed. The Ministry of Finance has issued following advisory to all Public Sector Banks:
“All banks are advised to encourage the home loan/ home improvement loan seekers to install rooftop solar PVs and include the cost of such equipment in their home loan proposals just like non solar lighting, wiring and other such fittings”
This will reduce the dependence on private investors who are a little hesitant towards investing in Solar projects, and will enable owners to plan their Home Loan with inclusion of capital cost for installing Solar Rooftop, based on the available space and requirement.
This is mainly aimed at encouraging residential, commercial, industrial and institutional setups to adopt viable Grid Interactive Solar Rooftop Systems for their own consumption, and inject surplus electricity into the grid. Solar Rooftop Regulation/Policies/Schemes in states like Delhi, Rajasthan, Haryana, UP, Uttarakhand, Kerala and Karnataka will further attract investors and residential consumers towards Solar Rooftop Power.
The following table provides a quick overview of the four types of rooftop solar incentives, and also to which segments these are applicable
|Rooftop Solar Incentives||Residential Sector||Commercial & Industrial|
|Accelerated Depreciation||Not applicable||Applicable if the entity is profit making|
|Capital Subsidies||Applicable||Not Applicable|
|Renewable Energy Certificates||Applicable in very select cases||Applicable in select cases|
|Net Metering Incentives||Applicable, if the state has the relevant policy||Applicable, if the state has the relevant policy|
To know more about about incentives available rooftop solar systems in India, read Solar Mango’s India Rooftop Solar Advisor