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High system costs may hinder rooftop solar growth

In the first quarter (Q1) of calendar year (CY) 2022, India added 456 megawatts (MW) of rooftop solar capacity, a 13 per cent increase compared to the 402 MW installed in Q4 2021. In a year-over-year (YoY) comparison, installations were up by 34 per cent.

High system costs may hinder rooftop solar growth
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High system costs may hinder rooftop solar growth

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In the first quarter (Q1) of calendar year (CY) 2022, India added 456 megawatts (MW) of rooftop solar capacity, a 13 per cent increase compared to the 402 MW installed in Q4 2021. In a year-over-year (YoY) comparison, installations were up by 34 per cent. This assumes significance particularly in the wake of the fact that mercury has been soaring, pushing up the power demand. It is estimated that 1.9 billion units or 6 per cent of the total demand will be the overall shortage, making it the worst electricity shortage in over six years. The emergency has occurred due to multiple reasons for an unusual rise in temperature, rise in price of imported coal due to disturbance in supplies from Russia. Prices of coal globally have shut up from $60 per tonne to $203 per tonne. This has made import of coal difficult to make up the domestic shortfall due to rise in demand.

If the latest research report by the global renewable energy consulting firm- Mercom is anything to go by, in Q1 2022, rooftop solar accounted for 15 per cent of total solar installations. India's cumulative rooftop solar capacity was approximately 7.6 gigawatts (GW) at the end of Q1 2022. During the quarter, 47 per cent of installations were in the industrial segment, followed by 29 per cent, 22 per cent, and 2 per cent in commercial, residential, and government segments. Mind you that in Q1 2022, about 71 per cent of rooftop solar installations were under the capital expenditure (CAPEX) model, while the operating expenditure/renewable energy service company (OPEX/RESCO) model contributed to 29 per cent of total installations.

What is more interesting and significant is that most of the states have been empanelling vendors and commissioning the allocated capacities under MNRE's Phase II Rooftop Solar Program, driving CAPEX installations. About 1.2 GW of empanelment tenders were floated by Gujarat, Karnataka, Telangana, Madhya Pradesh, Odisha, Himachal Pradesh, Jharkhand, Nagaland, and West Bengal. The top 10 states accounted for nearly 73 per cent of cumulative rooftop solar installations at the end of Q1 2022. In Q1 2022, tender activity increased by 269 per cent compared to Q4 2021 and 214 per cent compared to Q1 2021. Also, overall project margins have reduced in the wake of the rise in component prices, the imposition of BCD, and the GST hike.

All these notwithstanding the fact that the average cost of a rooftop solar system increased 6 per cent in Q1 2022 compared to Q4 2021. The increase in average rooftop system cost was up 17 per cent year-over-year.

It may have been another great quarter for the rooftop solar market, however, there is a word of caution as well. One has to keep in mind that the future growth is dependent on system costs. If the prices continue to go up and project economics deteriorate, demand is bound to contract in the short term. But for the time being, it's sunny-side up, for sure.

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