Rooftop Solar in Tamil Nadu: From doom to bloom?
In 2012, Tamil Nadu released the state’s Solar Energy Policy, introducing a net-metering mechanism for rooftop solar. It was the first Indian state to do so. The 2012 Solar Energy Policy opened-up the market for consumer category (e.g. small scale/rooftop) grid-connected solar. It was a paradigm change – electricity consumers could now simultaneously become electricity producers too!
The net-metering arrangement allowed surplus solar energy exported by consumers to the grid to be credited in energy units (kWh). The consumer would pay for the net-imported energy units (import minus export). In net-metering, therefore, the monetary benefit for each unit of solar energy that is self consumed or exported is equal to the consumer tariff. Consumers with higher electricity tariffs benefitted more, than those with lower tariffs. Most domestic consumers would not find the net-metering mechanisms financially attractive.
The Tamil Nadu Solar Energy Policy 2019, announced in February 2019, replaced net-metering with a ‘net feed-in mechanism’. With the net feed-in mechanism surplus solar energy exported to the grid is credited at a tariff fixed by the Tamil Nadu Electricity Regulatory commission (TNERC). In the net feed-in system the monetary benefit for each unit of solar energy that is self-consumed is equal to the consumer tariff while the monetary benefit for exported units of energy depends on the net feed-in tariff. The success of scaling rooftop solar now pivots on the attractiveness of this net feed-in tariff.
The 2012 policy set a solar rooftop target of 350 MW to be achieved by 2015. As of January 2019 only 54% percent of this target was met; the majority of it was installed by commercial and industrial entities. The domestic rooftop solar energy contribution is by and large absent. The recently announced Tamil Nadu Solar Energy Policy 2019 set a solar energy target of 9,000 MW by 2020, of which 40%, or 3,600 MW is allocated to the consumer category. To achieve the consumer category solar energy target an annual average capacity addition of 1,136 MW is required. An incomprehensible provision of the Tamil Nadu Solar Energy Policy 2019 is that all High Tension (HT) consumers have been excluded from the net feed-in facility. This means that educational campuses, commercial, industrial and institutional entities and any other consumer with an HT connection cannot make use of the solar net feed-in facility. One wonders how the above-mentioned target will be achieved without participation by the HT consumer category.
Both electricity consumption tariffs and solar energy feed-in tariff may well be the root cause of rooftop solar not taking off in the State. Take the example of a domestic electricity consumer with a monthly electricity consumption of 350 kWh. With the current slab system and the first 50 units per month free of cost, the consumer pays a monthly electricity charge of INR 1,650 or 4.71 per kWh of electricity delivered. The actual cost to TANGEDCO to deliver a kWh of electricity to the consumer however is around INR 8.00. In this example TANGEDCO makes a loss of INR 3.29 for every kWh delivered.
To recover the cost of supplying subsidized consumers TANGEDCO charges higher electricity tariffs to other consumer categories such as the commercial or industrial entities. The higher paying consumers are cross-subsidizing the consumers with lower tariffs. This leads to a vicious circle. High paying consumers either move their manufacturing base to states with lower electricity tariffs or enter into power purchase agreements with independent power producers to get electricity at a more competitive price. Hence, TANGEDCO loses its high value costumers, while the subsidized consumers remain, with the result that the utility’s financial losses keep mounting.
To prevent high paying consumers from migrating to financially attractive power supply options, additional layers of control mechanisms are added. Exclusion from the net feed-in mechanism under the new Solar Energy Policy is one such measure. Others include increasing cross subsidy surcharges for open access consumers and unreasonable hurdles for renewable energy paralleling. The results of all this are a public distribution utility in abysmal debts, rooftop solar not taking off, unreasonable policy mechanisms, disgruntled consumers and most importantly climate change mitigation targets not being met; all this at the cost of the future generation of citizens.
Electricity tariffs that allow TANGEDCO to cover its cost of supply, would be a good start to address this. Subsidy, where required, can be provided through a direct cash transfer to those in need. Unlike today, where rich and poor, receive the same subsidy. In fact, there should be only two electricity tariffs: one for LT (low tension) consumers and one for HT (high tension) consumers with the latter being lower since distribution transformer losses are borne by the consumer. Besides a clear tariff rationalization, additional key elements are required to enable consumer category (rooftop) solar to thrive.
First, a fair and transparent net feed-in tariff setting process for consumer category solar is needed. In March 2019 TNERC Order on Rooftop Solar Generation, a formula was established to determine the net feed-in tariff. Based on that formula the net feed-in tariff is INR 2.28 per kWh for solar PV systems commissioned during FY 2019-20. This tariff is extremely low and represents about 50% of the actual cost of small-scale solar energy generation. With this net feed-in tariff the chance for the state to meet its consumer category solar energy target is close to zero.
Second, innovative rooftop solar programs, that include alternative financing mechanisms and demand aggregation to reduce the capital cost of solar, will have to be designed. A straightforward and hassle-free application and commissioning process, and a state of the art online information platform will help.
Lastly, the State may do well in starting with a dedicated feed-in tariff for stationary solar energy storage system. This would prepare the State to transition into a smart grid future of the 21st century.