Rooftop Solar in India

Looking back, Looking ahead

2 PwC
 Acknowledgments
The study was carried out by PricewaterhouseCoopers Pvt Ltd, India in collaboration
with the Climate Investment Funds.

The due diligence for this report was led by Mr. Amit Kumar (Partner-PwC India, Task
Team Leader) and Mr. Abhishek Bhaskar (Energy Specialist- CIF, Co-Task Team
Leader). The analysis was conducted and report was drafted by the clean energy team
from PwC comprising of Ms. Saachi Singla and Mr. Parteek Girdhar.

The team benefited from the strategic guidance, and insights offered by colleagues from
World Bank (Mr. Simon Stolp, Mr. Chandrasekar Govindarajalu, Ms. Mani Khurana,
Mr. Amit Jain and Mr. Yanqin Song), ADB (Mr. Jiwan Acharya, Mr. Christian
Ellermann, and Mr. Jigar Bhatt), IFC (Ms. Pratibha Bajaj and Mr. Andrey
Shlyakhtenko), and Climate Investment Funds (Ms. Mafalda Duarte, Mr. Jagjeet
Sareen, Mr. Zhihong Zhang, Mr. Joseph Dickman and Mr. Rafael Ben), among others.

PwC team would also like to thank the respective teams from ReNew Power, Amplus,
Dexler, Adani and CleanMax and banks/financial institutions including IREDA, SBI,
PNB, Yes Bank and Canara Bank for sharing their views on the rooftop solar scenario in
India.

Please address any questions or comments about this report to Mr. Amit Kumar
(amit2.kumar@pwc.com) / Mr. Abhishek Bhaskar (abhaskar@worldbank.org).
Table of contents

04 06 24
Introduction Global experience India
China ......................................... 6 Market evolution ...................... 25
Market evolution ........................... 7 Target market ........................... 29
Target market ................................ 8 Key stakeholders ....................... 31
Business models ............................ 9 Key challenges .......................... 32
Financing instruments ................. 10 Business models ........................ 34
Key challenges............................. 11 Value chain ............................... 40
US ............................................ 12 Financing instruments .............. 44
Market evolution ......................... 12 World Bank-SBI Rooftop
Target market .............................. 13 Solar Programme ........................ 44

Business models .......................... 13 ADB-PNB Rooftop

Solar Programme ........................ 47
Financing instruments ................. 15
Role of CTF ............................... 49
Key challenges............................. 16
Germany .................................. 17
Market evolution ......................... 18
Target market .............................. 20
Business models .......................... 24
Financing instruments ................ 23
Key challenges............................. 23

53 57

Looking ahead Appendix: Stakeholder

consultations – key messages

3
Introduction
Solar photovoltaics (PV) has witnessed
Global Solar PV capacity
exponential growth from 2007 to 2017.
During this period, solar PV has evolved
from a niche market of small-scale Cumulative Solar PV Capacity: Global
applications to a mainstream electricity
450
source. In the early years, growth was
mainly driven by Japan and Germany 400 381
Capacity (in GW)

through programmes like feed-in- 350

tariffs (FiTs) which incentivised wide- 303
scale adoption of solar PV. Germany 300
was the largest solar PV market in the 250 228
world until 2015, after which China
took over. As Germany scaled back on 200 177
its rooftop solar programme, China 150 137
and the US became the key drivers 99
boosted by their respective FiT and 100 70
net metering programmes. 50
The top five countries contributing 0
85% of this global addition, in 2016 2011 2012 2013 2014 2015 2016 2017
and 2017, were China, Japan, the US,
India and United Kingdom. Other
countries like Germany, the Republic Share of solar PV capacity globally in 2016
of Korea, Australia, the Philippines
Rest of World, 15%
and Chile followed. While China has
been dominating the market, both in China, 46%
terms of manufacturing and installed
capacity, other emerging markets are
also beginning to contribute significantly
to the global growth. In 2016 and 2017,
77 GW and 78 GW solar projects were Japan, 11.5%
installed globally respectively, with
China alone accounting for around
46%of this capacity, followed by the US,
Japan and India.1 India, 5.5%

Germany, 2.0%

US, 20%

Source: REN21 Global Status Report 2017

1 IHS Markit

4 PwC
While significant capacity has been Solar PV technology-wise split
added in utility scale solar projects,
rooftop solar projects have also grown
tremendously during this period,
100%
powered by various government
programmes such as FiTs (as in Germany
80%
and China) and net metering (as in the
US). In addition, fiscal incentives such 60%
as subsidies and tax credits have also
helped the rooftop solar industry to grow 40%
exponentially throughout the world.
Innovative financing mechanisms such 20%
as third-party financing (leasing, power
purchase agreement), especially in the 0%
residential market, have also contributed 2011 2012 2013 2014 2015 2016
to the sector growth, particularly where Grid-connected centralised Grid-connected de-centralised Off-Grid
the high initial cost of PV systems was a
Source: REN21 Global Status Report 2017
major barrier to growth.

Rooftop solar PV has experienced

Distributed generation (rooftop) installed capacity
annual growth in most countries, except
in countries like Germany, where the
12 700
market became saturated and hence 624
started to fall. However, the overall

Installed Capacity (MW)

Installed Capacity (GW)

10 600
growth of rooftop solar across the globe
500
saw an annual increase in capacity 8
and is expected to rise further, thereby 337 400
improving the ratio of rooftop solar over 6
large utility scale solar in the global solar 300
4 169
PV mix. Market forces, including price 200
decline and change in financial incentive 79
2
and emerging business models, are 38 100
expected to contribute to this perceived
0 0
growth. While China and the US are 2011 2012 2013 2014 2015 2016
expected to occupy top positions, India is
also expected to become a major market China US Germany India
in the next few years. Source: Compiled from various sources, PwC analysis

India has achieved tremendous growth distribution companies (DISCOM) such as awareness building, lack of
in terms of installed PV capacity, by reducing the peak demand during capacity, legal and contractual issues,
primarily in utility scale installations the daytime for most countries and and roof right issues, which need to be
during 2010 to 2017 through the decreases transmission and distribution addressed at each stakeholder level to
National Solar Mission (NSM), which (T&D) losses as the power is consumed help further scale up the deployment.
aims to achieve 100 GW solar PV at the point of generation. Further, huge
Currently, India is in the market
installed capacity by 2022. Under this commercial benefits are envisaged by
transformation phase and hence, the
mission, India has set an ambitious reducing investments in the transmission
need of the hour is to address the
target of 40 GW rooftop solar capacity system in the host country with these
issues and challenges hampering this
by 2022, which offers significant growth rooftop systems. Above all, rooftop solar
growth. Other developed countries like
potential for the Indian rooftop solar PV reduces the dependence on grid
Germany, China and the US have faced
market. While the growth in the utility power and diesel generators and, at the
these barriers in the early growth years.
scale solar market has been spectacular, same time, offers a long-term reliable
Hence, with this study, PwC aims to
with more than 21 GW installed in a source of power for end consumers.
analyse the rooftop market scenario in
period of seven years, rooftop solar
Despite all the underlying benefits, developed countries like China, the US
growth has not been as impressive, with
rooftop solar in India has not achieved and Germany, followed by a detailed
around 1,219 MW installed capacity
significant growth. Various international analysis of the Indian rooftop solar
achieved as of June 2018 as per official
credit lines and concessional funding segment, identifying the challenges
figures released by the Ministry of New
have also been extended to financial and the role of the Clean Technology
and Renewable Energy (MNRE).2
institutions and banks in India to support Fund (CTF) in addressing some of these
The benefits associated with rooftop/ the large-scale deployment of solar challenges through concessional funding
distributed solar PV systems are rooftop in the country. Such sources support. The study also provides a way
multi-fold. For a developer, it includes have supported the market growth in forward for the need for concessional
reduced land and interconnection recent years by reducing the high cost of funding support in the Indian market to
costs and increased profitability due financing for smaller projects, thereby support the large-scale deployment of
to higher savings contributed by reducing the tariffs and making the rooftop solar PV along the lines of the
increasing commercial and industrial projects more viable. However, there still growth seen in the utility solar market.
tariffs. Rooftop Solar PV also supports exist many challenges in this segment,

2 https://www.mnre.gov.in/physical-progress-achievements

5
Global experience
The development of a distributed energy system is one of the most important
measures to promote energy production and innovation of energy utilisation
patterns of a particular country. India, being at the development stage, there is
a need to analyse the experience from international markets such as China, the
US and Germany to understand the trends and business models followed to gain
the scale achieved.

China
China’s solar market has grown The major reasons behind this • Demand: Availability of multiple
tremendously from less than 1 GW in tremendous growth in rooftop customers and low cost of rooftop
2010 to 130 GW in 2017, with a growth solar projects are: solar compared to industrial and
of around 67% from the previous year. commercial customers’ retail
• Policy support: The government’s
Rooftop solar installations have reached power prices
plan to phase out subsidies by
to around 28 GW as on 2017 and are
2020, which led investors to grab China has already over-exceeded its
expected to almost double in 2018.
the business opportunity with the target of 105 GW (targeted for 2020)
The country added around 53 GW available high subsidy by 24% and thus represents around
of solar PV installations in 2017 as one-third of the total installed PV
• Market deregulation: Distributed
compared to 34.5 GW addition in capacity globally.
generators’ model to sell directly
2016.3 Out of 53 GW installed in
to neighbouring industrial and
2017, 19.44 GW was achieved through
commercial customers
distributed solar PV projects. Rooftop
installations grew by almost three times
in 2017, comprising 2GW residential Cumulative solar capacity (GW)
solar PV projects.
Cumulative solar capacity (GW)
140
130

120
Installed capacity (GW)

100

80 77.42

60
42.18
40
24.86 27.92
20 15.89
8.48
2.85 4.24
0.8
0
2013 2014 2015 2016 2017

Overall Solar Rooftop Solar

3. https://mercomindia.com/china-2017-solar-report/

6 PwC
 Market evolution

The Government of China is aiming to install the solar PV capacity equivalent to

conventional power. For this purpose, various subsidy schemes from the Central and
provincial governments, depending on the cost of land, labour, financing, etc., have
been introduced over the years as the Chinese market shifted from provision of an
investment subsidy to FiT from 2009 to 2017.

Market evolution in China

One million rooftops Interim FiTs introduced NEA adjusted the

sunshine plan policy of subsidy

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Distributed
Boost in investments and government initiatives 50% refund on VAT energy
participated
in market
FiT introduction
Building integrate trading
& subsidy of
Solar PV programme
0.42 Yuan/kWh

2008 2012 2013

Shandong Province announced the In October, the State Grid Cooperation The National Development and Reform
implementation of the One Million for China (SGCC) announced Interim Commission (NDRC) announced an FiT
Rooftops Sunshine Plan in January Measure of Distributed Solar Power by setting the benchmark on grid power
2008. The programme was designed Generation, to allow grid connection tariff at 0.9 RMB/kWh, 0.95 RMB/kWh
to encourage the integration of to small-scale distributed solar power and 1 RMB/kWh depending on resources
solar and geothermal power sources generators with less than 6 MW installed and construction costs in different zones
into building construction. This capacity and lower than 10,000 kV. across China. It was forecasted that the
regulation was implemented in The charges for grid connection FiTs would fall by at least 10% each year
cities of Yantai and Jinan. were waived off. on projects smaller than 20 GW and by
20% each year on projects larger than
2009 2013 20 GW. The reason behind such a fall
in tariffs was to promote technological
The government initiated the In order to develop solar power
development and improve efficiency. The
Integrated Solar PV Programme generation, between 2013–2015,
FITs in 2017 were around 0.65 RMB/
that provided upfront subsidies for the Government of China proposed to
kWh, 0.75 RMB/kWh and 0.85 RMB/
grid-connected rooftop and building refund 50% Value added Tax (VAT)
kWh compared to 0.8 RMB/kWh, 0.88
integrated Solar PV (BIPV) systems. on self-used solar power.
RMB/kWh and 0.98 RMB/kWh in 2016.
The government determined a capital
premium for systems with minimum 2017
peak capacity of 50kW. However, the
subsidy levels declined from 15 CNY/W China’s NDRC released FiTs for solar
(2.35 USD/W) in 2009 to 7 CNY/W PV projects to be implemented from
(1.1 USD/W) in 2012. January 2018. The FiT for distributed
projects were decided at 0.37 RMB/
2010 kWh (5.8 US cents/kWh) with 11%
reduction annually.
The process of implementation of
national FiT for solar PV generated
electricity came into the picture in 2010
when National Development and Reform
Commission (NDRC) set up a special
interim FiT of 1.15 CNY/kWh (0.17
USD/kWh) for four PV power plants in
Ningxia province.

7
China’s Five Year Plans

Development plan Requirement Target

11th Five Year Plan on Energy Distributed energy technology was outlined as one of the cutting-edge –
(2006–2010) technologies and strategic areas.

12th Five Year Plan on Energy Develop distributed energy actively on the principle of electricity Apart from other distributed energy
(2011–2015) generation mainly for self-use with surplus sold to grid and achieve project, focus was on 10 GW
coordinated development of centralised and distributed energy. distributed solar capacity by 2015

13th Five Year Plan on Solar Promote distributed solar power in central and east regions, giving priority Distributed solar to reach 60 GW
Energy (2016–2020) to the development of distributed solar power, especially those connected by 2020
to the low-voltage distribution network and consumed nearby.

Target market
The solar market in China comprises a
utility scale market, dominant in western
China, and distributed solar market, Geographical distribution of PV projects in China
which is shifting to the central and
eastern regions because of the increasing East , 69%
load centre in eastern China. Out of the
total installed capacity, 69% comes from
the eastern region, followed by 14%
from south central, 7% from the north, North, 7%
6% from the northwest, 3% from the
northeast and 1% from the southwest.
Power generation is increasing in the
central and eastern regions, while the Northwest, 6%
provinces leading the installed capacity
are Zhejiang, Shandong, Jiangsu,
Anhui and Jiangxi. With the increase in North East, 3%
installed capacity of renewable sources
in western China, further capacity
addition of wind and solar is increasingly
becoming a significant issue. Since there South Central, 14%
were issues with transmission and rising
curtailment practices in the western part
of China, the investment started flowing
Southwest, 1%
in closer to the load centre in the east.
The top 10 provinces of China with distributed solar PV capacity (as of June 2017)
are represented below.

Provincial distribution of rooftop solar projects

400

350 340
Grid Capacity (10,000 kWs)

300
250
250 230
220
200

150

100 90
70
60
50 45
50 40

0
Zhejiang Shandong Jiangsu Anhui Jiangxi Henan Jinan Hubei Shanghai Hunan

8 PwC
 Business models

The revenue models of solar PV

projects are: Host-owned model

All online model

In this model, the owner gets the PV FiT
(fixed for 20 years) of 0.65 CYN/kWh, Financial
0.75 CNY/kWh and 0.85 CNY/kWh in Grid utility
institution
addition to the local subsidy (if any).
This model is used mainly for utility
scale projects.

Revenue = FiT + local subsidy (if any)

Supplies excess • Provides grid Provides
Extra online model power to grid connection financial
• Transfers subsidy support
This model is popular for distributed
solar PV projects. The power generated
can be either utilised for personal use or
sent to grid.
Host-owned model: This model is
the simplest business model in which Owner
the owner installs the project on their
rooftop, consumes the power generated
and sells the excess power to the grid
utility. The reason for maximum success
in this model is that the owner saves
PPA model
on the electricity bill and additionally
gets the subsidy. If the power generated
is utilised for personal consumption,
no revenue is generated; however, the
owner will be eligible for a subsidy of Financial
Grid utility
institution
0.37 CNY/kWh along with local subsidy
(if any) in addition to savings on the
retail electricity bill.
Supplies excess power to grid

Self-use price = Basic price + local subsidy

• Provides grid connection

Provides financial support

(if any) + 0.37 CNY/kWh

• Transfers subsidy

Energy management service (EMS)

model: This model is similar to the US
third-party ownership model and is
further composed of a lease model and
power purchase agreement (PPA) model.
The PPA model is, however, preferred
over the lease model as the owner
eliminates the need to deal with grid
Energy Sale of excess
connection and power sales.
consumption solar power
• PPA model: In this model, the EMS Host Other
EMS provider
provider owns and installs the solar customer customer(s)
panel on the rooftop of the host Revenue at Revenue at
contract price market price
customer and the customer in turn
gets solar power supply at a rate that
is 80–90% lower than the market
retail price. The revenue for the
customer is the savings made from the
• Lease model: In this model, the the host customer. The revenue for the
electricity bill. The sources of revenue
customer leases the PV system from host customer, during the lease tenure,
for the EMS provider are the revenue
the EMS provider and pays monthly is the saving on the electricity bill, sale
generated from sale of solar power to
fixed payments for a fixed duration of of excess electricity to the grid and
the customer, government subsidy and
lease until the system is transferred to government subsidy.
sale of excess solar power to the grid.

9
 Financing instruments

A global investment of approximately 333.5 billion USD4 was made in 2017 for the
development of renewable energy and cutting-edge power technologies, out of
which approximately 168 billion USD was used for development of solar projects.

Global clean energy investment

400
360.3
350 333.5
324 321.3 324.6

300 290.7
276.1 268.6
Investment (billion) USD

250
205.2 206.8
200 182.2

150 129.8

100 88
61.7
50

0
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

China recorded the maximum investment with around 40% of the total global
investment. The reason for the growth of the solar market in China was the increased
installation of solar panels in industrial parks where companies planned to reduce
their energy costs and meet their electricity demand through solar energy.

Country-wise clean energy investment

140 132.6

120

99.5
Investment (billion USD)

100

80

60 56.3 56.9

40
27.9
23.4 23.4
19.7
20 13.8 11 14.6
10.3
5.6 6.2
0
China US India Brazil Japan Germany UK

2016 2017

4 Bloomberg New Energy Finance

10 PwC
Currently, corporate collateralised loans
Lease financing
are the most common form of financing
solar and wind projects in China. Apart
from this, in order to meet the solar
targets and provide low-cost, yield cos, Lease finance
leasing, and crowd and community company
funding are promising financing models.
The various modes of financing
prevalent in the market include:
Conventional bank loans: The loans PV product Lease Lease
provided by the China Development sales contract rent contract
Bank (CDB) and/or other commercial
banks are the main source of finance for
the rooftop solar sector in China. The
loans are provided for a short term (1–5
years) based on a borrower’s credit risk.
Loan financing platforms: Initially,
there were some constraints on bank Deliver and install
PV Other
loans for distributed solar PV (DSPV)
manufacturer customer(s)
projects, particularly for non-state- Select PV product
owned enterprises. The National Energy
Administration (NEA) and the CDB
jointly established a local financing
platform where the CDB provided a line due to low credit rating. The government Lease financing: In this type of
of credit to medium- and small-sized proposed a bank loan for a period of financing arrangement, the project
companies who do not get bank loans five years at a lower interest rate for the developer selects the PV product, the
rural, residential and agricultural sector financing company purchases the
to promote deployment. required PV product and leases it out to
project developer.

Key challenges

Some of the challenges faced by the country can be grouped under the
following categories:

Commercial Technical
The residential market in the country is In the absence of an official industrial
highly fragmented and hence customer standard for residential PV systems
acquisition is quite expensive, especially coupled with low level of technical
considering the small size and high cost awareness and low price expectations
of distributed systems. Additionally, of customers, equipment quality tends
due to low grid electricity prices, the to be a challenge during project design
customers do not see a huge incentive in and installation.
installing rooftop solar systems without
However, despite the above challenges,
FiT support.
China has been able to achieve one of
the largest rooftop capacity additions
Regulatory/legal across the globe and the lessons from its
experience could be quite relevant for
Another major challenge faced by the
the Indian market.
country is the ownership structure of
residential complexes. Large cities with
high income households have limited
rooftop solar space for installation and
with multi-family apartment complexes
and rented houses, the ownership
rights become a major hindrance to
deployment. Further, installation in the
country is majorly focused towards the
highly industrialised eastern provinces,
while western and southern provinces
have been lagging behind their targets.

11
US
The US installed around 4.5 GW of solar
Average solar PV pricing
PV during the first half of 2017, reaching
a cumulative capacity of 45.4 GW.5
Growth of solar installations has been 4.00
3.70

Average Solar PV Pricing ($/Wp)

mainly because of falling solar PV prices. 3.50
It can be observed that solar PV pricing 3.51
3.00
has fallen from 8 USD/Wp in 2005 to
2.54
much lower (see Figure 15). 2.50

The system installation costs in the 2.00 2.26

residential sector are the highest due to 1.50 1.38
the small size of installations, complex
1.00 1.30
supply chain logistics, taxes, overhead
costs as well as margins. On the other 0.50
hand, utility installations, larger in 0.00
size, have lower costs as compared to Residential Non-residential Utility scale
rooftop projects. 2016 2017

Market evolution
Some of the major incentives/programmes to promote
solar PV in the US are represented below:
Net Metering RPS – 20% by 2010 Feed-in-Tariff SunShot Updated RPS –
Initiative 50% by 2030

1996 2000 2002 2007 2008 2011 2012 2015 2016

Interconnection California Solar New York Sun Net Metering

Standard Initiative Initiative 2.0

1996 2007 2011

California’s Net Metering law was Solar California Initiative (CSI) or The US Department of Energy (DOE)
announced in 1996 and was applicable Self-Generation Incentive Program launched the SunShot Initiative with
to all utilities except Los Angeles (SGIP) planned a capacity addition the goal of making solar energy fully cost
Department of Water and Power of around 3000 MW in California. competitive with traditional energy sources
(LADWP). Under this law, net excess The CSI is a key component of the Go before the end of the decade. Through
generation (NEG) from the rooftop Solar California campaign. The CSI SunShot, the DOE supports efforts by
system is carried forward to the programme had a total budget of 2.167 private companies, universities, and
customer’s next bill. Under this law, billion USD between 2007 and 2016 and national laboratories to drive down the cost
any NEG remaining at the end of each a goal to install approximately 1,940 of solar electricity to 0.06 USD/kWh by
12-month period was granted to the MW of new solar generation capacity. 2020, making solar energy affordable.
customer’s utility. Customers had an The initiative paid customers either all
option of rolling over any remaining NEG at once for smaller systems or over the 2012
from month-to-month indefinitely, or course of five years for larger systems.
they could receive financial compensation The New York Sun (NY-Sun) Initiative was
from their utility for the remaining NEG. 2008 launched in 2012 to increase solar electric
In addition, customers also benefited installations in the state. In April 2014, a
from the Renewable Energy Credits The California Public Utilities commitment of nearly 1 billion USD was
(RECs) associated with the electricity Commission announced an FiT made to NY-Sun for expanding deployment
produced and used on-site. programme in 2008, authorizing the of solar capacity throughout the state and
purchase of 480 MW of renewable transform New York’s solar industry into
2002 generating capacity from renewable a sustainable, subsidy-free sector. NY-Sun
facilities smaller than 1.5 MW. These is also expanding the use of solar through
The California Renewables Portfolio FiTs provided a simple mechanism for New York State. As of March 2016, a total
Standard, 2002, requires its large small renewable generators to sell power of 568 MW of solar electric had been
utilities to buy 20% of supplies from to the utility at predetermined terms installed across the state, with New York
renewables by 2017. and conditions, without engaging in State Energy Research and Development
contract negotiations. Authority (NYSERDA) funding, powering
more than 94,000 homes. The substantial
growth is attributed to a decline in solar
electric component prices and growth in the
5 https://www.nrel.gov/docs/fy18osti/70406.pdf number of installer businesses marketing
solar electric to customers.
12 PwC
 Target market

In 2016, the US witnessed a record 2.6 GW levelling-off of demand. The major reason The non-residential market, on the other
of residential distributed solar systems. for the slowdown, despite stable policies hand, remained flat over the past couple
Residential customers have been the major and solar reaching almost grid parity, of years until 2016. The major contributor
drivers of distributed solar generation in was the customer acquisition challenges to the sudden growth observed in 2016
the country. The deployment had been the faced by solar providers. Another factor was the new state-level policies which
fastest in the states where net metering affecting the overall slowdown in the solar included the extension of the net metering
had been quite active. installations was the addition of taxes on programme capacity limits. The growth
the imported solar cells and modules that in the distributed solar market for both
The residential market boomed at around
affected bulk procurement and hence residential and non-residential customers
70% growth in 2015, which slowed down
increased the project cost. is represented below:
to 23% growth in 2016, on account of
both seasonal factors and the inevitable

US distributed solar installations

US distributed solar installations

3000
Installed capacity (MW)

2583
2500 2227
2099
2000
1586
1500 1231 1273
1043 1112 1036 1011
1000 800 792
494
500 246 372 304

0
2010 2011 2012 2013 2014 2015 2016 2017

Residential Non-Residential

Business models

Until 2006, the US solar market was service’: selling, installing, financing capex on the installations, so that the
mainly driven by utility scale projects; and maintaining the solar system for customers are not burdened with upfront
however, by 2015, the residential solar customers. The new residential solar cash payments. PACE households then
PV grew to capture about one-third of the business model influenced households repay the bonds, which are secured by
total installed capacity in the country. The as well. Solar leasing and loan products the home, via annual tax assessments
major contributors to growth included the allowed a higher number of Americans over approximately 15 years. Unlike other
fall in hardware costs, including the panel to become ‘prosumers’ of electricity— forms of financing, PACE has one major
and inverter cost decline by over 60% on producing, consuming, and reselling constraint: it is limited to municipalities
a per watt basis since 2010. electricity to the grid. with programmes in place.
Considering the solar system cost on a Four primary financial contracts were
per watt basis, the average residential used: 3. Lease
solar prices ranged at around 3.70 USD
1. Loans Under this model, the EPC contractor
during 2014–2015. Approximately two-
enters into a standard 20-year lease
thirds of this per watt cost includes the Under this model, the solar provider agreement with the customer and, in
cost of installation, while the remaining (engineering procurement construction turn, provides the solar panels and
one-third constitutes sales as well as [EPC] contractor) grants a loan to complete system. The household thus
general and administrative costs. Given homeowners, thus allowing them to agrees to a fixed USD/kWh payment
the average household income of 53,657 purchase the solar system and make which is less than the previous utility bill.
USD of Americans in 2014, rooftop solar interest payments to the EPC contractor The differential in the utility bill using
systems fell beyond the reach of most until the loan maturity tenure. The solar and without solar makes the value
people. Hence, a model similar to the debt product can, however, involve an proposition for the household with the
one in the auto market was considered. annual escalator. added incentive of no upfront payment.
The residential solar providers created
third-party owned financing models to
attract customers. With ‘no money down’ 2. Property Assessed Clean 4. PPA
contracts and low initial rates, households Energy (PACE)
This model is quite similar to the leasing
faced fewer barriers to accessing what PACE finance is similar to the home equity model with the difference that PPA
companies believe to be residential loan wherein PACE customers receive holders enter into a contract to buy the
solar’s long-term value proposition. solar installations, while municipalities solar system’s power at a predetermined
They became providers of ‘solar-as-a- structure municipal bonds to repay the USD/kWh rate.

13
Typical business model for US solar residential systems – lease/PPA

• Investment tax credit (ITC)

• Modified accelerated cost
Recovery system (MACRS)
US government
and IRS

Investor-
Solar No upfront cost Solar rooftop Electricity owned utility
provider (EPC
Monthly O&M system meter and distribution
contractor)
grid

Tax equity
investors Monthly lease payment with annual
escalation for average 20-year lease term • Net energy metering (NEM)
Public Utilities
Value proposition credits and regulations
Commission
(solar+ utility bill < standard utility bill) State subsidies (e.g. Solar
and state
Renewable Energy Credits
government
[SRECs])

In the lease model, three primary

Host-owned model
incentives and cash flows are:
• Lease payments from household
(rooftop system beneficiary) to the Installation fee Build project
EPC
solar installer/provider,
contractor/
• State credits for the electricity installer
produced, and
• Federal government tax credits (ITC
and MACRs) and investors in them:
Rooftop
-- Investment tax credit (ITC): ITC System/roof Tax incentives/electricity project
involves a 30% reduction in the income owner (distributed
tax payable by the individual or firm Prevailing electricity rates solar)
seeking the credit until 2019 and then a
gradual step down to 10% by 2023.
-- Modified accelerated cost recovery
Excess electricity units
system (MACRS): It is a form of federal
through net metering
subsidy allowing the companies to Utility
depreciate rooftop solar assets over five
years and deduct up to 85% of the cost.
Based on system ownership, the three
types of business models prevalent are: Thus, to overcome this disadvantage of portfolio and offer competitive returns.
huge upfront capital investment by the This model has been quite prevalent
• Host-owned model: This is the
customer and ownership for the operation in the US market as the solar leases
most common ownership model
and maintenance of the system, various and PPAs available have favourable
followed for rooftop solar projects.
other business models are preferred for interconnection and net metering
In this model, the rooftop solar
residential distributed solar. policies; legal and regulatory clarity
system is owned by the roof owner
for third-party solar ownership models
and the electricity produced from • Third-party ownership: In this
and local financial incentives have also
the system is mainly used by the model, a third party owns the system
favoured growth in the US.
owner, and the excess electricity on the customer premises/roof and
produced is sent back to the grid for offers the benefits of solar generation • Community ownership: In this model,
which the owner receives the credit. to the customer through a 10–25 year multiple customers own a single rooftop
This model, however, has certain lease or PPA arrangement. In this PPA PV system and share the benefits of
disadvantages, including high upfront arrangement, the customer agrees solar generation. This model helps
and maintenance cost, risk of poor to pay a fixed per unit charge for the multiple consumers gain the benefit of
performance depending on the electricity used. Hence, the amount PV installation, especially customers
quality used by the EPC contractor paid varies monthly as a function of who face challenges of roof ownership
and transaction cost associated power generation. The main advantage rights (e.g. tenants) or customers with
with grid interconnection. of this system is that the third party high rise buildings (roof ownership
can pool in multiple projects (PPAs/ access/building constraints of
leases) to attract a larger project shadow free area).

14 PwC
Third-party ownership model

Installation and O&M Project Electricity supply

Lender 1
portfolio

Special Lease/PPA payments

Beneficiary/
purpose
host
vehicle
Prevailing electricity rates

Lender 2 Utility
Excess electricity units
through net metering

Financing instruments

The initial cost of a solar PV system Third-party ownership model Utility-sponsored model
acts as a barrier for deployment. In
The developer finances, owns and In this model, the utilities find a
order to overcome this barrier, the
operates the cost of the rooftop under source of finance on behalf of their
following financing mechanisms are
two main categories: customers through:
practiced in the US.
On bill financing:
Financing through Solar leasing model
government/utilities This is an instrument through which
The building owner pays monthly
renewable energy projects are paid for
instalments to the third-party rooftop
The government and utilities can play a by utility customers on their monthly
owner (‘developer’) as he leases the
significant role in the advancement of electricity bills. Utilities take advantage
system through a long-term contract,
rooftop solar PV. Quite a few municipalities of the fact that they can obtain lower
while the cost of the system is borne
in the US have initiated programmes to interest loans than consumers, and in
by the developer. The building owner
allow for affordability of rooftop PV projects turn make available the finance they
consumes electricity at a price that
through provision of financial incentives have obtained through to commercial,
is at times lower than what he would
such as low interest loans, rebates, subsidies residential and community projects in
pay to the utility. This model has been
or the creation of alternative ownership the form of a loan. This loan is in turn
predominant in the development of
structures like shareholding structures repaid to the utility as a line item on the
the US solar market.
in solar farms. Some of these initiatives monthly electricity bill.
are outlined below: Solar power purchase model (PPA):
Utility-owned distributed solar:
In this model, the consumers buy
PACE programmes The utility installs, owns and operates
generated electricity from a third-party
As mentioned earlier, PACE acts as a the rooftop systems. These systems can
developer through a price decided
municipal financing mechanism through be installed on leased commercial and
in the contract per kWh, typically for
which property owners receive 100% public properties within the utility’s
10–20 years. The developer installs,
financing in the form of loans for their service territory. This model saves
owns and operates the system. Any
renewable energy projects through the on the transaction cost of payments
excess electricity can be sold to the
municipality. This loan is repaid through through utility bills.
utility. This results in the reduction or
property tax bills. Municipalities collect elimination of the upfront cost of the
this funding from local people through system, allowing those with less income Volume purchasing
the issuance of green bonds. to afford rooftop systems.
Rooftop owners interested in solar
Municipal bond-PPA model (the panels can get together in educational
Morris model) workshops as a group and the high
As per this model, bonds with low upfront costs can be overcome through
interest rates are issued by the bulk purchase of systems. This model
government in order to raise funds. also decreases cost when combined with
The proceeds are then handed over to government incentives. Also, system
a project developer in exchange for an owners can offer discounts as they
attractive lease purchase agreement. The save on marketing costs.
developer can then sell the electricity
through a PPA to the DISCOM.

15
 Key challenges

Some of the challenges faced by the

country during its growth phase were:
Lack of state support Ownership of RECs Real estate barriers
In a federal system like the US, states RECs are the environmental (non power) Almost one-third of all American houses
hold the power to regulate renewable attributes of renewable generation. are rented, and an average family shifts
energy growth. The lack of mandatory RECs allow these attributes to be its home 11 times, which becomes
RPSs in several states with a large unbundled or sold separately from the a challenge in justifying the 25-year
rooftop PV potential has impeded the associated energy commodity. REC investment in solar PV. Rented homes
growth of the industry. ownership has emerged as a critical and multiple tenant homes have little
policy and economic issue for distributed incentive to adopt rooftop solar projects.
Third-party arrangements generation system owners, utilities
and regulators, especially in the wake Outdated regulations
Several states have specified that third- of the widespread state adoption of
party arrangements are not considered RPSs in recent years. Several states follow outdated grid codes
as utilities by their state regulatory and regulations which were drafted
agencies and are therefore not subject Soft costs when there were no safe provisions to
to regulation. Most net metering rules feed power safely back to the grid. In the
did not address this issue, which led to Activities such as permitting, financing absence of RPSs, these regulations are
the creation of contracting ambiguities. and customer acquisition drive up ‘soft interpreted arbitrarily by utilities with
Further, third-party ownership is not costs’ to the point where non-hardware an inherent conflict of interest due to the
allowed in several states, thus creating costs make up an unreasonable portion loss of revenue from the distributed solar
barriers to leasing models. of total costs in the US, especially for projects. Often, this leads to rejection,
rooftop systems. The DOE reported lengthy delays and arbitrary high costs
Influence of traditional that soft costs make up more than half for applications by investors.
energy sources the price of installed solar power, with
residential solar bearing the largest Other considerations
The coal industry and power utilities, burden of these expenses. The soft costs
whose revenues were threatened by associated with customer acquisition are Many districts and states have historical
captive solar power, are formidable and higher than those of large-scale projects preservation guidelines which require
had a significant influence in slowing due to the distributed nature and many neighbourhoods to install
down the growth of distributed solar. small size of the projects. solar panels in ways that cannot be
seen from streets. This reduces the
available roof space.

However, these challenges were

managed by the country to
reach GW scale installation in
distributed generation.
The US solar market which grew by a
record high level of around 15 GW in
2016, fell to around 10 GW in 2017 and
is further expected to remain stagnant
with the major contribution from the
increased (30%) tax on imported solar
panels. The impact of this move is
expected to be seen during the period
2018–22. The forecasts conducted
estimate a dip of 13% in the overall solar
deployment in the country. Although
the major impact of increased duties
on imported modules is expected to
be on large-scale utility installations,
residential and non-residential
deployment shall also be affected
by this increased system cost.

16 PwC
Germany
Over the past 10 years, Germany’s In 2010, legislative support was passed Solar power in Germany consists
renewable energy sector has grown more that aimed to lower greenhouse gas mainly of PV and constituted 7% of the
than threefold and the country is now (GHG) emissions to 80–95% by 2050 net electricity generated in December
an undisputable leader in renewables in (relative to 1990). To achieve this, the 2017. The country is one of the largest
Europe and globally. The current energy Energiewende (the transitional move generators of solar PV power in the
mix comprises around 50% of renewable by Germany towards low-carbon, world, with around 43.4 GW installed
energy capacity, with small-scale PV reliable, affordable and environmentally capacity as on April 2018. Renewable
at this time representing around 15% sound energy supply) programme was energy accounted for 39% of net
and expected to grow further due to started for complete elimination of electricity consumption in 2017. A study
the decrease in solar prices. electricity generation through nuclear shows that on sunny weekdays, PV power
and petroleum fuels. The targets in the country can cover 35% of the
were established to switch to 35% short-term electricity demand that can
renewable energy by 2020, 40% by rise to 50% on weekends and holidays.
2025 and 60% by 2050.

Annual share of solar and renewable energy

41.9
45 38.2
Renewable Energy Share %

40 33.4 33.6
35 29.5
25.9 27.3
30 23.2
25 18.3 19
20 15.4 16.1
11.1 12.4
15 10.3
8.6 8.3
5.7 6.7 7 6.9 7 5.6
10 3.8 4.9
0.8 1.3 2.2
5 0.2 0.4 0.6
0 0.1 0.1
0
8
02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 -1
20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 ay
M

Renewable Solar Share

Germany’s solar power growth curve has been quite volatile. Solar PV growth
accelerated in 2010 until 2012, mainly due to a rapid fall in solar PV module
prices. The annual installed capacity reached a record high of 7.6 GW in 2012, but
the growth fell to 1.2 GW in 2014 due to the subsidy degression that significantly
affected solar growth in the country.

Solar installed capacity

50.0 43.4
43.0
45.0 39.2 40.7
36.7 37.9
40.0
Solar PV Capacity (GW)

33.0
35.0
30.0 25.4
25.0
18.0
20.0
15.0 10.6
6.1 7.4 7.4 7.6
10.0 4.2
2.1 2.9 3.7
5.0 1.1 4.5 1.2 1.3 1.5 2.3
1.0 2.0 0.4
0.7 0.8 1.3
0.0
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Apr-18

Annual Cumulative

17
 Market evolution
Market evolution in Germany

Electricity Feed-In 100,000 Roofs First Country (along SunShot New installations started
law- StrEG Programme with Japan) to reach 1 Initiative declining due to stricter
GW installed capacity government policies

1991 1991-95 1999-2003 2000 2004 2008-2009 2010 2012 2013 2014 2017

Amendments and Revisions of EEG Amendments and

Revisions of EEG

1,000 Roofs EEG-Renewable Energy New York Sun

Programme- Grant Source Act- FiT Initiative

1991 1991-95 2000

The Electricity Feed-in Law The 1,000 Roofs Programme supported A key programme under Energiewende,
(Stromeinseisungsgesetz [StrEG]) the installation or extension of the Renewable Energy Sources
introduced the first FiT in Germany. PV systems larger than 1 kW. The Act (EEG) governs the promotion of
However, the initial FiT rates fixed programme offered reasonable project renewable energy to achieve its target
were 90% of the retail electricity rates financing terms like loans with an of 60% clean energy by 2050. The EEG
(~8.45–8.84 EUR cent/kWh). This interest rate of 4.5% below market was passed as a legislation in 2009 and
rate was not low enough to attract conditions, repayment period of 10 years has subsequently undergone multiple
huge deployment; however, additional and two years of deferred payments. The revisions in 2012, 2014 and 2017.
incentives in terms of rebates equal to projects were financed up to 100% of the The EEG was a tremendous success
70% of system cost and low-interest cost with a maximum limit of 5,00,000 in achieving its goals for renewable
financing attracted modest market EUR. For installations smaller than 5 kW, energy penetration in the country and
growth during the decade. Hence, by the the loans were limited to 6,750 EUR/kW stipulated FiTs that provided clarity to
end of 1999, 67 MW of PV was installed. and for installations larger than 5 kW, investors and at the same time provided
In 1991, the Electricity Feed-in Law the loans were limited to 3,375 EUR/kW. a mechanism to apportion costs to
ensured grid access to the electricity electricity users, in order to ensure
generated through renewable energy. 1999–2003 stability in payment mechanisms.
It also obliged utilities operating in
the public grid to buy the electricity The 100,000 Roofs Programme was
generated from renewables at higher launched in 1999, as an extension of
FiTs. The entire burden was borne by the the 1,000 Roofs Programme and aimed
electricity supplier and its customers. to stimulate the installation of 100,000
Solar and wind power plants received grid-connected PV systems totalling
the highest remuneration, followed by to 300 MWp within six years. The
small hydro power, biomass and biogas programme supported the installation of
plants. In 1996, due to liberalisation PV systems larger than 1 kW and for this,
of power markets and phasing out of loans were offered at an interest rate
cold levy, the premium prices stared to of 4.5% with a repayment period of 10
decline. Since, the law had put a burden years and 2 years of deferred payments.
on utilities, the law was amended in The programme was launched with
1998 by introducing a ‘double cap’, various incentives, some of which were
thus limiting the amount of renewable reduced interest rate of up to 0% for
energy. Regional and preliminary PV systems, waiver of last instalment of
electricity suppliers were thus bound to up to 12.5%of the investment, etc. The
purchase maximum of 5% of renewable programme corresponded to a subsidy of
energy of their total energy supply, thus around 35% of the project cost.
leading to a cap of total 10%. While the programme stimulated the
market in 1999, only 8.9 MWp (~3,522
PV systems) was financed as compared
to the planned capacity addition of
18MWp. It was realised that a subsidy
of 35% was not attractive enough
to attract demand and at the same
time, banks showed little interest in
promoting this programme.

18 PwC
The law is the basis for Germany’s
EEG model
Energiewende and specifies two things:
• Priority dispatch for renewable power
• Floor price for electricity generated
from renewable sources Government

Under the EEG, owners of solar arrays

are guaranteed access to the grid.
The standard contract for FiTs signed Provides access to Grid and sets FiT
with the utility ranged to an easy-to-
understand two-page document. The
Renewable Renewable &
FiTs are guaranteed for 20 years, which
Electricity Conventional Electricity
is unusually long for PPAs. Renewable
Electricity
Energy Utility
Consumer
Producer Feed in Tariff Electricity rate +
FiT Surcharge

The law introduced national rates 2003 EEG timeline

that approximated the generation cost
The EEG rates were revised to 46–62 Renewable Energy Sources Act, 2010
of PV systems and was found more
effective than the incentive/subsidy EUR cents/kWh in 2003 which FiT was introduced for rooftop solar and
linkages offered. This generation cost accelerated the market growth, with utility-scale PV projects, leading to an
method was beneficial as it helped to cumulative capacity expanding to increase in the solar capacity. The key
set a target internal rate of return (IRR) 5,979 MW by the end of 2008 (average features of EEG 2010 are listed below:
which decreased the risk and provided annual capacity addition of ~ 1,100
MW). The revised EEG also supported • Providing priority access to renewable
investors with a high level of certainty. In
the PV market growth by removing energy in the power grid
Germany, the target IRR proposed was
5–7%. The first EEG established a rate of the 1,000-MW programme cap as • Obligation of grid operators to
0.99DM/kWh (~0.51 EUR cent/kWh) well as the cap on system size. This purchase the electricity produced from
for solar PV starting in 2001. With this amendment in EEG thus created the renewable energy
law, combined with the 100,000 Roofs first uncapped PV market in the world.
The annual degression was set at 5% • Fixed price (‘tariff’) for every kilowatt
Programme, a cumulative capacity of
for all systems, except for free-standing hour of energy produced from
~435 MW was installed by 2003.
systems which decreased annually at renewable energy for 20 years
Thus, the resulting high level of around 6.5% starting in 2006. • All different types of renewable
investment security and lack of red tape
sources are considered and tariffs
are assumed to be the major reasons for
2009 are differentiated by source and size
the success of EEG in bringing down the
of the plant
cost of renewables. Without the EEG, The final amendment in EEG in 2009
renewable energy projects in Germany removed FiT rates for integrated EEG 2010 rooftop solar FiT
would have had to find a buyer for that PV; however, a ‘self-consumption’
electricity as most utilities would have incentive with a fixed tariff 0f 25.01
rejected the offer due to conflict with EUR cents/kWh was introduced. Capacity FIT (Eur Cents/KWh)
the third-party investments in their
existing assets. The EEG thus opened up Up to 30 kW 39.14*
the power market to newcomers who Up to 100 kW 37.23*
believed they could make solar work.
Up to 1 MW 35.23*

• Degression of 10–9% /annum on tariff

• Additional reduction of 5% per month
on FiT, applicable if the installed
capacity exceeds the corridor of
2.5–3.5 GW

19
Renewable Energy Sources Act, 2012 • Larger management premium means
higher market premium.
It preserves the EEG 2010 framework
and adds the option for generators • Market premium will be zero if
to sell the power into the wholesale wholesale electricity prices are
energy market. It has set a target of high enough.
35% renewables by 2020 (already
achieved in 2018). Renewable Energy Sources Act, 2014
• Market premium payment: This act requires operators of a new
Encourages direct sale of electricity plant to market their electricity
in the spot market through a market themselves in return for market premium
premium payment. from the grid operator to compensate
for the difference between the fixed
• Market premium = (FIT – [average
EEG payment and average spot price
monthly wholesale price –
for electricity.
management premium])
• Management premium is the additional Renewable Energy Sources Act, 2017
cost for generators to participate in the
EEG 2017 specifies a fixed expansion • New PV systems over 750 kWp
whole sale market.
corridor for renewable energy as a are required to partake in calls for
share of gross electricity consumption, tender and may not be used for self-
Management premium cost
attempting to both support and restrict production. The last licensing round
the growth in PV capacity. of the Federal Network Agency in
Year Management premium
• For systems above a certain nominal September 2017 set a mean value of
2012 1.2 power (ca. 10 kW), self-consumed PV 4.91 EUR cents/kWh.
energy is subjected to an EEG levy. • Numerous other regulations
2013 1.00
• New PV systems up to 100 kWp receive exist regarding potential areas
2014 0.85 a fixed feed-in tariff. for installations, the capability of
remote power control and power
• New PV systems between 100 and
2015 0.70 reduction, among others.
750 kWp must sell their energy by
direct marketing.

Target market

In 2000, the Government of Germany FiT Programme for solar PV projects

launched a massive ratepayer-subsidised
The FiT programme for rooftop solar and for the residential segment from
campaign aimed at generating affordable
utility projects was an important catalyst 49.2 EUR cents/kWh in 2007 to
electricity using solar energy. Since
for propelling solar market growth in 12.32 EUR cents/kWh in 2017.
the costs of solar equipment were high
Germany. The rates where fixed under
compared to retail electricity prices Under net metering, which was
EEG 2009 and were subsequently
at that time, the German government introduced through an amendment
modified under EEG 2012, 2014 and
has set higher FiTs when compared to EEG in 2009, customers received
2017. Under EEG 2017, FiT for projects
to the retail electricity price to attract energy credits in their electricity bills,
above 700 KW was replaced by an
investment in the solar industry. As i.e. the excess electricity generated
auction-based mechanism as proposed
the flow of investments for solar PV from the solar systems was fed back
under EEG 2014.
installations started increasing, the PV into the grid and was settled at the
equipment costs started to decrease. FiTs were designed by the German retail electricity rate. However, in 2013,
government to meet the pre-planned customers received a reduced FiT rate of
capacity addition targets. However, 17.02 EUR cents/kWh, while the retail
similar to most of the subsidy schemes, electricity rate was 25 EUR cents/kWh.
they were phased out slowly over This led to a significant fall in new solar
time, offering a lower price per kWh. installations in the country.
This led to a significant fall in FiT

20 PwC
FiT trend in Germany

8.00 60
49.2

FiT rates (Euro cent/kWh)

46.75
50
PV Capacity (GW)

43.01
6.00
39.14 40
28.74
4.00 30
24.43
17.02 13.68 12.56 12.31 12.31 20
2.00
10

- 0
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

PV Capacity (GW) FIT rates (Eur cent/KWh)

Digression6
EEG 2017 has an annual target of Residential sector
2,500 MW per annum for solar
The cost of electricity from residential increased from 4% in 2010 to around
power. A digression rate of 0.5% may
rooftop solar PV is falling rapidly. In just 13% in 2016, thus increasing the
be considered every month.7 It can
over six years, the costs have fallen by viability of larger systems of 5–10kW
be increased to 2.8% if the actual
almost 64% in German cities. The cost against small-scale solar systems of
development surpasses the digression
levels had also varied for small solar less than 5 kW. The trend of average
rate. In case the development of solar
systems with the capacity of less than residential solar system costs over the
power is not able to meet the targets,
5 kW and for solar systems with the period of six years starting from 2010 for
then the digression rate is reduced and
size range of 5–10 kW. The differential both small and large-scale rooftop solar
in extreme cases, the tariff rate will even
between the two capacity categories, system is shown below (Figure 25).
be increased by up to 3%.

Residential PV system cost in Germany

5
4.5 Average Residential PV system cost in Germany
4.5 4.34
3.95 upto 5 kW system
4
3.66
5-10 kW system
Residential PV cost (USD/W)

3.5

3 2.7
2.44 2.29
2.5 2.2
2.12
2 1.8
2 1.79
1.56 1.55
1.5

0.5

0
2010 2011 2012 2013 2014 2015 2016

6 For most technologies, the tariff levels will decrease over regular periods of time. New plants will receive the tariff level applicable on the day they
are put into operation. This tariff level will apply for the entire payment period, i.e. the life of the project. For some technologies, the percentages
by which the tariff levels will decrease are set by law and are not subject to change. For other technologies, the percentage by which the tariff
levels will decrease depends on the amount of newly installed capacity.
7 Section 49, EEG, 2017

21
 Business models
Market premium model or self- FiT
consumption model
The FiT programme for rooftop solar By using this model, the tenants will be
The market premium model or self- and utility projects is the most important exempt from the wide range of charges
consumption model allowed the owners catalyst for propelling Germany as one such as FiT, electricity tax, surcharge
of rooftop solar PV systems to consume of the largest solar markets in the world. and fees that they would have to pay if
the electricity generated from their system The rates were fixed by EEG 2009 and electricity is purchased from the public
directly instead of injecting it into the grid. subsequently modified under EEG 2012, grid. The landlords also receive credit
2014 and 2017. Under EEG 2017, FiT funding for each unit of electricity supplied
Additionally, with the decrease in FiT
for projects above 700 kW was replaced to their tenants; thus, it is a win-win
rates, the small and large renewable
by an auction mechanism as proposed situation for both landlords and tenants.
energy generating companies started
under EEG 2014.
selling their electricity output directly to To increase the use of this model, the
the market. In return for the electricity government proposed to pay a premium
supplied, the producers got spot prices plus Landlord – tenant electricity supply to the landlords for supplying electricity
the market premium instead of FiT rates. In this case, the electricity is generated to their tenants. The premium is set
by installation of rooftop solar plants on somewhere between 2.2 US cents/kWh
Market premium = FiT – spot market price
a residential building and the electricity to 3.8 US cents/kWh and is calculated on
Market premium is calculated monthly generated is passed on to consumers the basis of the size of the solar installation
as the difference in nominal FiT and (tenants) living in the building or and the national PV expansion rate. To
technology-specific volume weighted in nearby residential buildings. The ensure that the costs for the new funding
average the spot market price in that electricity generated is also supplied system will be kept low, the volume of
month. The solar volume weighted to run the ancillary facilities located in solar electricity that can be added per year
average price is slightly higher in the close proximity to this building. Thus, for which landlords can receive a premium
afternoon than the plain average spot consumers get electricity from the was proposed to be capped at 500 MW.
price in the afternoon. In general, rooftop project installed and not through
all the producers generating energy the public grid. In case there is surplus
from similar sources receive a price electricity, it is fed to the public grid.
corresponding to the nominal FiT.
Depending on the individual producer- Landlord model
specific feed in profile, he will receive
a price that is higher or lower than
the group average. Rooftop
The main objectives of this model are: Solar Plant
Solar Electricity fed over a
• The renewable energy generators to metering Device Building
should familiarise themselves with
wholesale market workings in terms of
volume and price forecasting, exchange
trading, etc., so that they can integrate Electricity
with conventional generation easily. consumed
Tenants
Surplus Electricity by tenants
Metering Consuming
• It provides an incentive to control Grid
Device 1 Rooftop solar
the dispatching of renewable Electricity
energy at peak loads only.

Electricity Tenants
Conventional and Renewable consumed within same
Electricity supplied from Grid Metering by tenants building
Device 2 purchasing
electricity
from Grid

22 PwC
 Financing instruments
Modes of financing

Key mechanisms Players involved Description Financing mechanism

Market premium Plant operator, grid The plant operator sells his electricity directly, i.e. Premium surcharge is financed through
surcharge operator to a third party, by a supply agreement or at the a tax and thus is finally borne by the
stock market, and claims the so-called market consumers.
premium from the grid operator.

Loans Multilateral institutions, More than 50% of new capacities for electricity KfW provides refinance loans to retail
retail banks, consumers production from renewables in Germany are banks, who in turn provide loans to
financed by KfW. consumers. It banks on the retail banks
to cover any margins for credit risk and
handling issues.

Subsidy Multilateral institutions, Provided by KfW 30 million EUR in 2017

plant operators

Leasing of Utility/or a company Utility or private company invests in plant to be Bank loan or equity
rooftop system leased

Crowd investing Crowdfunding platform, • Investors become shareholders

plant operator • In most cases, subordinated loans
(a mezzanine instrument with no
collateral requirement)

Key challenges
Some of the challenges faced by • The exemption of residential PV • As the grid system in Germany was
the country in the deployment of systems deriving commercial revenue already strong, it was able to absorb
distributed generation are: through FiT from the requirement to a large amount of renewable energy
obtain planning permission does not with minimal modification. However,
• It was a challenge to obtain bank credit
cover the possible change of use of large-scale changes will be required
in the case of rooftop systems. To cover
non-commercial buildings. PV systems going forward to achieve the goals of
this financing gap, crowd investing
not registered as a trade and not in Energiewende. Germany expects to
came up as an alternative instrument
possession of a licence or an exemption invest 18 billion EUR over the next 5–8
where subordinated loans are used
from building authorities thus violate, years to update and expand the grid
and no collateral is required. This has
in part, both the trade law and infrastructure, both for transmission
become quite popular in recent years.
the building code. lines and distribution grids, as well as
• The individual plants were too small for smart metering and technologies
• The FiT scheme, while successful in
to efficiently and directly market to support advanced strategies such
creating a huge demand and driving
energy. Further, the roll-out faced as virtual power plants. This will be
down prices worldwide, has been
inexperience of many small generators funded through grid fees, which all
challenged as a drain on public
with trading/energy exchange. German utility customers (commercial
finance. The levy (reallocation charge)
For these reasons, independent and industrial included) pay for on
on conventional power to finance
power traders had to operate as their utility bill, further increasing
FiT has led to a surge in power prices
intermediaries between generating the risks of public pressure to scale
for all households. Poor households
companies and the market. Network back the programme.
without PV rooftop will be negatively
operators are required to sell the
impacted by the increased power cost. Thus, the learnings from countries which
electricity fed in by small generators
Exceptions for trade-sensitive and have successfully deployed rooftop solar
on the electricity spot market.
energy-sensitive industries from FiT PV shall be useful in the Indian context
levy imply that the burden was passed based on the Indian market scenario.
on to ordinary households. Although the challenges faced by each
country are quite different and specific
to it, some of the challenges on the
regulatory and technical front can be
considered to avoid certain challenges
that India would face with the large-
scale deployment of rooftop solar PV.

23
India
India is a growing economy with total
Energy mix
installed power capacity of 343.88 GW
(as on June 2018). This installed capacity Energy Mix, Mar'18
is dominated by energy from fossil fuels,
followed by the share from renewable
sources, nuclear, hydro, diesel and gas. Renewables, 20%
Of the total installed capacity, renewable
energy accounts for 69GW9 (as of June
2018) which is approximately 20% of
the total installed capacity. The energy Coal, 57%
Hydro, 13%
from renewable sources has grown at
a CAGR of 15% from FY14 to FY18,
while the contribution of conventional Nuclear, 2%
energy sources is decreasing at around
Diesel, 0.2%
4% Y-o-Y. The renewable energy
sector is expected to grow further in Gas, 7%
the coming years because of a shift
in the government’s focus to meet
the demand from renewable energy Energy Mix, Mar'18
rather than from conventional energy
sources. Currently, wind is the major
Solar, 31%
contributor to renewable energy sources;
however, solar is expected to overtake
wind by 2020.
Wind, 49%
Power generated from solar projects has
a share of 32% (~23 GW) of the total Waste to power, 0.2%
renewable energy capacity in India and
the installed capacity has grown from
a mere 10 MW in 2010 to 23,022 MW Biomass, 13%
in 2018 (as of June 2018). The capacity
addition of rooftop solar has yet not
seen significant growth, contributing Small hydro, 6%
only around 6% to the total solar energy
mix. However, with the availability of Government/public
Ground Mount, 95%
better project financing rates and decline sector, 16%
in module/system costs, rooftop solar
is expected to make huge additions in Residential, 20%
coming years and thereby achieve the
target of 40GW by 2022.

Rooftop, 5%
Industrial, 43%

8 http://www.cea.nic.in/reports/monthly/
installedcapacity/2018/installed_capacity-06.pdf
9 https://www.mnre.gov.in/physical-progress- Commercial,
, 21%
achievements

24 PwC
 Market evolution
The development of rooftop solar projects Gandhinagar (the capital city) as a ‘solar Various other programmes/schemes that
in India began with the introduction of city’. Though Karnataka, in parallel, also led to the growth of rooftop sector are
rooftop solar targets in Gujarat in 2009. launched the 25,000 roofs programme for summarised below:
Gujarat was one of the first states in India 5–10 kW rooftop systems, major success
to announce a solar policy and develop was seen only in the Gujarat programme.

Market evolution trend

20 GW solar 10,000 rooftop Delhi Proposed 100 GW solar KfW NDB offered Installed
power by programme- to implement target by 2022 offered loan to rooftop
2022 Kerala rent-a roof LoC to Canara Bank capacity-
programme IREDA 1063 MW

2010 2012 2014 2015 2016 2017 2018

IFC Rent-a-roof
investment in programme - Net IFC - 5 MW 12 MW rooftop OPEX model GCF offered
green Gujarat – PPP metering rooftops solar project - Punjab introduced in ADB offered LoC to
projects model introduced projects - BOO India LoC to PNB NABARD
model
IFC support to Bhavnagar, World Bank
Mehsana, Rajkot, and offered LoC
Surat - PPP model to SBI

2010
In order to promote solar power, the These two cases gave a push to the PPP support to the Government of Odisha for
Jawaharlal Nehru National Solar model for implementation in rooftop implementing a similar model.
Mission (JNNSM) was launched in 2010 solar PV. The model was well received
The framework of the PPP model
by Government of India. The government by other states of India like Odisha.
developed to support rooftop
set a target of 20 GW solar energy by The Gujarat Energy Research and
deployment is illustrated below:
2022. The target of this mission was Management Institute (GERMI) extended
to create conditions for boosting solar
installation in the country.
Gujarat PPP framework
Later during the year, Gujarat initiated
the ‘rent-a-roof’ programme. Under
this programme, supported by IFC,
Gujarat
private and government companies government
started to lease rooftop space on
residential rooftops and government
buildings. The operators received FiT Programme Generation-based incentive
of 11.21 INR (0.18 USD) for a 25-year implementation (bid tariff – FIT)
concession. The project was installed agreement
under the public private partnership
(PPP) model (the first of its kind in Investment – Power infusion from
rooftop solar). The model attracted capital cost Gujarat solar rooftop project
Project
private clients, with Azure and Rooftop Solar Utility
developers
SunEdison building a portfolio of 2.5 Returns – profits Program Incentive from power
MW each of rooftop projects with a 25- sold at bid tariff
year concession to install solar PV panels
on government and residential buildings. Rooftop lease Incentive at 3 INR/kWh
for 25 years (0.05 USD/kWh)
The programme started attracting
investments and in 2014, a similar model
was implemented in Vadodara for setting
up a 5-MW rooftop solar project based
on the PPP model. The project was Supply of
rooftops
awarded to Madhav Solar Pvt Ltd for a
25-year concessional loan and attracted
investment of 8 million USD.
Public Private

25
2012 2015-16 2016-18
Net metering was introduced in India Largest rooftop PV plant: In 2015, International line of credit to
in 2012 to facilitate the connection of Punjab commissioned a 7.5-MWp support rooftop deployment in
small renewable energy systems with the rooftop project on a single roof. Later, the country: The rooftop sector in
grid in order to provide an impetus to TATA Power Solar commissioned a 12- India is lagging behind in meeting the
residential rooftop installations. Under MW rooftop solar project in Amritsar annual installation targets set by the
the net metering scheme, the excess on a single roof under a gross metering Government of India. The major reason
power generated from the rooftop solar arrangement with a PPA signed with identified was the lack of low-cost
system is fed into the grid and the system Punjab State Power Corporation Limited financing in this area. Huge upfront
owner is credited against the units fed. (PSPCL) for 25 years. This project was cost and high-cost loans contributed
The major benefit of net metering was the largest solar rooftop project in the to the slow growth. However, for the
for customers, who would be required to world to be set up in a single phase. The past 2 years, rooftop solar has been
pay only the differential of the electricity project produces 150 lakh annual units able to gain scale with the availability
consumed and credited to the grid. of electricity and saves 19,000 tonnes of of international lines of credit from
carbon emissions each year. various multi- and bilateral institutions
2012–13 to support domestic banks. This has
2016 created developer and consumer interest
Rooftop programmes: Karnataka, in the rooftop solar sector and at the
under its solar programme, targeted Interest in the operational expenditure same time, the rooftop systems, with the
25,000 solar rooftops of 5–10 kW. In (OPEX) model: In order to support availability of concessional financing,
2013, Karnataka released a tender the growth of the rooftop solar market, have become financially viable for
worth 34 crores INR (5 million USD) the OPEX (Renewable Energy Service end consumers.
to set up 1.3 GW rooftop projects Company [RESCO]) model was
across 1,943 houses. introduced in parallel to the capital
expenditure (CAPEX) model. The benefit
of the OPEX model was that no upfront
Following this, Kerala also launched the
capital investment was demanded
10,000 rooftop power plants programme
unlike the CAPEX model. Under this
in 2012. Under this programme,
model, consumers pay monthly charges
each applicant was eligible to apply
based on the units consumed for setting
for a 1-kW project only and the state
up rooftop projects. However, the
government also offered a discount of
ownership rights of the system are held
39,000 INR (~580 USD) on project
by the installer (RESCO).
installation in addition to a 30% capital
subsidy offered by MNRE.

2015
Revision of solar targets: In 2015, Available lines of credit to support rooftop deployment
the Government of India revised the
JNNSM’s earlier target of 20 GW to 100
Year Lender Borrower Line of credit Programme objective
GW solar by 2022. This target of 100 GW
includes 40 GW from rooftop solar PV. In
2015 KfW IREDA 340 million To address the key barrier of financing
order to meet these revised targets, the USD in rooftop solar PV in India; IREDA
government announced other initiatives launched a loan financing scheme @
such as 30% capital subsidy on rooftop interest rates of 9.9–10.75% with 9-year
systems, achievement-linked subsidy repayment and a 1-year moratorium
scheme and accelerated depreciation
benefit to promote the growth. Later 2016 World Bank SBI 625 million Programme for results (PforR) to
on, these incentives and schemes were and CTF USD support government strategy for
enhancing and expanding its rooftop
revised based on the deployment and
solar development targets; expand and
sustainability of the market. incentivise the market for rooftop solar
by way of low-cost financing

2017 Asian PNB 500 million Finance-large scale rooftop solar

Development USD systems on industrial and commercial
Bank and buildings throughout India; contribute
CTF to the government’s plan to increase
solar power and meet carbon emission
reduction targets

2018 Green Tata 100 million First private sector facility to support the
Climate Fund Cleantech USD rooftop solar segment — commercial,
Capital industrial and residential housing
through sectors; the programme aims to provide
NABARD concessional loan assistance to rooftop
solar PV

26 PwC
The biggest push to rooftop deployment signed a 500 million USD agreement of any concessional funding support
shall, however, result from the with Punjab National Bank (PNB). Both and limited experience in the rooftop
availability of innovative and low-cost multilaterals will combine the share segment in India. However, with the
financing structures that can boost the of CTF received, with a specific focus availability of CTF money, the interest
scale of the sector. Banks play a very on the deployment of rooftop solar rates for lending project loans has been
crucial role in the development of this projects. In this scenario, the available reduced to 8.5–9.5% on a project-to-
sector by providing subsidised loans concessional financing from the CTF is project basis, offered by the banks
to developers and end users. One such adding significant value. Traditionally, receiving such concessional funding.
contribution has been extended by the banks were sanctioning loans to rooftop
The financial structure and the
Clean Technology Fund (CTF) supported developers at a rate of 10–12% and in
implementing agencies involved in
by other multilateral agencies like the some cases, the rate reached up to 14%
the current World Bank and ADB
World Bank and Asian Development depending on the credit rating of the
programme are illustrated below:
Bank (ADB). The World Bank signed borrower and the risks associated with
a 650 million USD agreement with the project. The banks were offering
the State Bank of India, while the ADB higher interest rates due to the absence

Schematic of concessional funding

Multilateral Commercial
Loans/ LoC agencies –
CTF enterprises
World Bank,
ADB

Public sector Concessional finance + Grant (small amount) Industrial

banks – SBI, units
PNB Government of India backed security

Solar
Loans Target markets SME
rooftop power
industries
developers/
aggregators

The above programmes are proposed to Distribution utilities are majorly

support the implementation of the grid- responsible for providing and operating
connected rooftop solar programme of grid power and the network and in turn
MNRE, with a major focus on mobilising manage the grid integration of rooftop
private sector equity investments and projects. Distribution Companies are also
commercial lending, thereby increasing responsible for providing timely approval
the deployment and uptake of rooftop on net metering and other regulatory
solar PV to achieve the Government of and technical clearances. To support the
India’s target of 40 GW by 2022. DISCOMs, the programme also plans
for their capacity building for efficient
MNRE, the lead ministry responsible for
management of grid integration of these
rooftop solar targets, is playing a major
variable rooftop projects.
role in providing overall policy guidance
and coordinating with the development States, on the other hand, are also
partners. The ministry will also ensure supporting the rooftop deployment
that the lessons from these programmes programme by announcing their
are internalised in other government- respective rooftop policies or targeting
supported initiatives. rooftop capacity addition in the solar/
renewable policy. Thus, state nodal
Banks (SBI and PNB) will be the
agencies (SNAs) play a major role in
implementing agency, lending loans to the
deploying the grid-connected rooftop
developers, customers, aggregators and
programme at the state level and at the
intermediaries that are qualified in terms
same time encouraging developers to
of technical capacity, relevant experience
install possible rooftop projects in the
and creditworthiness as per the respective
identified commercial and industrial
bank’s loan scheme document. This access,
locations. SNAs, in coordination with
available at low cost, will enable large-
central agencies, are also promoting
scale deployment of rooftop solar using
rooftop systems by identifying
different business models.
relevant government buildings for the
deployment of rooftop projects under
the MNRE subsidy scheme.

27
The rooftop solar market has majorly RESCO provides all necessary capital for to consumers in terms of no upfront
been driven by the CAPEX model installation, operation and maintenance capital and installation cost as well as
in which the consumer fully owns, of the rooftop system. In exchange for the elimination of operational risks and
finances and consumes the energy all services and risks, consumers sign management services. However, the only
generated from the PV system. The a PPA with the RESCO. This OPEX challenge to the current low growth of
consumer, in turn, is fully responsible model has started picking up pace as this OPEX model is the lack of low-cost
for all capital expenditures and bear all it is becoming one of the promising debt capital, which affects the ability of
risks of operations, management and solutions to address several barriers companies to advance it. The growth
maintenance. The other model which to scaling rooftop solar PV. This model of the OPEX model in the past six years
evolved lately is the OPEX model or is expected to dominate the rooftop is presented below:
third-party financing model in which a solar market, considering the benefits

Market share of CAPEX and OPEX model in India (rooftop solar)

3%
100%
6% 8% 11%
16%
29%
80%

60%

97% 94% 92% 89%

40% 84%
71%

20%

0%
2012 2013 2014 2015 2016 2017

CAPEX OPEX
Source: PwC analysis

28 PwC
 Target market
In India, the residential sector has been The percentage share of all segments in the rooftop sector is presented below:
highly subsidised and the system sizes
have been extremely small. This has Rooftop installed capacity share (India)
resulted in lower financial viability of
rooftop solar PV installations. However, Rooftop Installed Capacity share (Sep 2017)
analysing the commercial and industrial
(C&I) sector, the grid tariffs resulting
from cross-subsidy charges have been
Residential, 20% Industrial, 43%
increasing, encouraging C&I customers
to switch to rooftop solar PV and make
huge savings in their monthly electricity
bill. It is from this demand that the
identified nationalised banks (SBI
and PNB) are targeting to support C&I
customers in the deployment of rooftop
solar PV in India. Another positive factor
is the lack of government subsidy along
with the higher demand for rooftop as
compared to the residential sector. With
CTF money available at concessional Commercial, 21%
rates, the interest rates for project
financing are comparatively lower than
the traditional project financing terms
of other banks. Hence, the end user (the
C&I segment) gets the lowest possible
rooftop PV tariff/system cost which
enables them to make huge savings. Government/Public Sector, 16%

Depending upon the business model To compare the viability of rooftop solar Solar irradiation (greater than 5 kWh/
chosen, the end user gets the benefit systems with the grid tariffs, electricity m2/day), rooftop solar targets assigned
of low-cost financing. This benefit is tariffs for the past three years in all by MNRE (greater than 2000 MW until
further increased with the aggregator segments have been analysed for four 2022) and state interest in terms of policy
business model, where the banks Indian states that were selected based on and capacity installation.
disburse lump sum money to the the following criteria:
selected aggregator holding a portfolio
of projects. Developers/aggregators,
in turn, purchase bulk equipment at
reasonable rates, thereby providing the
most competitive rates/tariffs to the
end customer. This model, with CTF
money added, is gaining significant
scale in the country. However, analysis
in this regard has proved advantageous
to each stakeholder involved and
projects with this aggregator model
are being evaluated for disbursement
and execution by the respective banks
(SBI and PNB).
Additionally, the residential sector as
well as government buildings in India
is eligible for a subsidy arrangement
announced by the Government of
India. However, even with a 30%
capital subsidy for the residential sector
for rooftop installations, the highest
penetration has been seen in the C&I
segment, contributed to mainly by the
large system size (due to larger space
and higher demand) and the higher grid
tariffs. Thus, not just subsidy, demand,
penetration and project viability are also
major factors driving the sector growth.

29
Rooftop solar viability in various segments

Commercial
15
Tariff (Rs./kWh)

10

0
Karnataka Maharashtra Andhra Pradesh Tamil Nadu Gujarat Rajasthan MP

FY 15 FY 16 FY 17 Solar Tariff

Industrial
10

8
Tariff (Rs./kWh)

0
Karnataka Maharashtra Andhra Pradesh Tamil Nadu Gujarat Rajasthan MP

FY 15 FY 16 FY 17 Solar Tariff

Residential
7

6
Tariff (INR/kWh)

0
Karnataka Maharashtra Andhra Pradesh Tamil Nadu Gujarat Rajasthan MP

FY 15 FY 16 FY 17 Solar tariff

A comparison with all the major have fixed their grid tariff for certain demand for rooftop solar PV. However,
customer segments presents the most consumer categories for 3–5 years, solar certain gaps like project financing and
viable case for commercial consumers tariffs, which are expected to fall further, agreements with distribution companies
where the grid tariffs are quite high and remain competitive. Huge savings in need to be addressed to gain strong
are further expected to increase. Though electricity bills and contribution to the momentum in the sector.
most states like Tamil Nadu and Punjab green effect have led to widespread

30 PwC
 Key stakeholders
With the 40 GW target for rooftop nodal agencies, distribution utilities,
solar PV for 2022 and only around developers, banks and end consumers,
1GW on ground as of date, the various have to contribute to the deployment
stakeholders involved need to play a of rooftop solar PV. Some of the major
significant role in the scale-up plan. Each stakeholders that can contribute to
stakeholder, including policymakers, rooftop solar growth are listed below:

Key players in rooftop solar sector

Utilities
Policy Regulation Technical Funding Agency
Generation Transmission Distribution
Ministry of Power Central National Thermal Power Central Central Indian
Ministry of New and Electricity National Hydro Power Transmission Electricity Renewable
Central Level

Renewable Energy Regulatory Corporation (NHPC) Utility (CTU) Authority Energy

Commission Power Grid (CEA) Development
Solar Energy (CERC) Neyveli Lignite Corporation Corporation of Agency (IREDA)
Corporation of India (NLC)Corporation(NTPC) India Limited State Bank of
NTPC Vidyut Vyapar North Eastern Electric Power (PGCIL) India (SBI)
Nigam Ltd (NVVN) Corporation Limited (NEEPCo) Punjab National
Bank (PNB)

“State Energy State State Power Generation State State

Development Agency Electricity Company (GenCo) Transmission Distribution
State Level

(Nodal Agencies) Regulatory Utility (STU) Company

eg. Gujarat Energy Commission (DisCom)
Development Agency (SERC)
; Maharashtra Energy
Development Agency
“

“Independent Power Producers: “Independent “Private Private

ReNew Power Limited Transmission DisComs: Banks: Yes
Amplus Solar Service Tata Power Bank; Canara
Private Sector

Adani Solar Providers: Delhi Bank; other

CleanMax Solar Tata Power” Distribution multilaterals
Cleantech Solar Ltd.”
Hero Future Energies
Acme Cleantech
Tata Power Solar
IndiaBulls”

31
The roles and responsibilities of the various stakeholders responsible for
implementing rooftop solar PV projects in India are represented below:

Role of stakeholders in rooftop solar deployment

Role of Stakeholders

Banks/ Financial Institutions Distribution Companies Policy Makers- Central Govt.

• Providing subsidized project financing/ • Provide clarity on permitting provisions, • Defined policy and yearly plans for
lending terms safety provisions, interconnection achievement of targets
• Supporting new and existing business provisions, clearances, etc. • Timely release of subsidy for rooftop
models • Timey closure of approvals for net- projects
• Identifying customers/ developers metering arrangement/ No-Objection • Support in timely closure of projects with
(aggregators) to promote deployment Certificate for rooftop projects grant of timely approvals/ clearances
of rooftop solar

Rooftop Developers End Consumer State Nodal Agencies

• Efficient means of Engineering, Procurement • Identify the benefits/ need for solar rooftop • Release of state tenders to invite interest
and Construction of rooftop projects projects, considering the savings model of developers/ end consumers
• Sustainable and most competitive tariffs, to • Support in achievement of National • Strict penalty on non-compliance of
promote deployment Targets for rooftop PV Renewable Purchase Obligations
• Targeting end consumer, promote scalable • Sign PPA with the government buildings
business models

Each stakeholder has his own roles that are quite critical for the deployment of
rooftop solar PV in India. However, at this stage, each stakeholder has a set of
concerns and these need to be addressed either through capacity building or training
programmes to get a full scale up.

Key challenges
India’s path to achieve 4 0GW from of incentives, policy and regulatory 40-GW target by 2022, various gaps need
rooftop solar installations by 2022 framework, etc. With these efforts, a to be addressed at each stakeholder level
has seen considerable efforts from the basic framework exists in all parts of the to attain exponential growth in the sector.
government, regulatory commissions country and growth has been seen in the
and other concerned agencies in terms rooftop market. However, to achieve the

The figure below maps out the challenges faced by each stakeholder on the path of
rooftop solar deployment in the country.

Solar rooftop challenges

DISCOM Developers

• Lack of capacity building on rooftop • Limited availability of low cost project financing
systems- DisComs view of losing revenue • Credit rating of customers/payment security
from customers
• Availability of feasible roofs for project
• Lack of single window facility for project installations
clearances
• Delay in subsidy; affecting project financials
• Limited technical expertise on grid
integration of small scale rooftop systems
Rooftop
challenges End consumer
Financial institutions across
stakeholders • Subsidy delays
• Availability of collaterals • Delay in project clearances
• Credit rating of customer/Payment insecurity • Lack of availability of low cost systems
• Challenge in rooftop rights of individuals with poor quality; hence quality /system
performance marks a challenge
• Non-availability of secondary market
• Small size; high cost of financing
• Lack of standard PPAs- deemed generation Regulatory bodies
missing in most PPAs
• Gaps in Net Metering regulations
• Non-Compliance of RPO by eligible entities

32 PwC
The challenges in the rooftop segment can be classified as follows:

Financial challenges Technical challenges Commercial challenges

One of the biggest challenges for the Since rooftop solar projects are quite Though non-availability of FiT in rooftop
slow deployment of rooftop solar PV small in size compared to large utility- projects has helped bring down the
in India is the limited availability of scale projects, grid integration of these tariffs, a competitive mechanism, on the
financing. Rooftop projects, being variable solar projects is a challenge other hand, actually poses a bigger risk
smaller in size compared to utility-scale faced by most distribution utilities. For to large and serious players. With limited
projects, banks/financial institutions face this, most multilateral and bilateral eligibility criteria in bid proposals, most
significant challenges, one of which is agencies are focusing on capacity small players bid at an exceptionally low
collateral security from small enterprise building programmes for DISCOMs and tariff, thereby disrupting the market.
or residential customers. Since the sector bring in international learnings on grid Most large-scale developers also fear
is still gaining maturity in terms of size integration solutions. this as a challenge in terms of quality
and generation (capacity utilisation of equipment offered at such low
Limited technical strengths of the tariffs. Most of these projects, unviable
factors), the funding risk is a major
lender’s engineer, on the other hand, at a low cost, are later put on sale for
barrier faced by financial institutions.
in carrying out due diligence activities acquisition which, in turn, affects the
Also, for similar due diligence as in and appraisal of rooftop solar projects quality and generation from the project
large-scale solar projects, the lender’s are a significant challenge slowing down and at the same time results in loss of
engineer fee component increases for rooftop solar deployment. customer interest.
rooftop projects due to the limited size
and increased number of scattered Policy and regulatory challenges
locations. Various models, including the
aggregation model and concessional Some of the incentives offered by the
interest rate options, have been tried by Central Government includes Central
various financial institutions; however, Financial Assistance (CFA) of 30% on
the scale is yet to be picked up. residential and government buildings.
This incentive, however, is posing a
Another challenge related to the limited
bigger challenge for developers as
interest of domestic financial institutions
subsidies get delayed and developers
is the credit rating of customers which
suffer financial loss in terms of cash
results in payment risks from customers.
flows projected. These delays prevent
Additionally, though debt funding developers from executing projects
is available for setting up a rooftop on residential spaces or other target
project, there is limited equity markets where any subsidy arrangement
investment being made in the rooftop is offered. The market, on the other
projects. Investors are focusing on the hand, has almost reached grid parity
deployment of utility-scale projects in most sectors; hence, subsidy in
because of lower risks associated. such cases actually spoils the market
growth. The changing tax structure and
Debt funding available for rooftop solar
implementation of duties are posing
projects through domestic sources is at
challenges to the growth of rooftop
a very high interest rate, which makes
solar sector in India.
the projects financially unviable. Various
initiatives, however, have been taken on Another barrier to progress in the case
this front through the use of concessional of the OPEX model is the delay in getting
funding and other international lines approvals and clearances for the net
of credit, which has helped in bringing metering arrangement. Though single
down the interest rates by 1.5–2%. window clearance exists, the delays in
However, limited availability of these approvals (including Chief Electrical
international concessional funds is Inspector General [CEIG] approval)
posing a challenge for future projects. affect the timely execution of projects.
Non-standardisation of PPAs to include
certain terms like deemed generation
and right of way are posing a challenge
to financial institutions in executing
respective projects. Non-availability of
these terms increases the risk of banks/
financial institutions, thus affecting the
overall cost of the rooftop project.

33
 Business models
For successful and smooth operation Rooftop solar systems can thus be
of rooftop solar PV systems, business classified based on system ownership,
models based on various situations and metering arrangement (the way
conditions have been identified and electricity is billed influences the
tested in the country. However, there is profitability of the PV investments) and
no model that fits all requirements and off-taker arrangement which are further
hence the models vary according to the classified based on customer needs.
requirements of the end customer. They
are designed as per the specific needs of
the individuals and the legal framework.

Solar rooftop business model in India

Grid-
connected
solar
rooftop PV

Based on Based on Based on

system metering off-taker
ownership arrangement arrangement

Sale to DISCOM under

CAPEX model Net metering
State/Centre Policy

Aggregator Sale to distribution

RESCO model Gross metering
model licencee for RPO

Sale to third party under

Lease model
open access regime

Sale through group captive

under open access

Sale under REC mechanism

34 PwC
Classification based on system ownership:

1. CAPEX model 2. RESCO model (or OPEX model) 3. Lease model

Currently, the most prevalent model In the OPEX (Operational expenditure) A third option in the rooftop system is
for rooftop solar installations is the or third-party model, a RESCO invests the lease model, in which the customer
CAPEX model where the rooftop owner capital in the rooftop solar system leases the system from an installer/
buys the rooftop solar system, owns and sells power to the rooftop owner/ developer but pays for it over time. This
the system and uses the benefit of the occupier at a rate lower than their grid lease may be either a financial lease or
generation for internal consumption. tariff but at a rate which enables the an operating lease. At the end of the
The customer may or may not take a loan RESCO to make a profit. This model is lease tenure, the asset is fully transferred
to fund part of the investment and may often called the OPEX model because the to the customer. Thus far, the lease
or may not have availed capital subsidy. rooftop owner pays for the system over model is not popular in India because of
This model has the advantage of being a number of years during its operation. the way taxes currently apply to lessors.
simple and uncomplicated; however, The ‘third party’ refers to the company This model provides balanced cash
the rooftop owner bears the risk of the entering the typical relationship between outflows, thus enabling better use
project. Around 90% of all rooftop-based the building owner and distribution of capital and lower planning risks.
solar project capacity installed so far utility as the third party. These projects However, there are certain issues
in India falls under this category. The account for around 10% of the rooftop associated with payments such as
CAPEX model has been one of the most solar installed capacity. payment default issues, limited tax
widespread models in Germany where benefits, reduced returns for equity
The key advantage of this model is
low-cost loans (as well as generous holders and ownership issues. Most of the
the technical risk that is taken up by
subsidies) have helped propel the market. risks associated with payment and returns
the RESCO, and thus, the rooftop
The CAPEX model has been the most owner does not need to invest capital on equity can be minimised through the
preferred business model because of upfront. This reduces the liquidity risk availability of concessional loans.
the various advantages such as quick and provides better tax benefits. The
payback period, risk-adjusted returns OPEX model has been quite prevalent
over longer duration, low payment risks in the US, where this model along
and sole ownership of all power sources. with tax breaks proved attractive to
There are some challenges associated a large numbers of consumers. Like
with this model such as requirement of other models, this model also has some
upfront capital, high interest rates on challenges such as high payment risks
the money borrowed, delays in subsidy, associated with long-term PPAs and legal
etc., but these can be mitigated with the risks arising due to availability of land
availability of concessional loans. that can be mitigated by the availability
of concessional funds.

4. Aggregator model
Under this aggregation model, the third helps the aggregator to gain scale and
party/RESCO, aggregates the demand offer the most competitive pricing. This
of various customers and installs model is now picking up pace in India
rooftop solar captive power plants up and has been tried by various DISCOMs
to the total capacity of the cumulative and banks. The flow diagram for an
contracted load of the selected group aggregator model used in Gujarat is
of customers connected with the same illustrated below:
distribution transformer. This model

Aggregation model in Gujarat

Developer/
Off-taker Customers
Aggregator

Aggregated Government and

Azure Power
Torrent Power residential rooftop sites
(Pvt DisCom in
Gujarat) Aggregated Government and
SunEdison
residential rooftop sites

35
The model is also being tested by them in reducing project financing and billing process) and preferably
various corporates where procurement costs. However, there are few challenges in a single large city (most financial
of renewable energy is increasingly associated like PPA risks, ownership institutions with limited presence across
becoming a central piece of companies’ risks, issues faced with DISCOMs, but India consider limiting the projects to
corporate sustainability strategy. these can be minimised by making larger cities in order to reduce cost). The
However, the size of rooftop deployment, concessional funding available. developers, on the hand, aggregate these
in most cases, is limited due to the projects either based on their location,
Financial institutions are also supporting
lack of space on individual roofs. This with the selected projects connected
the aggregation model as it saves both
limited size of projects also increases the to the same distribution utility or the
time and resources for conducting
transaction cost for the RESCO/vendors, demand aggregated based on the
project due diligence. The aggregation
thereby decreasing project viability. consumer category. In order to gain
is done, mainly, at the developer’s level
Hence, if this demand from various a complete line for rooftop financing,
as the projects are offered for financing
corporates is aggregated to improve developers are also aggregating the
at the level where either the PPA (with
project size (which shall significantly portfolio of projects so that the project
selected off-taker) is already signed, or
improve the project economics), financing cost can be significantly
negotiation with the off-taker has been
the deployment of rooftop shall reduced and end consumers can be
done. Hence, at this stage, the projects
increase exponentially. offered competitive tariffs.
are already aggregated by developers.
This model is the most preferred Thus, banks have a limited role in The model has been used quite
because of certain advantages such aggregating the projects. frequently in the available lines of
as low transaction cost, economies of credit offered by banks like SBI and
Few non-banking financial companies
scale, better risk management, lower PNB where the complete portfolio of
(NBFCs), however, consider aggregating
risk of project failure arising from any projects is offered a line, and major
small-size projects that are under the
one individual buyer and combined developers are aggregating demand to
ambit of single DISCOMs (to avoid the
creditworthiness of buyers. These avail this concessional line of funding.
challenges of dealing with different
factors help mitigate the financial risk The schematic of the aggregator
distribution utilities for the clearance
to project developers and also support model is represented below:

Rooftop solar aggregation model

Cheaper pricing Single large

IPPs/project bundle of demand Concessional rates;
developers for rooftop huge savings
Economies of scale solar power

Buyers of various sizes

36 PwC
Classification based on metering arrangement:

1. Gross metering 2. Net metering

Gross metering is the arrangement Net metering is the arrangement under

which measures generation and import which power generated is first consumed
of grid electricity separately. By metering internally and the excess energy, if any, is
the total number of solar energy units fed to the grid that can be commercially
generated and total number of units settled with the distribution utility
consumed, gross metering allows the based on the net metering regulation
utility to charge customers separately for of respective state.
import, generation and net consumption.
Further, based on the ownership pattern,
This is imposed by having two separate
the net metering arrangement can be
meters or dual metering (dual element
of two types:
electronic, import and export meter).
1. RESCO: In this model (see figure facility for a particular time period as
In this type of arrangement, all of the defined in the state regulation. In case
below), the third party owns the system
energy generated is exported to the the owner is generating more energy,
on the rooftop of the consumer. The
grid and the consumer gets no incentive then the excess energy is sent to grid and
electricity generated from the project
to increase self-consumption. In this the owner is paid for the excess energy
is consumed by the rooftop owner
arrangement, the PPA is signed between generated. If the electricity generated is
(consumer) at a mutually agreed tariff
the owner and the utility where the lower than consumption, then the owner
as per the PPA signed between the
utility agrees to pay the owner either has to pay the differential of excess
consumer and the RESCO. In case of
FiT or tariff as fixed by the regulatory energy consumed as per the regional
excess generation, the surplus power
commission of each state. Systems can tariff. The RESCO, on the other hand,
is fed into the distribution grid and
be installed by either the roof owner might include the clause of sharing of
the same can either be adjusted in the
(self-owned) or by a third-party player revenue in case of excess generation.
monthly bill of the consumer or the
who enters into a roof lease agreement
distribution utility can provide banking
with the roof owner.

RESCO flow diagram

Distribution
Utility
PPA at Fit Net Metering Agreement

Savings in
Payment electricity bill

Roof rental as per lease agreement

3rd Party Develops and Installs System on rooftop

Developer / RTPV System Beneficiary
RESCO

Private PPA price or share of savings as per the agreement

Payment

37
2. Self-owned: In this model (as shown any surplus power generated is fed to Hence, the owner evaluates the payback
below), the rooftop owner installs a the grid, with an arrangement of paying period and returns generated from
solar PV plant through the EPC mode for the surplus power fed or banked, as the installed system while replacing a
(operation and maintenance [O&M] allowed in the state net metering policy. certain part of power from the grid. No
might be outsourced) and continues to The rooftop owner pumps its own equity tariff is applicable on the rooftop owner
own the system. The power generated and arranges the loan for the project. for solar power generated.
is consumed by the rooftop owner and

Self-owned flow diagram

Bank
PPA at Fit Net Metering Agreement

Savings in
electricity bill

Regular Maintenance

Develops and Installs System on rooftop

EPC / Installer RTPV System Beneficiary

Annual Maintenance Contract/ O&M agreement signed at a mutually agreed price

Installation fee
Payment

38 PwC
Classification based on off-taker arrangement:

1. Sale to DISCOMs under Central/ 3. Sale to third party under open 4. Sale through group captive under
state policies and plan access regime open access regime

Under this model, the generated power The model involves sale of energy This model is very similar to that of the
is sold to the state DISCOMs under the to an open access consumer of the third-party sale model discussed in detail
Central or state policies or any other same DISCOM area within which the in the above section. However, in this
state plans in future. Most of the Indian generator is located or to a different model, the consumers need to have a
states have specific plans for setting up DISCOM within the state, using the minimum level of stakeholding in the
renewable energy projects in the state. network of the DISCOMs or transmission rooftop project set-up. Hence, in case
The projects can be set up under such companies in order to wheel the power a developer wants to set up a rooftop
policies and the power generated can be from the point of injection to the point project and sell power through the group
sold to the state DISCOMs. of usage. Such a market model of captive route, then the shareholding/
third-party sale is largely made feasible capital structure of the rooftop project
2. Sale to distribution licensee for with the introduction of provisions for should be such that the plant gets
open access transactions specified in qualified as a captive generation plant.
meeting Renewable Purchase
the Electricity Act, 2003, and through
Obligation (RPO)
the subsequent regulations framed 5. Sale under the Renewable Energy
This model essentially involves sale by the State Electricity Regulatory Certificate (REC) mechanism
of power generated by a rooftop solar Commission. The Electricity Act, 2003,
power plant to the distribution utility defines open access vide section 2(47), Under the REC mechanism, one REC
to meet the Solar RPO for the state. reproduced as under: will be issued to the renewable energy
Under this power off-take option, the ‘Open access’ means the non- generator for generating 1 MWh of
utility will have to enter into a PPA discriminatory provision for the use of electrical energy fed into the grid. The
with the purchaser or the distribution transmission lines or distribution system RE generator may sell electricity to the
utility. Such a model is time-tested and or associated facilities with such lines distribution company at the regulated
comparatively less complex. However, or system by any licensee or consumer price equivalent of the average pooled
the lesser complexity of this power sale or a person engaged in generation in cost of power purchase by the utility
model comes at a price of dependence accordance with the regulations specified from all sources excluding renewable
on the willingness of the utilities to by the Appropriate Commission. energy sources and its RECs to obligated
procure renewable energy power and the entities at the market price through the
creditworthiness of the utilities to pay Open access allows a bulk consumer, exchange mechanism in a transparent
for the power purchase. according to the framework developed manner. The RE generator may sell
by the appropriate commission, to the certificates only through power
contract directly with the generation exchange to such obligated entities
company or with any other source who have to meet their RPO target.
of supply (other than the incumbent The purchase of RECs will be deemed
distribution licensee in whose area the as a purchase of power generated from
consumer is situated). The open access renewable sources and accordingly will
framework also offers the generating be allowed for compliance with the RPO
company the freedom to supply power target. The REC mechanism will enable
to consumers who are eligible to obligated entities in a state to procure
avail open access. RECs generated from any of the states
in India and surrender the same to
fulfil their RPO target.

39
 Value Chain
The solar rooftop value chain comprises the following components:
Solar value chain

Primary activities

Strategic Vendor Project

Project finance Logistics O&M
sourcing management development

Modules Inverters BoS Inbound Outbound

Support activities

Firm infrastructure Human resource management

Procurement Technology

Concessional funding: Equity investments from pension funds, life insurance companies, PE funds, concessional
line of credit from DFIs/multilaterals

The share of each component in the value chain is estimated as below:

Percentage share in rooftop system cost

%age share of rooftop components in total cost

Project Development, 10%

Project Financing, 2% Modules, 50%

BoS, 29%

Inverters, 9%

40 PwC
The value chain of rooftop solar projects The various activities involved in the value due to limited scale and size. However,
aims at strategic sourcing of raw chain for the construction of rooftop solar with increased deployment, the focus
materials, procuring the best quality projects are discussed below: will shift to bulk procurement to offer
goods and delivering them to consumers competitive pricing.
1. Strategic sourcing:
at the right time, in the right quantity
India’s current installed module
and at minimal price, thus optimising It aims at gathering information and manufacturing capacity is 8.4 GW,10
the overall value chain. Supply chain leveraging the purchasing power of while the operational capacity is only
management increases efficiency by a company while procuring the raw 5.5 GW because of obsolete technology
minimising cost and hence improving materials for manufacturing the solar and sub-scale capacity. Module costs
profit. Thus, there is a strong need to panels. This is not limited to solar impact 35% of the project cost. Adani
focus on the supply chain of the solar panels only but also includes inverters, is the leading module manufacturer
industry so that the costs are sustainable trackers and other balance of systems with 1.2 GW module manufacturing
and add value to the end consumer. The (BoS). However, solar modules account facility followed by Vikram Solar
downstream market—the developers— for the maximum portion of the solar (1 GW), Waaree Energies and Emmvee
are growing in terms of market share but system cost (~50% of the project cost; each with capacities of 500 MW.
are struggling to deliver profits due to see Figure 42). However, the operational capacities
strong competition.
Given the limited domestic module are 500 MW for each of the players
While the supply chain focuses on manufacturing capacity in India (with excluding Adani. According to MNRE,
delivering the best output at each stage, cells and other components imported), Adani has no operational capacity as
the value chain focuses on the value domestic modules are comparatively of May 2017. The portfolio of key solar
generated by the construction of solar more expensive than imported modules. module manufacturers is shown in
panels/parks/rooftop projects at each Thus, large-scale procurement for the graph below:
stage. Here, we would focus on the role modules is done through imports.
of value chain financing, the need for it Procurement for rooftop solar projects is
and its impact on each of the activities of done mainly from Indian manufacturers
the entire value chain.

Module manufacturing capacity

Module Manufacturing Capacity (MW)

1400
1200
1200
1000
1000

800

600 500 500 500 500 500

400
400 300 300 300
250 210
150 180
200 100 100
50
0 0
0
Adani Vikram Solar Waaree Emmvee Tata Power Alpex Solar Renewsys MoserBaer XL Energy HHV Solar
Energies Solar Solar

Installed Operational

Inverters, on the other hand, impact 10%

Inverter supply capacity
of the project cost. As of June 2017, the
top five solar inverter manufacturers
Supply Capacity (MW)
in India account for 70% of the market 5000
share. ABB leads the market with supply 5000
capacity of around 5 GW followed by
SMA solar with supply capacity of 3
GW and Hitachi, Schneider Electric and 4000
Chint have supply capacity of 2 GW each
as on June 2017. 3000
3000

2000 2000 2000

2000

1000

0
10 https://mnre.gov.in/file-manager/UserFiles/ ABB SMA Solar Hitachi Schneider Electric Chint
information-sought-from-all-Solar-Cell-&-
Module-manufacturers-as-on-31052017.pdf

41
Thus, to support domestic
manufacturing in India, some kind
of concessional funding or subsidy
support is required. Subsidy support is
already available to support the market;
however, additional concessional
funding in the form of subsidised seed
funding can help large-scale deployment
of the manufacturing base in India. As
the manufacturing set-up involves huge
upfront capital, popular equity sources
like pension funds and private equity
(PE) firms which support the solar sector
in India need to be considered for equity
investment in the manufacturing sector.
Concessional sources of equity capital
with minimum returns can support the
scale-up in India.

2. Project finance
Project financing involves long-term
financing of the project either through
a recourse or non-recourse financial
structure. Both debt and equity are used
to finance the project and the cash flows
generated are used for repayment of the
loan. In the case of the rooftop solar value
chain, project financing plays a significant
role at each step to improve the overall
output through the value chain.

Financing instruments in India

Recent shift from traditional

Potential sources of financing mode of own equity by investors
(savings from other business to
claim tax benefits)
Move to IPO route, private
Debt Equity equity investments,
pension funds.
Huge interest in Indian market
due to the regulatory framework,
Domestic sources Foreign sources Promoter’s equity push towards renewable
energy, technology upgrading
and improved returns
Commercial banks/ Multilateral/bilateral Capital market
Large portfolio of projects
NBFCs agencies (public equity)
with limited risk due to
PPA with Central and state
Capital market (public agencies, creating equity
International banks Private equity
issue of bonds) urgency in the market
Huge interest from pension
Green Energy Commitments Various international lines of funds and PE firms such as
by banks in RE-Invest 2015 credit (around 4.5 billion USD) Pension /sovereign funds
Abu Dhabi Investment Authority,
are supporting Indian solar Canadian Pension Fund,
Some of the leading banks deployment. Singapore Sovereign Fund;
committing support to
IPO launch PE firms investing in Solar and
renewable energy include Agencies like World Bank,
Wind companies – Goldman
State Bank of India, IREDA, JICA, KfW, ADB, AfD, EIB
Sachs, GIC, I Square, Morgan
ICICI Bank, L&T Finance, PTC and GEF are supporting huge
Stanley, etc.
India, Yes Bank, and IIFC. investments, followed by blending
concessionary funds.
Total of around 121
crore INR committed by Agencies like KfW are investing/
approximately 29 domestic funding the Green Energy Corridor
banks to promote renewable to support interstate/intrastate
energydeployment transmission of renewable energy

42 PwC
3. Vendor management All the activities listed above need strong Currently, solar cell manufacturing
technical domain knowledge as well capacity is around 1.7 GW. Around
This activity aims at managing existing as functional and financial knowledge 85–90% of the modules are imported
vendors as well as targeting new ones. in order to create value and generate from China and this leads to a huge
While procuring raw materials, it is profit out of the value chain. Thus, forex transfer of approximately 20,000
essential to obtain quotes, turnaround providing loans at subsidised prices for crore INR (2.96 billion USD) because the
time, service/product quality, evaluate skill development is the need of the hour Chinese modules are around 10% cheaper
performance and maintain relationships. to attract more players and make the than Indian manufactured solar modules.
Vendor management is important in not business profitable.
only the manufacturing sector but also Apart from the few initiatives listed
the service sector (in this case, banking/ The macro factors impacting the rooftop above, the Indian government needs to
financial institutions). solar sector are competitive bidding, develop a larger policy framework to
higher interest rates and high cost of raw support the domestic manufacturing of
materials, thus diminishing the profit solar panels. This will help in controlling
4. Logistics margins of the developers and impacting the revenue generated in the value chain
The third step of activities is the the landed cost of power with rooftop from going outside India.
management of logistics which includes systems. Despite the issues, there are
transportation of goods from one opportunities for growth and profit Role of concessional funding:
department to another in the value chain throughout the solar value chain. To
The Government of India has offered
at optimum price. It is easy to minimise survive in the current market conditions,
various incentives for manufacturing
the logistics cost, and with a proper a strong focus on the following is needed.
modules in India such as capital subsidy,
understanding of how the carrying costs operating cost subsidy and export
involved work, it is possible to minimize Capital flows incentives. In December 2017, the Solar
the inventory management costs. Companies should track expected cash Energy Corporation of India floated an
Various sources reveal that the inventory inflows and outflows at a very detailed expression of interest (EoI)12 for setting
management expense helps to cut down level in the entire value chain. They up of 20 GW solar PV manufacturing
the logistics cost, but low-cost financing should look for low-cost financing capacities in India. This shows the
and lower interest rates help to optimise options to leverage equity returns. government’s focus on developing India’s
the value chain. Solar project developers can check the local manufacturing capacity. Hence, the
impact of cash flows at each and every concessional line of funding, if extended
5. Project development step of the value chain, and this would to the Indian module manufacturing
help them with increasing equity for supply chain, can provide a boost to
Project development involves licensing, project development. the manufacturing potential. This will
due diligence, technical designing, enable Indian module manufacturers
structuring and construction activities to compete with international markets
Increasing profits
for the project. As of December 2017, and contribute to the reduced landed
around 350 infrastructure projects faced Solar rooftop projects are easier to build
tariff for solar projects, which will in
a time overrun and a cost overrun of as compared to other power projects as
turn lead to increased deployment and
around 2 lakh crore INR (29.6 billion they substantially reduce the land and
impact the final module price of Indian
USD). This calls for strong project infrastructure cost and also bring in
manufacturers. The line of credit can also
management skills to avoid time and savings in terms of laying transmission
be utilised for capacity development of
cost overruns. Strong risk management lines owing to the decentralised nature
manufacturers by helping them to make
and technical expertise in managing of projects. However, lack of project
their plants operational and increase
projects can prevent overruns. management skills leads to time and
production capacity by adopting the
cost overrun, thus affecting profitability.
latest technologies.13
Since the solar rooftop industry is
6. O&M growing at 82% Y-o-Y, companies are Corporates, these days, have realised
It includes activities such as facility focusing more on the execution of the the potential savings of installing captive
monitoring, cleaning solar modules, project. This calls for capacity building renewable energy projects. Various public
breakdown management, repair work of developers as well as financial sector players such as IOCL, ONGC and
and warranty management. This stage institutions/banks. Larger players also CIL, and Central and state government
is quite critical as it affects the system need to implement lean construction offices are showing interest in setting
generation and life of the project. techniques to increase productivity and up solar projects. If subsidised loans are
Successful commissioning of rooftop decrease labour costs. provided to these players, they can utilise
projects needs to be supported by their rooftop space for installing captive
The Government of India is focused on
the most optimum and best possible projects and thus add to the government
producing clean energy and reducing
operation and management activity. Most targets of achieving 40 GW.
emissions by 2030. In recent years,
customers build the O&M cost into the schemes such as Make in India11 are
project cost so as to get the best possible adding value to this sector with a focus
outcome with the investment made. on the domestic manufacturing sector.

11 Make in India was a nation-building initiative started by the Government of India in 2014 to boost local manufacturing. It was started to make
India a global design and manufacturing hub.
12 http://seci.co.in/web-data/docs/EOI-%2020000%20MW%20Solar%20PV%20Manufacturing%20Scheme.pdf
13 https://mercomindia.com/seci-tenders-5gw-solar-manufacturing-capacity/

43
 Financing instruments for the rooftop sector
While significant capacity addition has been on large-scale utility solar power plants,
rooftop solar is picking up pace in India with the availability of innovative financing
schemes and technology advancements, thus improving project economics. To
support this, both the World Bank and ADB are running rooftop programmes to
provide concessional funding through domestic banks.

World Bank-SBI Rooftop Solar Programme

Programme description
The proposed Grid-connected Rooftop The funding from GEF is specifically The programme is designed along two
Solar (GRPV) Programme is the first- focused on building a risk mitigation pillars: transformation and inclusion.
ever CTF-funded project that uses mechanism to support lending to NBFCs Under transformation, the programme
an innovative financing instrument, and small and medium enterprise intends to achieve reduction in GHG
Programme for Results (PforR), with (SME) commercial and industrial emissions through renewable energy
a focus on supporting government customers for GRPV as well as support generation. Under inclusion, the focus
programme and achieving outcomes. the strengthening of the investment is on achieving access to electricity by
The biggest challenge identified in climate and capacity building of the main increasing availability of electricity
GRPV projects is the unavailability of stakeholders involved in the expansion generation in the system. Additionally,
commercial loans to rooftop aggregators of GRPV. Additionally, CTF and IBRD the programme emphasises on the
and developers at a concessional rate funds shall support the commercial bank ‘finance-plus’ approach, whereby
to support market growth. Hence, to (SBI) in extending loans for GRPV at a it goes beyond bank financing and
address this challenge, the current concessional rate (at or near the base contributes to transfer of knowledge and
programme was launched by making rate, defined as per RBI directives). Under international best practices, reform of
long-term concessional financing this programme, once the CTF and IBRD processes and systems, strengthening
available to stakeholders for large- funds are exhausted, SBI can continue of institutional capacity, and exploring
scale deployment of GRPV in India and the second phase of this programme innovative financing mechanisms. The
sharing international experiences on with its own resources and/or through programme is designed to support the
the successful implementation of large- syndication with other banks (which shall World Bank’s corporate commitment to
scale rooftop programmes implemented be subject to availability of a creditworthy increase renewable energy lending and
across the globe. The programme also pipeline of projects and success of Phase address climate change concerns.
includes technical assistance (TA) and 1 of the programme). The rates of sub-
The current programme supports all
capacity-building support to the major loans, under the second phase, can rise
major business models prevalent in
stakeholders, including DISCOMs, depending on the project schematics.
GRPV implementation in the country.
regulators, state agencies and banks. The current IBRD-CTF programme has
The business models widely used in this
The programme is designed for a five- a unique financing structure, leveraging
field are depicted below:
year duration from September 2016 multiple sources of funds from various
to September 2021 and includes fund multilaterals and concessional funding
contribution from various institutions, sources to support the reduction in the
including CTF, IBRD, GEF, public and interest rates for the GRPV.
private sector financing agencies and SBI.

Business Models

OPEX Model Utility-owned Model CAPEX Model

Third-party model with no upfront Distribution Utility owned model Customer-owned model in which the solar rooftop facility
capital investment and outsourced installed and maintained by Utility or is owned, operated and maintained by the customer or
operating expenditures maintenance delegated to third party owned by customer and maintained by third-party

Rooftop Rental Model NBFC Model

Third-party owned model with Model under partnership of 2 parties- NBFC, having license to
solar panels on rented roof space; make consumer loans and Business, looking to invest in solar
power sold to DisComs at agreed panels. Together rooftop installer is identified to find customers
rate under gross metering model interested in BOOT model

44 PwC
PforR scope
The IBRD-CTF PforR intends to cover the PforR objectives
following three result areas.
• Includes technical assistance (capacity building) of main 
The PforR programme shall benefit stakeholders (building blocks):
all the stakeholders involved in the Strengthening
institutional • SBI; DISCOMS; state nodal agencies; accredited rooftop
GRPV project implementation. The PV inspectors; state power departments; state electricity
capacity building
instrument will add significant value to regulatory commissions
implementation by (i) ensuring a sharp
focus on achieving the Government of
India’s targets; (ii) allowing flexibility • Includes development and implementation of market aggregation
in implementation and use of funds models for installers and customers with feasible roofs
Market
through streamlined procedures; (iii) development • Undertake marketing and business development for deal origination
supporting development of the bank’s of GRPV • Provide lending capital to developers/aggregators
programme through institutional
capacity building. • Target lending to SMEs, NBFCs

• Support installation of more than 400 MW grid-connected solar rooftop

PV systems using storage options:
Expanding • In case of CAPEX, minimum of 100 kWp capacity per project
GRPV generation
• In case of RESCO, aggregated capacity of at least 1 MW, with sub-
projects of capacity not less than 20 kWp

Rooftop programmme beneficiaries

Program Beneficiaries

GRPV customers & State Residents Economic Agents & Global Community

• Customers to be benefited from electricity generated • All economic agents engaged in supply chain- sub-
contractors, O&M providers
• State residents to be benefited from improved
consumer education and consumer awareness, • Global community to be benefited from avoided
reduced air pollution and improved health impacts greenhouse gas emissions

DisComs Third party aggregators, developers, vendors

• To be benefitted from the electricity passed on • To be benefitted through access to debt; allowing
to their network through net metering or gross business to grow
metering and through technical assistance under the
programme design

SNAs & SERCs SBI & its Branches

• To be benefited from technical assistance and • To be benefitted through strengthening of

capacity building activities planned in the programme institutional capacity building

Implementation arrangement
The implementation agency in
the programme shall include the
government, the lead ministry
responsible for achieving the
Government of India’s solar target
of 40GW rooftop solar PV with
MNRE providing overall policy
guidance, and SBI, the borrower and
implementing agency for PforR. Under
this programme, SBI will extend
loans to GRPV customers, developers,
aggregators and intermediaries based on
the technical qualification criteria and
creditworthiness of the borrower.

45
Programme financing
The contribution from CTF comprises
The total programme budget is 800 million USD. The contribution of each agency is a loan component of 120 million USD
presented below: on concessional terms and a grant of 5
million USD. CTF loans are offered under
Financing sources in the World Bank programme
softer concessional terms with a maturity
period of 40 years, including a 10-year
Source of finance Amount (million USD) Percentage of total grace period, service charge @ 0.25% per
annum and principal repayments at 2%
IBRD 500 63%
for years 11–20 and 4% for years 21–40.
CTF (loan and grant) 125 16% A management fee of around 0.45% of
the total loan amount (5,40,000 USD)
GEF (support TA to stakeholders) 23 3%
will be charged. IBRD funding, on the
Private and public sector financing 150 19% other hand, has a maturity period of
19 years, including a grace period of 5
SBI 2 0.3%
years. With these financing terms offered
Total programme financing 800 100 % to SBI, the bank has been able to offer
finance projects to the project aggregators
and developers at interest rates of
approximately 8.45–9.5% (i.e. one year
marginal cost of funds based lending
rate [MCLR] plus 20–50 bps based on
the risk rating of the customer) and a
loan duration of around 15 years with 12
months (post the commencement date)
as a moratorium period.

Programme status
With the concessional financing terms, Yamaha solar installation (1,100 kW)
SBI has been able to sanction around
356 million USD, adding to 575 MW
of solar rooftop capacity to the grid.
Some of the developers availing this
financing include Azure Power, Amplus,
CleanMax, ReNew and others. The
capacity of projects sanctioned ranges
from 25 kWp to 16 MW. The key
outcomes of the programme includes
GRPV capacity deployment and
CO2 emission reduction (tonnes).
GRPV capacity deployment is mainly
focused on through the implementation
of third-party models in addition
to customer-owned models. The
focus is on the aggregation model
where access to working capital
will allow qualified private sector
developers and aggregators to buy
the required inventory, aggressively
acquire customers, and push for
large-scale deployment of rooftop
solar PV systems among customers
using different business models. In
terms of CO2 emissions reduction,
the planned programme intends to
reduce GHG emissions by 14.8 million
tonnes over the life of the project
compared to thermal projects.

Some of the installations (Project

Yamaha with 1,100 kW capacity)
completed under this programme
supported through SBI financing
are presented below:

46 PwC
ADB-PNB Rooftop Solar Programme

Project description
The CTF made another contribution to concessional loans to finance large The current SRIP is focused on achieving
support the Government of India’s 40 GW solar rooftop systems on commercial ADB’s objective to double the annual
plan by extending a line of credit to PNB and industrial buildings in India. The climate financing from 3 billion USD
along with support from ADB. The total programme shall include loan extension to around 6 billion USD by 2020. Of
financing consists of a 505-million USD under any possible business model (as this, 4billion USD will be dedicated to
multi-tranche financing facility for the per the PNB guidelines and project mitigation that includes increased support
Solar Rooftop Investment Programme viability); however, the larger focus for renewable energy. The 500-million
(SRIP). The facility is sovereign- will be on aggregated projects. The USD multi-tranche facility is designed to
guaranteed and comprises 5 million USD TA component of 5 million USD is to cover the following broad objectives:
for capacity development TA. MNRE and integrate the building blocks of the
PNB would be the executing agencies for Government of India’s rooftop sector Programme objectives
the TA. Three major components of the development initiative to ensure viable
TA programme would be: market demand by strengthening the
Promote energy efficiency and
capacity building of the borrower bank, 1 renewable energy
PNB, and other market development
PNB Institutional Capacity Building elements. The programme comprises Promote energy sector reform,
funding contribution from ADB and CTF 2 capacity building and governance
on concessional basis.
Support India’s INDC targets to
Market Development The total duration of SRIP is December 3 lower emissions intensity
2016 to December 2022.
Financial intermediation, an
The current scheme is targeted to 4 important instrument for on-lending
Awareness Campaign capture commercial, institutional and
industrial consumers, including MSMEs,
as the scale of deployment is high and
5 Maximise access to energy for all

consumer interest in green energy is

In this facility, PNB is the borrower high. At the same time, developers have
and India will provide a sovereign better credibility for payments from large
guarantee to ADB for the programme. C&I consumers as compared to small-
The programme focuses on extending scale residential rooftop owners.

The fund flow arrangement under the programme is depicted below:

PNB, in this arrangement, has an option
Fund flow arrangement
to utilise the ADB’s USD funds without
conversion. Based on the reimbursement
method, ADB will reimburse PNB in
either INR or USD, a decision to be
taken at PNB’s discretion to help it hedge
USD INR
4 3 the foreign exchange risk. In case the
disbursement from ADB is in INR,
the exchange rate will be determined
based on the INR-USD exchange rate
Asian Punjab National Rooftop on the value date of the ADB foreign
Development Bank Aggregator/ exchange transaction.
Bank Developer

1 2
USD INR

47
Programme financing
The financing under SRIP includes 330 ADB investment
million USD from ADB’s Ordinary
Capital Resources (OCR) and 170 Source Amount (million USD) Share
million USD from CTF. The funds
ADB loans
from CTF are provided at concessional
terms with a maturity period of 40 OCR 330 33%
years, including a 10-year grace period.
CTF 170 17%
Principal repayments from years 11–20
would be 2% and from year 21–40 would Equity (assuming 30% of project cost) 300 30%
be at 4%. Additionally, a multilateral
Debt from commercial banks 200 20%
development bank fee of 0.18% and
a service charge of 0.25% would be Sub-total 1,000
applicable. Thus, CTF money is available
Technical assistance
at a weighted average cost of funds
of approximately 0.25%. The total CTF (grant) 5.0
investment under the ADB’s programme
Grand total 1,005
comprises 1 billion USD (refer to Table 7).
This type of concessional funding has a significant impact on the project years with a moratorium period of 1 year
received by domestic banks is a major financials and improves the viability from first disbursement or four months
contributor towards improving the of the rooftop projects compared to from CoD14 (whichever is earlier). The
project financing terms to support traditional grid power. Based on this scheme has been able to provide low-
market deployment. With this type of funding, PNB has released reasonable cost financing at an interest rate of one
concessional financing extended to financing terms for lending loans year MCLR (i.e. 8.25%) with a spread of
banks, the major difference is in the to rooftop projects. The loan tenor 30–50 bps based on the risk rating of the
loan pricing (interest rates), which extended by PNB under this scheme is 15 borrowing firm.

Implementation arrangement Project status

PNB will be the implementation agency At the current stage, PNB has already DSM project @ 1 MW installation
for SRIP. Under this programme, PNB sanctioned 20 projects of 104.59 MW
will establish a dedicated solar rooftop capacity for 63.86 million USD under
unit with internal capacity to support the this ADB-CTF credit line. The scale of
programme implementation. deployment foreseen is quite high with
projects worth around 150 million USD
Since the programme is a multi-tranche in the pipeline.
financing facility, funding of 500 million
USD will be released in three tranches. Beyond deployment, PNB is also
Tranche 1 of 100 million USD comprises focusing on removing the current
CTF fund with an implementation barriers hindering rooftop growth in the
duration of December 2016 to December country. For the same, PNB is conducting
2018, tranche 2 of 150 million USD awareness programmes along with
comprising CTF and ADB funds with an the ADB team for SNAs/DISCOMs
implementation duration of December in Karnataka, Tamil Nadu and Goa.
2018–2020, and the final tranche of 250 Besides, sensitisation programmes are
million USD from ADB funds will have a being conducted in 16 states for potential
duration of 2020–2022. customers as well as field functionaries
at more than 10 zonal headquarters.
ADB funds can be used by PNB to finance
up to 50% of the total project cost with
no upper limit on the project size. PNB,
additionally, may use up to 20% of this
fund to buy out qualified solar rooftop
loans from other financial institutions
under each tranche in order to better
consolidate sector assets. Takeout
finance may include subprojects that
are either financially closed or are in the
construction phase.

14 CoD - commercial operation date

48 PwC
 Role of CTF
While there has been significant capacity Demonstration and implementation potential
addition in the case of large-scale utility
solar power plants, rooftop solar is This section subjectively reviews certain I: With CTF funds) to provide viability
also picking up pace in India with the aspects of CTF funding, along the and low-cost financing support to the
availability of innovative financing defined pointers or impact indicators. rooftop projects in India. The major
schemes and technology advancements, A neutral outlook is considered for differential in the project financing terms
thus improving the project economics. assessing the impact of providing CTF using concessional funding is the rate of
financing, blended with the funding for interest and the tenure of loans extended
To study the impact of innovative rooftop solar projects in India received
financing, especially the international to the project developers. Since the debt
from multilateral development banks. component in the financing package of
concessional funding available for
rooftop solar PV in India, financial The project funding usually comprises a typical solar rooftop project is quite
assessments of the resulting tariff and debt and equity components with a high, project financing terms play a
other leverage terms are compared. ratio of around 70:30, varying from significant role in reducing the project
This is done using a scenario analysis case to case. To evaluate the impact of tariffs and thus making the project more
approach, considering the loan adding CTF financing to the power tariff, viable. Also, since solar rooftop projects
tenure and the interest rates with and detailed financial modelling has been are mainly installed for the purpose
without concessional funding. The done, using a 100-kW rooftop solar PV of savings, reduced solar tariffs as
impact assessment of concessional project as an example and considering compared to the conventional grid tariffs
funding shall be useful to assess the two different scenarios—with and are a major driver. Thus, a scenario
resulting tariff that can support the without CTF funds. CTF funds, in this analysis considering two possible cases is
market sustainability of rooftop solar case, have been provided at the most done to compare the tariffs of a 100-kW
projects compared to the conventional concessional rates (as explained in Case solar rooftop system.
grid tariffs. At the same time, faster
deployment of rooftop solar shall add to Key assumptions for rooftop solar PV system
environment protection and reducing
carbon emissions from traditional Assumption Unit Value
conventional sources of power.
Installed Generation Capacity 100 kW

Capacity Utilisation Factor (CUF) 15%

Life of the system 15 years

Project Cost INR 54,000/ kW

Loan Repayment Period 10 years

Interest Rate with concessional funding (CTF) 8.5%

Interest Rate without concessional funding 10.5%

O&M Charges INR 600/kW

Annual O&M Expense escalation 5.72%

Annual Module performance degradation 0.5%

49
Considering the above assumptions, the financial impact on the projects with and
without concessional funding is summarised below:

Case 1: With CTF funding (blended with funds from multilaterals)

The concessional terms offered by a 10-year grace period, with principal Based on the assumptions in Table 8,
blended funds from CTF and multilateral repayments at 2% for years 11–20 and at the tariff was calculated as 5.08 INR/
development banks (World Bank and 4% for years 21–40. A management fee kW. Since lending terms vary with
ADB) to Indian banks (SBI and PNB) of 0.45% of the total loan amount will be the riskiness of the project, a scenario
have helped in bringing down the project applicable that will be capitalised from analysis is conducted considering the
financing cost by around 1.5–2% (i.e. the loan proceeds. These terms offered rate of interest to vary from 8.5– 9.75%
interest rate offered by SBI and PNB by CTF, blended with the concessional along with a repayment tenure of 10–20
under this line is MCLR + 20–50 bps), terms offered by World Bank and ADB years. The graph below summarises
which significantly improved the project (comprising a 19-year loan tenure with the impact on the resulting tariff
viability, both for RESCOs and the end additional an 5 years as a grace period, by varying the rate of interest and
consumers. CTF loans are offered with and interest rate as per the London repayment tenure.
a service charge of 0.25% per annum Inter-bank Offered Rate [LIBOR] for
on the disbursed and outstanding loan 12 months), have improved the project
balance and 40-year maturity, including financing terms.

Rooftop tariffs with varying interest rate and repayment period

Rooftop tariffs with varying Interest Rate and Repayment Period

5.00
4.96
4.92 4.94
4.95
4.92
4.91
4.89 4.90
4.90 4.88
4.84
4.85 4.83
4.82 4.82
4.79 4.80 4.81
4.80 4.79

4.75 4.77
4.76
4.76 4.76
4.70

4.65
8 10 12 15

8.50% 9.00% 9.50% 8.75% 9.75%

50 PwC
Case 2: Without concessional funding support
Considering the most likely scenario risks in different projects and differences repayment tenure. It can be clearly seen
of 11% interest rate and same tenure in lending terms, a scenario analysis that by varying the rate of interest and
of 15 years, a base tariff of 5.23 INR/ is conducted to compare the results. keeping the same repayment tenure, the
kWh is discovered (levelised for 25 The graph below presents the tariffs resulting tariff is higher than the one
years). However, considering varied after varying the rate of interest and discussed above.

Rooftop tariffs with non-CTF financing terms

Rooftop tariffs with varying Interest Rate and Repayment Period

5.40
5.33
5.28
5.30 5.24
5.20 5.25
5.20
5.20 5.17 5.16
5.13
5.12
5.10 5.08
5.10 5.07 5.05
5.03
5.00
5.00

5.00
4.90 4.97
4.96
4.94

4.80

4.70
8 10 12 15

10.00% 10.50% 11.00% 11.50% 12.00%

Thus, with the decrease in interest rates, for increasing the scale-up of rooftop An analysis of the potential for rooftop
the tariffs are improved to a certain projects. With this, many independent installations with the available funds
extent, thus making the projects more power producers (IPPs) have started reveals that more than 1 GW solar
viable. Hence, the contribution from showing interest in building a large rooftop capacity addition can be
CTF and other multilateral development portfolio of rooftop solar projects, targeted in the given duration of the
banks who are extending line of credit thereby increasing the deployment two programmes.15
at concessional rates to domestic of the rooftop market in the country.
banks is considered as a major factor

Based on the challenges faced by

Capacity addition with CTF and multilateral funds
the Indian rooftop market, including
the high cost of financing and high
Capacity Addition with Clean Technology Funds in WB and ADB program credit rating risk of consumers, CTF
contribution/support to domestic banks
World Bank Program Sep-21 Asian Development Bank Dec-22 is quite a significant factor in increasing
the deployment of rooftop solar PV in
India. Support to domestic banks by
SBI- Current Installation Status as of PNB- Current Installation Status as of providing concessional funding has
June 2018 June 2018 influenced market growth by reviving
Projects Sanctioned Capital Used Projects Sanctioned Capital Used ($ the interest of developers in the
(MW) ($ Mn) (MW) Mn) deployment of large-scale projects. CTF
575 356 104.59 63.86 has increased the market momentum for
rooftop projects by addressing the major
roadblock of project financing.
Possible Installations Capital Possible Installations Capital Available
(MW) Available ($ (MW) ($ Mn)
Mn)
400-450 269 700-750 436.14
Total Rooftop Capacity Addition 1700-1800 MW

15 For future installation, the solar rooftop PV installation cost is considered as 54,000 INR/kWp and a debt of 70% is assumed.

51
Transformative: Potential GHG emissions savings
PwC has projected the rooftop This estimate assumes a capacity
installation of projects in India with CTF of 1,911 MW of rooftop solar PV
money (see table on previous page). installation operating at a capacity
The projections are made considering utilisation factor of 15%, displacing an
the available funds and the sanctioned equivalent of around 2,511 GWh per year
capacity. Considering the estimated of ‘thermal-based’ power. A weighted
capacity of around 1,911 MW that can average emissions factor of 700 t/GWh
be deployed, it is estimated that GHG is assumed that accounts for decreasing
emissions of around 17,57,737 tonnes emissions intensity associated with high
of CO2 can be saved over the 25-year renewable energy penetration rates.
lifetime of the rooftop solar PV with CTF
support.

Development impact: Socioeconomic benefit

The impact of rooftop solar projects Stage 1: Business development related Stage 3: The estimated job creation
is not limited to the environment in activities in rooftop solar creates more in the construction and pre-
terms of reduction in GHG, but can be jobs due to the small size of individual commissioning phase is around
extended to socioeconomic benefits. projects and the necessity to reach out 13.84 job-years per MW, where
Hence, the impact of large-scale rooftop to a larger consumer base. Around 1.53 additional construction workers are
solar deployment in the country will be job-years are created per MW. required to undertake construction
on job creation. Rooftop solar is more activities, outsourced either to
labour-intensive than other ground Stage 2: The design and construction contractors or through independent
mount solar and wind. Rooftop solar phase is considered a single phase as the construction workers.
(based on a survey conducted by the size of individual installations is quite Stage 4: O&M activities engage additional
Council on Energy, Environment and small and hence, a single team oversees workers, especially in the RESCO model,
Water [CEEW]) provides 24.72 job-years construction and commissioning. Thus, where a dedicated team is employed
per MW in comparison to 3.4516 job- approximately 8.85 job-years per MW for regular cleaning and maintenance-
years per MW for ground mount solar. can be estimated, with most of them related work. Job employment estimated
Analysing the job creation across the requiring skilled (72%) and semi-skilled in the case of rooftop solar is around
complete value chain shows increased (20%) manpower. 0.50 job-years per MW.
job prospects in rooftop compared to
ground mount solar.

Thus, with the above job opportunities in solar rooftop, funds from CTF and
multilaterals can support the installation of 1,911 MW (refer to Table 9) of solar
rooftop projects. The jobs created in this stage of the value chain are calculated below.

Job opportunities with CTF funding

Rooftop Execution Stage Estimated Jobs Job-year/MW

Business Development 2924 1.53
Design and Construction 16913 8.85
Construction and Pre-Commissioning 26449 13.84
Operation and Maintenance 956 0.5

16 http://ceew.in/pdf/CEEW%20NRDC%20-%20Greening%20India’s%20Workforce%20report%2020Jun17.pdf

52 PwC
Looking ahead
With the advancements in PV The most likely scenario, on the other The pessimistic scenario represents a
technology, the cost of rooftop solar PV hand, represents a situation of business- situation of reduced/slow rooftop solar
systems has declined significantly and as-usual, where the rooftop deployment PV deployment with the non-availability
become economically viable in various continues with the prevalent market of any concessional funding support
segments. In some markets, rooftop interest rates @ 10–11% added through or any investment from multilaterals
systems are even cheaper than the subsidised interest rates available to support rooftop deployment. The
conventional sources of energy, yet the from the current CTF and multilateral assumption in this case is mainly the
on-ground implementation is far behind support. In this scenario, the deployment deployment of rooftop solar by relying
the envisaged target to achieve 40 GW is limited with the available concessions; on the domestic market and domestic
by 2022. Apart from pricing, other key hence, penetration of 30% of the funding sources where the cost of capital
drivers for rooftop solar deployment cumulative target capacity is assumed. is high. In this scenario, an assumption
in the country are the targets for CO2 The growth, however, is considered at of 20% deployment is assumed and
reductions and compliance with RPOs the same 10% level. Yearly projections projected at a growth rate of 10%
for those entities who are obligated to in this scenario represent 30% of the annually. Yearly capacity addition in
meet a certain part of their electricity government planned yearly targets and a this scenario is 20% of the government
consumption from renewable resources. subsequent 10% addition each year. planned yearly targets in FY19 and a
10% increase in consecutive years. The
Thus, three scenarios—optimistic, most
cumulative targets represent the total of
likely and pessimistic—are considered to
current rooftop capacity and the possible
project the possible growth in the rooftop
yearly additions in this scenario.
sector and the possible capital investment
required to support the growth. The projections considered are presented below:
The optimistic scenario defines the
Rooftop solar projections (GW)
scenario where concessional fundings
and other multilateral lines of credit
continue to support domestic banks FY19 FY20 FY21 FY22
and in turn optimise the interest rates. Government targets 16 23 31 40
These additional funding sources shall
Yearly capacity addition 6 7 8 9
eliminate/reduce the biggest challenge
to project financing in the case of Estimated cost (billion USD) 4.91 5.15 5.30 5.37
rooftop solar PV projects in India. Optimistic scenario 40% 50% 60% 70%
The assumption made in such a case
Cumulative capacity 3.46 6.96 11.76 18.06
is that with reduced interest rates, an
improved percentage of rooftop solar Yearly capacity addition 2.4 3.5 4.8 6.3
PV can be deployed (around 40% of Estimated cost (billion USD) 1.96 2.58 3.18 3.76
the yearly capacity addition projections
and increasing the penetration by 10% Most likely scenario 30% 40% 50% 60%
each year). The cumulative capacity in Cumulative capacity 2.86 5.66 9.66 15.06
this case represents the total capacity
Yearly capacity addition 1.8 2.8 4 5.4
commissioned as on March 2018 and
the additional yearly capacity that Estimated cost (billion USD) 1.47 2.06 2.65 3.22
can be captured. Pessimistic scenario 20% 30% 40% 50%
Cumulative capacity 2.26 4.36 7.56 12.06
Yearly capacity addition 1.2 2.1 3.2 4.5
Estimated cost (billion USD) 0.98 1.55 2.12 2.68

53
Thus, with the above projections, the to survive on domestic lending terms compared to conventional grid tariffs
total debt and equity requirement in and become a self-sustained sector. to increase uptake. Thus, concessional
each year is estimated assuming a Hence, concessional funds need to focus funding, at this point, is key to scale up
reduction of 10% in the rooftop system into two broad categories: the rooftop sector in India. To achieve the
cost each year (base year - FY 19, rooftop projected capacity, concessional funding
• Investment support
cost considered is 54,000 INR/kWp). will play a major role.
• Advisory support
However, to achieve the projected Thus, estimating the debt and equity
targets, there is a strong need for The most important need in the rooftop investments will support the investment
concessional funds or international line sector is investment support through need/opportunity in the country for
of credit to support deployment. The concessional funding sources (in terms deploying rooftop solar. The debt to
market for solar rooftop has yet not of debt sources and/or private equity equity ratio is assumed to be constant at
reached a maturity phase to survive on sources) as the market for rooftop, 70:30, following the project financing
domestic funds. With the grid tariffs compared to other markets like large- norms of IREDA and other banks like
also getting reduced, the rooftop tariffs scale utility solar, is not mature enough to SBI, PNB and Yes Bank for all customers,
need the strong support of concessional achieve viability without the availability including customers with a low credit
funds to complete with the existing grid of concessional funds. Domestic loans rating. Thus, to achieve the yearly
tariffs. Domestic loans, as compared to increase project cost, which in turn capacity additions for rooftop solar PV,
concessional funds, are quite expensive increases tariffs. Rooftop projects are the total investment and subsequent debt
and that makes rooftop projects unviable mainly installed under a savings model; and equity requirement in each scenario
for consumers. Thus, the rooftop PV hence, tariffs needs to be competitive are projected in the graphs below.
market needs more scale and experience

Investment portfolio for rooftop solar

Y-o-Y investment (billion USD)

3.00
2.63
2.75
2.50 2.23
2.25 Debt
Investment (billion USD)

2.25
2.00 1.80 1.86 1.88
1.75
1.37 1.44 1.48
1.50
1.25 1.08 1.127
1.03
0.954
1.00 0.97 Equity
0.69 0.77
0.75 0.80
0.62 0.81
0.50 0.59
0.44 0.64
0.25 0.46
0.00 0.29
FY 19 FY 20 FY 21 FY 22

Debt optimistic Debt most likely Debt pessimistic

Equity optimistic Equity most likely Equity pessimistic

Assuming the above targets and different scenarios of possible rooftop deployment in
the country, the total investments that shall be required are projected below. The system
costs are assumed to be declining by 10% in the initial years until 2022 and later on, the
system cost is assumed as constant. The figures below show the cumulative investment
that will be required if the above projected targets are to be achieved.

54 PwC
Cumulative investment to achieve projected rooftop solar growth

Cumulative Investment (billion USD)

60.0 56.84
52.39
48.26
Investment (billion USD)

50.0
44.11
39.81
40.0 35.35
30.77
26.86 28.8
30.0 23.35 26.4
24.2 24.7
20.11 21.4 22.6
16.58 19.2 20.6
20.0 16.9 18.3
12.81 14.4 16.4
11.2 14.4 12.0
10.5 12.2 11.1
7.6 8.8 9.6 8.1 8.6 9.2 10.7
10.0 5.04.1 6.3 7.0 7.3
2.8 2.3 4.6
3.1 4.9
1.8
0.0
2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030

Optimistic (billion USD) Most Likely (billion USD) Pessimistic (billion USD) Targets (billion USD)

Looking at the above investment Feasibility stage

requirements and investor interest in
the Indian rooftop sector due to the This is the first step for project The rooftop market, being quite
government’s strong vision, various development. If concessional funding is nascent, based on the uptake of just 1.2
innovative (international) financing infused at this stage, then it accelerates GW compared to 21.8 GW large-scale
instruments have been tried and tested the overall planning, construction and utility solar, requires support in terms
to drive investments in the sector by implementation process of the project of concessional funding, in addition to
addressing the debt financing barriers with the availability of subsidised advisory support in the form of capacity
and the equity risks of developers. loans/funds incentivising developers building and training programmes for
to aggregate more projects. Developers the stakeholders. Concessional funds
The current sources of debt funding will need to infuse lesser equity or will shall initially support the market growth,
include (refer to Figure 45). get access to loans at nominal interest until the market has reached a self-
1. Domestic sources: Commercial rates, which effectively improves tariffs sustained phase where domestic funding
banks, NBFCs, insurance companies and hence makes projects more viable. makes the projects viable for both
and capital markets With the availability of subsidised loans, consumers as well as developers.
the resulting tariff is also reduced,
2. Foreign sources: Financial thus decreasing the financial risks Another important focus of concessional
institutions, pension funds, charitable involved in the project. funds can be advisory support,
institutions, multilateral/bilateral to bridge the gap amongst various
agencies and international banks stakeholders involved in the deployment
Construction stage
The sources of equity funding mainly of rooftop solar PV. Hence, a major
include funding from the parent Concessional funding, infused in the contribution in terms of capacity
company where equity investments construction phase of the project, building of stakeholders—namely
comprise funds raised from pension impacts the overall cost of the project. distribution utilities, SNAs and banks/
funds, promoter equity, IPO and private With funds available at a subsidised financial institutions—is required. At
equity. This type of foreign concessional rate, the construction can be faster. the same time, Central agencies like the
funding is supporting the growth of The developer will need to infuse the MNRE and Solar Energy Corporation of
the rooftop solar market; however, equity at the initial stage and the initial India (SECI) require capacity building to
to reach the maturity phase, there is lending rate will be higher compared support the scale up the plan for rooftop
a strong need for continuity of these to a subsidised loan provided at the solar. Some of the activities that need to
funding supports until the market is feasibility stage. be covered under the capacity-building
self-sustained, as in the case of the activities for these stakeholders are:
US and Germany. Execution stage 1. Distribution utilities: In order to
Rooftop solar projects require a penetrate rooftop solar PV at a
constant revenue stream in various This is the third stage of the project fast pace, there is a strong need to
stages and for smooth construction. life cycle when the construction is support the distribution utilities in
The project construction life cycle completed and the rooftop plant is ready activities that involve:
from the pre-construction stage to the for operation. Concessional funding at
this stage will support the developer A. Standardisation of rooftop
completion stage requires funds for application formats (defining
developers to ensure timely delivery of in improving project economics and
offering concessional rates for the processing time for grant
the project. Hence, the availability of connectivity approvals) so
concessional funds at each stage is an rooftop systems.
as to allow fast deployment
incentive to stakeholders: of the systems.

55
 B. With the technological 2. SNAs/regulators: Another important B. Strong need to design a scheme
advancements, there arises a stakeholder where handholding/ to incentivise distribution utilities
strong need to conduct technical capacity building is required is the for customer loss due to rooftop
skill development activities for SNAs or state regulators. The focus and accommodate the variability
the DISCOM team. areas for them include: of small-scale rooftop solar PV
C. Since solar rooftop comes systems into the grid. DISCOMs
A. Capacity building/training
with its challenges of variable have been struggling to uptake
programmes – training on efficient
generation, there is a need to this programme; hence, an
demand aggregation in the respective
ensure efficient methods of demand incentive scheme is the most
states, skill development training
aggregation to meet the demand important need in order to
programmes for the officials,
with larger systems in place of capture DISCOM interest.
learnings on new and feasible
standalone systems. business models for rooftop C. Another area of focus is introducing
D. To support the banks/financial deployment, support in enabling mandates for new buildings
institutions in ensuring the market design for allowing larger above 500 sq yd for rooftop solar
credibility of the projects, there rooftop penetration; installation to support large-scale
needs to be a focus on supporting B. Study tours to learn from successful deployment in residential areas.
DISCOMs in standardisation of international programmes; 5. SECI: It is another important link in
PPA that should include deemed
C. Efficient methods for rooftop vendor the Central Government to support
generation, right of way, etc.
empanelment based on technical the large-scale implementation
E. To gain experience from experience of the vendors. of the rooftop programme. SECI’s
successful rooftop programmes role includes:
3. Banks/financial institutions: Banks
in international markets, study
are a very important link in the solar A. Create a market for deploying
tours need to conducted for
rooftop value chain. Though with the rooftop solar PV in the country.
DISCOM officials.
availability of concessional funding
F. To successfully co-ordinate the B. Bring government establishments
and international lines of credit
power requirements of consumers, a on board to support the
at concessional rates, the biggest
strong link between generation and implementation of the
challenge of project financing in
transmission needs to be ensured; projected targets.
solar rooftop is finding a solution.
hence, empowerment of Area Load However, beyond availability of funds Hence, funding sources are required
Dispatch Centre (ALDC) needs at concessional rates, there needs to to support the above stakeholder
focused attention. be an increased focus on the capacity- activities through customised
G. With the evolving scale and special building activities of banks. Some of capacity building programmes.
technology, training/capacity- the areas that need attention include:
Currently, the various multi-/bilateral
building operations need to be
A. Training sessions for officials to develop agencies investing in the Indian solar
conducted for development/testing/
a simplified loan appraisal process; rooftop market are focusing on TA
piloting of business models to
B. Identification of new and innovative programmes for capacity building
accommodate electric vehicle-energy
lending and insurance products; of various stakeholders. The World
storage-rooftop.
Bank (GEF) and ADB have already
H. Lastly, to manage the most C. Empanelment of lenders’ engineers
committed 23 million USD and 5
important challenge of small-scale to make the due diligence process
million USD for capacity building of the
rooftop projects, technical expertise more efficient.
respective commercial banks and other
to be provide for grid integration of 4. MNRE: The ministry is the main arm stakeholders supporting the rooftop
the rooftop system based on some of the renewable energy programme. deployment. Other capacity-building
international experiences. Hence, there is a strong need to provide programmes have been launched by
advisory support to the ministry to KfW and other development banks.
enable it to achieve the 2022 target of Hence, along with the investment
175 GW. Considering rooftop solar, there activities, these capacity-building
should be focus on capacity-building activities play a significant role in the
activities in order to support the MNRE increased deployment of rooftop solar
in achieving the following goals: PV in the country.
A. Creation of a common platform to Thus, concessional funding support
enable all stakeholders (developers, in the form of debt or equity and
EPCs, financial institutions) to capacity building will be required in
interact and share the challenges order to deploy rooftop solar PV in the
faced in the execution of the country. Lack of concessional funds
current programmes/schemes. The might increase the project financing
platform will enable stakeholders as cost, which might in turn disrupt
well as the MNRE to support large- market growth and slow down rooftop
scale deployment by considering penetration in the country.
a reasonable solution to the
challenges identified. It will provide
a common platform to share
successful examples and hence
support the implementation scale.

56 PwC
Appendix: Stakeholder
consultations – key messages
During the study, the major stakeholders Banks/financial institutions
responsible for rooftop deployment in
the country were consulted. Various PwC interviewed various banks and
banks/financial institutions and financial institutions from the government
rooftop developers were approached and private sector. Of the total banks and
to understand the growth expected in financial institutions interviewed, 40% are
rooftop solar and also the impact of from the private sector and 60% from the
concessional funding like CTF on the government sector.
rooftop penetration scale.
Banks providing finance to the rooftop Methodology
sector were approached to understand PwC prepared a questionnaire that was
the need for concessional funding in discussed with the relevant stakeholders.
order to improve the project financing The questionnaire focused on including
terms in the case of small-scale the banks’ view on the rooftop solar
rooftop solar projects. CTF has been market potential, covering the current
one of the sources to improve project status and future expectations to support
financing; hence, to compare the the deployment of rooftop PV to achieve
difference, both banks (receiving CTF the 40-GW target. Since the focus of
funds and banks with no CTF funding the discussion was to understand the
line) were consulted. challenges faced by banks/financial
Developers, mainly large-scale institutions in supporting the rooftop PV
aggregators, were approached to market, the team also tried to gather the
compare the difference in installation/ banks’ views on concessional funding
financing terms with access to lines of and the role played by these institutions
credit from banks. Since the current lines in supporting the scale-up plan.
of credit majorly support the aggregation
model, developers were consulted to The team tried to conduct these
understand the impact of this evolving consultations in person; however, a few
business model and the subsequent of the discussions were conducted over
growth foreseen with this model. the telephone based on the availability
of the stakeholders. A summary of the
discussions held with the banks and
financial institutions supporting the
solar rooftop programme in India is
presented below.

57
Discussion points

All the banks and financial institutions of PPA terms (no inclusion of deemed prefer to adopt a fixed methodology of
consulted have a more than 40% share of generation or right-of-way terms in aggregating projects (like specifying
the solar market, out of which the share private PPAs) which makes the projects location and size) so that resource cost in
of the rooftop solar market is at least 5%. quite risky and hence delays/increases conducting due diligence is saved.
Traditionally, banks charge an interest of the financing costs. Additionally, most
10–11% to IPPs for rooftop developers. rooftop projects have an off-taker risk Thus, our discussions reveal that banks
These banks offer a higher interest rate as the buyer of electricity from plants is are largely interested in funding/
due to the absence of any concessional mainly the end consumer whose credit supporting the rooftop scale-up plans.
funding support. However, other banks rating is a challenge in most situations. However, concessional funding should
with concessional funding support are The size of rooftop projects is another be available for them to complete the
providing loans to developers at a rate big challenge for banks as the efforts financing terms of other banks and,
of 8.35–10.55% depending on their required in loan closure of large projects at the same time, challenges on PPA
credit ratings and risks in the proposed are similar to those in small projects, standardisation, etc., should be resolved
projects. The portfolio of projects for which actually increases the financing at the Central level. Additionally, a few
rooftop financing for the interviewed cost of smaller projects. This is why most banks also expressed a huge need for
banks varies from 1 kW to 1 MW for a banks have preferred to finance projects capacity building/awareness creation
single project. under the aggregation model, where a on solar rooftop projects among the
portfolio of projects can be funded to various stakeholders involved, including
Since the rooftop market is at quite make the financing terms viable. Most DISCOMs, corporates, SMEs, individuals
a nascent stage compared to large- banks, as per discussions conducted, and lenders. Lastly, banks are seeking
scale projects, banks face challenges have no fixed selection methodology and policy and regulatory support from the
in successful disbursement of loans. rely on the portfolio presented by the government in terms of timely approvals
One of the biggest challenges faced by developers. However, certain banks that and clearances of rooftop projects.
most banks is the non-standardisation have a limited presence in the country

Solar rooftop developers

PwC interviewed various leading private funds as a challenge. Developers fear bulk at reasonable rates. This model is
developers of rooftop solar PV in India. that once the funds are exhausted, the expected to lower the cost and make
Since the scale of rooftop achieved in interest rates might increase, leading the system viable for various categories
India is around 1 GW, developers do not to slow progress in the rooftop sector. of consumers. Thus, most developers
have large portfolios. However, with the Since the scale of rooftop projects is find concessional funding a major
increasing availability of low-cost financing, small, most developers prefer domestic contributor to the growth of rooftop PV
developers have a huge portfolio in pipeline. financing and hence domestic financing and also envision faster deployment in
will be costly if no concessional funding the future with these funds available at
Methodology support is extended. reasonable rates.

PwC prepared a questionnaire asking Another challenge that affects the In terms of business model, most
relevant questions to stakeholders related scale-up of rooftop is the subsidy for developers are of the view that there is
to the rooftop solar sector in India. The residential and government-owned no single business model that fits the
questionnaire covered their areas of buildings. The residential sector has requirements of all customers in India,
interest and views on future growth as well huge potential, but delay in subsidy unlike the case in Germany and the US.
as the challenges faced by developers in affects the financials of developers Hence, business models in the Indian
the scale-up of the rooftop portfolio. The and results in loss of interest among rooftop market need to be customised
consultations were conducted in person to residential customers. These delays do based on the needs of the end customers.
gain insights from the respective experts not allow the sector to grow. Subsidies These models will keep evolving based
in the firm and understand the company’s also make project financing a challenge, on the changing needs of customers.
vision towards rooftop PV growth. as most of them are pre-conditioned
to the use of domestic modules, which Thus, developers also see huge potential
puts financial institutions (international for growth in the rooftop sector.
Discussion points funding agencies) under the risk of However, the challenges like design
generation/quality of projects. Thus, the constraints due to limited roof size
PwC consulted various developers, and delays in net metering need to be
projects are on hold for a longer duration
most of whom highlighted a similar set addressed to gain the required scale in
and at the same time become costly. This
of challenges. The biggest challenge the rooftop PV sector, which shall evolve
affects deployment in these sectors.
includes the non-standardisation of with increased penetration.
PPAs, which increases the risk of the The aggregator model is the most
project and, in turn, makes project preferred model by developers as it
financing a challenge. The availability of gives them a leverage to procure loans
CTF funds (concessional funds) to banks at reasonable terms by presenting the
has brought in significant momentum portfolio of projects and at the same time
by reducing the interest rates for rooftop provides a scale to developers which
projects; however, the developers also helps them in procuring materials in
perceive long-term availability of these

58 PwC
About PwC
At PwC, our purpose is to build trust in society and solve important problems. We’re a network of firms in
158 countries with more than 2,36,000 people who are committed to delivering quality in assurance,
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www.pwc.com/in

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separate, independent and distinct legal entity. Please see www.pwc.com/structure for further details.

© 2018 PwC. All rights reserved

About CTF
The $5.8 billion Clean Technology Fund (CTF) provides resources to scale up low carbon technologies
with significant potential for long-term greenhouse gas emissions savings. The fund is empowering
transformation in developing and emerging economies by providing resources to support innovative and
first-of-their-kind renewable energy, energy efficiency, and sustainable transport projects. The Dedicated
Private Sector Programs, created under the CTF to finance large-scale private sector projects with greater
speed and efficiency, have allocated a total of $467 million to geothermal power, mini-grids, energy
efficiency, solar PV, and early-stage renewable energy programs so far. Close to $5 billion in CTF funds
have been approved and are supporting the implementation of more than 100 projects and programs
expected to support total climate-smart investment of more than $50 billion.

About the authors

This point of view has been co-authored by Amit Kumar, Vibhash Garg, Vaibhav, Saachi Singla
and Prateek Girdhar.
Amit Kumar is a Partner and leads the Clean Energy practice for the firm. Vibhash, Vaibhav,
Saachi and Prateek are a part of the renewable energy team in the firm.
Contact us
Amit Kumar Saachi Singla
Partner Assistant Manager
amit2.kumar@pwc.com saachi.singla@pwc.com

Vibhash Garg Prateek Girdhar

Director Consultant
vibhash.garg@pwc.com prateek.girdhar@pwc.com

Vaibhav Singh
Associate Director
vaibhav.1@pwc.com

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