How does the electricity (Rights of Consumers) rules, 2020, impact the rooftop solar market?

The Electricity (Rights of Consumers) Rules, 2020 marks a remarkable development in power market reforms in India. This is because, for a long time, the discourse around these reforms has centred around addressing the infrastructural, financial, and market-based needs of the three wings of the power sector – generation, transmission, and distribution. Consumers, on the other hand, have not had a fair share of the pie and many continue to receive intermittent and poor-quality electricity. A recent CEEW study suggests that an average Indian household receive only 20.6 hours of power supply from the grid per day.¹ Further, ‘two-thirds of rural and two-fifths of urban households still face outages at least once a day’.² In a scenario like this, the Electricity (Rights of Consumers) Rules, 2020, if implemented properly, can go a long way toward empowering consumers with rights that would allow them to access continuous and reliable power supply.³ It can make discoms more accountable and encourage them to provide better quality and service to its consumer base. 

Empowerment vs Choice

An analysis of the rules reveals that one particular provision within the rules detracts from the intent of empowering consumers. This provision limits the choice of consumers interested in setting up rooftop solar (RTS) systems by limiting the provision of net-metering to loads up to 10 kW. The provision can cause owners of larger RTS systems to miss out on the benefits of net-metering. It also creates ambiguity in the minds of consumers given that the net-metering regulations of most states have a limit of 1 MW for availing benefits.⁴ Such limitations on choice and ambiguity with existing state net-metering regulations can certainly limit the implementation of the rules and empowerment of consumers. Based on feedback from various stakeholders, the provision is already under review by the Ministry of Power.⁵ In this analysis, we discuss the implications of this change for a lay consumer and also for the RTS sector. 

Impact of 10kW restriction on RTS buyers

The rules allow a prosumer to opt for net-metering for loads up to 10 kW and gross-metering for loads above 10 kW.⁶ For a lay consumer interested in setting up an RTS system, net-metering and gross-metering offer widely different returns on electricity production. In the net-metering arrangement, effective compensation happens at the retail rate of electricity supply for the consumed units of power and the surplus exported to the grid may or may not be compensated depending on the state’s net-metering regulations.⁷ In the gross-metering arrangement, on the other hand, a consumer is compensated at a fixed tariff for the total electricity generated and exported by the system to the grid. Electricity consumed from the grid is charged at the retail supply tariff. Thus, in effect, net-metering allows consumers to be compensated at the retail supply tariff while gross-metering compensates consumers at the comparatively lower tariff.⁸ As per the rules, owners of 10 kW and above RTS systems will be limited to gross-metering, and given current state regulations, will receive significantly lower compensation. For example, the retail tariff for consumers ranges between INR 3.9/kWh and INR 18/kWh⁹ while the tariff for commercial and industrial consumers ranges between INR 1/kWh and INR 9.5/kWh.¹⁰ However, in most states, consumers receive payment for the production of electricity at the state average power purchase cost (APPC), which is significantly lower – the national level APPC was INR 3.60/kWh in FY20.¹¹ The initial CAPEX of installing an RTS has reduced but it is still a significant investment for many. Hence such small compensation for excess generation for larger RTS is not economically viable.

Challenges in implementing the 10kW restriction

To incentivise the deployment of RTS, states and union territories (UTs) have notified net-metering policies. Currently, there are about 20 states and UTs which allow for both net-metering and gross-metering and 16 states and UTs that allow only net-metering. The minimum and maximum system sizes are set at 1 kW and 1 MW for 22 states. Many states permitting net-metering compensate for export of surplus at the APPC rate or at a fixed rate determined by the state electricity regulatory commissions (SERCs) (Annex 1). The provision on net-metering in the Electricity (Rights of Consumers) Rules, 2020, contradicts parameters related to system size and compensation for electricity production in state-notified net-metering regulations, and hence its implementation will pose a challenge.

Way forward

With an installed capacity of merely 4.2 GW of grid-interactive RTS thus far, the RTS sector is far from achieving its true potential in India.¹² There are several reasons for the poor growth of the RTS sector. Topmost among them are lack of consumer awareness about innovative models that reduce technology costs, poor access to finance as banks and financial institutions are not actively extending loans to the sector, and rising policy uncertainty due to discoms’ fear of losing high-paying commercial and industrial (C&I) consumers. Developing a robust RTS market can have huge macroeconomic dividends for the country. Deployment of rooftop solar can create a large number of jobs as it is much more labour-intensive than other renewables providing 24.72 job-years/MW as compared to 3.45 job-years/MW for ground-mounted solar.¹³ It also stands to benefit MSMEs (by reducing their electricity cost) that form the backbone of the Indian economy, contributing 6.1 per cent to the GDP.¹⁴ Thus, it is imperative that efforts need to be made to address the challenges faced by the sector. Few suggestions to this effect are as follows:

Metering arrangement and compensation - Net-metering policies have been subject to a lot of uncertainty in the recent past – for example, cancellation of net-metering for commercial and industrial consumers by the Uttar Pradesh government and provisions for grid support charges for net-metering RTS systems in Maharashtra.¹⁵ The main reasons for this uncertainty stem from discoms' fear of losing revenue from C&I consumers. We suggest the following recommendations to create a win-win situation for both discoms and RTS system owners:

•  Consumers’ choice of metering arrangement should not be limited by system size. If limitations are required, they should be based on the consumer category. A CEEW study shows that discoms stand to benefit the most from residential RTS installations and hence such installations should be incentivised rather than facing unnecessary restrictions.¹⁶
• C&I consumers make up 70–80 per cent of all onsite RTS solar installations in India.¹⁷ Gross-metering is not sufficient to incentivise RTS deployment for these consumers. Compensation for C&I consumers should at least cover the levelised cost of installation of the system. The prevalent system of compensation at the APPC rate is not economically viable.
• Another alternative is changing the accounting period of net-metering from monthly to real time. Through smart metering, discoms can calculate the net injection into the grid. Any additional injection can be paid at a nominal rate (say INR 1/unit). Hence, this allows consumers to be net-metered until their consumption and also incentivises them to shift their consumption to hours with maximum solar generation. 

Designing suitable compensation mechanism - The value of the power generated by RTS systems and how much discoms should be paying for it can be determined by calculating the costs and benefits of an RTS system. The Valuing Grid-connected Rooftop Solar (VGRS)¹⁸ framework developed by CEEW can be applied by discoms to appropriately price the power from RTS systems. The centre should require state regulators and discoms to value the services from RTS systems using the VGRS framework. The tariff policy may be amended to require regulators to enforce this assessment by discoms. This framework helps determine the accurate price for the power generated from RTS systems depending on the consumer and load profile of each discom. For example, a CEEW study showed that a discom in Delhi stood to benefit the most from residential RTS installations (net gain amounts to INR 0.22 per unit of electricity generated from a RTS system) and hence recommended that such installations be incentivised.¹⁹

Conclusion 

The Electricity (Rights of Consumers) Rules, 2020, empowers consumers by assuring them reliability of electricity supply and a grievance redressal mechanism, accountability, and transparency in terms of processes and timelines. But the system capacity restriction on the choice of compensation mechanism for RTS prosumers is neither fair nor empowers consumers in any way. Thus, this needs review. Further, RTS system owners are also consumers and hence concerted efforts to address this challenge should be made. These efforts can go a long way in scaling the RTS market and can drive jobs, growth and sustainability for the country. 

Recently, the Ministry of Power has shared a draft to amend the Electricity (Rights of Consumers) Rules, 2020. The draft has now allowed net metering to prosumers for loads upto 500 kW. Other accounting arrangements such as net-billing or net-feed-in have also been introduced.

Annexure

Table 1: Net-metering policies of states (updated till December 2020)

Source: CEEW-CEF analysis