Solar Subsidies. Is It Time To End Them?

Solar subsidies, like every other subsidy before them, had a noble purpose. To encourage, and enable the adoption of solar power, a cleaner power. It also joined a relatively select group of subsidies, by being open to almost every category of consumers for a while, before being restricted lately to the rooftop solar category.

However, like too many subsidies, subsidies to encourage solar adoption have delivered questionable results. Not only has rooftop solar struggled to spread in India, one of the biggest issues cited for the troubles has been the difficulties with claiming subsidy amounts, and general discom resistance through complicated paperwork or delays.

Consider how PSPCL, the Punjab state discom asked for empanelment of vendors for its rooftop solar scheme, while charging a fee of Rs 50,000 from the bidders. By the end of the exercise, the new discovered price of Rs 37,000 per Kw was so low , that after the government subsidy (40 percent), the effective consumer price was barely Rs 22,200. So has it led to a boom in solar rooftop installs? Not even close to it. While the lockdown has put a halt on installations for now,  vendors we spoke to made it clear that while consumer interest was high, the interest at vendor level was very low, mainly due to the low prices, and the killer, uncertainty on receiving the subsidies due on time.

This week, another industry association in another state, Uttar Pradesh, has circulated a letter addressed to the state Chief minister and state power minister, asking them to ‘donate’ the subsidies due to be paid to solar vendors in the state for fighting the Covid epidemic. The interesting part here is not the generosity of the association, but their indication that as the state has paid no subsidies till date this year, and has given no indication for the same too, it might as well use the money for a ‘good ‘ cause now, and consider it a ‘donation’ from the state association.

Hill states, where subsidies are even higher than ‘normal’ states, going upto 70 percent, have a similar tale of poor responses, although it i interesting to note that the discovered price in states like Uttarakhand is almost Rs 50,000, leaving a lot more for the installer by way of margins, as compared to Punjab, UP and many other states.

Increasingly, in state after state, the feedback is similar. Subsidies are distorting the market in ways never imagined. For one, consumers are put off by the paperwork of getting subsidies, sometimes deferring the decision to go solar altogether.  Or vendors have suffered heavy losses, or even gone belly up, thanks to delays in receiving subsidies. From a few voices, today, we believe a majority of installers believe that more than subsidy, the cost of compliances and regulation is a bigger deterrent for rooftop solar.  It’s a story that is true of almost every business sector in India.

Subsidies have also distorted the market in other ways. There is a cohort of firms whose competency lies in getting subsidies released, and not the quality of the work they do.

The case for doing away with subsidies, or saving them for those who truly need them, like off grid areas and mini-grids, and even distributed solar products like solar cookers, lamps, heaters and the lot, is strong. It is time the government gave serious thought to it. It is already sitting on the data on subsidy distribution, and the performance of those projects. In the rooftop segment at least, anecdotal evidence suggests that neither the numbers, or the performance, will pass muster with any fair evaluation . Perhaps that explains the sharp shift towards rooftop solar through the PSU adoption route now, besides the railways and other large bodies. One hopes the government has not given up on residential rooftop solar as a possibility.

The MNRE, which has moved fast and furiously to protect and ensure the survival of the utility solar and renewable sector broadly, needs to seriously consider giving the same attention and focus on deregulating and simplifying the residential rooftop  segment. Low prices, tougher and must achieve RPO (Renewable Purchase Obligations) norms for discoms, and a much more aware consumer segment indicates the time for rooftop solar to rise is here.  Can we really afford too miss it, considering the potential it offers in terms of jobs, energy transition and even support for domestic manufacturing?