The PM Free Solar Power Scheme- Challenges Ahead

The Pradhan Mantri Surya Ghar: Muft Bijli Yojna (PMMBY), going by the hype around it, has achieved one of its key objectives already. Perhaps no other announcement around solar has triggered the sort of coverage and expectations  like this single announcement from Prime Minister Narendra Modi to power 10 million households across India with solar power. As you would expect, it has also taken interest in solar power to another level among the broader population, as they consider the potential benefits for themselves. Promising free power upto 300 units for beneficiaries, the scheme has also tackled the issue of financing after subsidies as well, by roping in multiple agencies to ensure its available. What’s more, by farming out regionwise responsibility to a host of energy related PSU’s, the government has made a final effort to ensure intent is followed by action it can control and drive.

Initial reaction from many was that the scheme was a poll driven initiative. Or a quick fix to align India’s solar rooftop numbers with it’s global peers like the US, China and Europe. And of course, a strong lifeline for the young, emerging solar manufacturing ecosystem, that counts small firms, as well as corporate giants like Reliance and the Tatas and the Adani Group among its players.

Leaving us with the big question? Will it work? Or more importantly, could it work better than the current model envisages?

Optics Or Well Planned? 

Vinay Rustagi, Senior Director, and Global Head of Renewables At ratings and research agency CRISIL offers an interesting counterview. “The residential market has been performing at a very low level despite the 40% subsidy available, with volumes at just around 600-700 megawatts every year. The potential obviously is very, very large.”

But he points to the experience so far with subsidy driven solar schemes to make a key point. “The problem that we have seen with subsidy driven schemes is that when you give out an upfront subsidy, then there is no onus on anybody in the whole value chain to make sure that a good quality system has been set up designed to work optimally for the 25 year life of the system”. He adds, “Very often we have seen that rooftop solar or agri pump installations start heavily underperforming within two or three years.” In other words, Rustagi makes the point that with minimal stake in the effective running of the solar system, the system itself might not perform to potential or even deliver the benefits as promised. It’s an important issue, when we consider that in semi rural and rural areas, the O&M of small solar plants has been the biggest issue to tackle.

And then there is the matter of optics over results. Rustagi points out that depending on how we look at the financial commitment behind the scheme, in the form of direct subsidy of Rs 75,000 crore plus that has been allocated, to the government being the backstop for loans that will be provided for the remaining amount in many cases, the total government commitment behind the scheme could be as high as Rs 150,000 crores. “That is a staggering cost for the tax-payer at over 10 times the figure committed by the government in subsidies to the renewable sector as a whole with limited commensurate upside”, he adds.  Quite simply, the investment is not optimum in terms of the benefits it could have created elsewhere, be it storage, utility scale, C&I or even a more calibrated residential solar plan.

However, it does seem that this feedback is already making itself felt, as reports have been published that claim that the scheme will be tweaked to ensure that government exposure is capped at 60% of the costs. Households interested in availing the scheme’s benefits will have to fork out the balance amount and pay a minimum of Rs 20,000 depending on the power capacity of the installed system though this could be defrayed by a low-interest, collateral-free loan. Formal confirmation is of course awaited.

Will The PSUs Deliver Without Experience?

And then there is the issue of these PSUs capability. As already pointed out by SaurEnergy, with no experience of dealing at the retail level there is the real risk of a steep, and expensive learning curve for many of these firms. That could mean completely suboptimal result in terms of installation, implementation, performance, etc, especially in the initial stages of implementation.

Rustagi points out that even before the announcement, policy support in the form of a 40% subsidy, net metering existed, which are attractive for most customers.  By offering free financing for the rest now, the government takes all risk away from the house owner. Making it clear that a focus on educating the customer to ensure better uptake would have been a better option, he adds that even if the thought was to target solar laggards like say, states in East India, there was a serious doubt about the scheme helping these states, as they lack the support infrastructure to take advantage at the same scale. It’s a point that is vindicated by early signs that it will be current leader Gujarat that will add numbers fastest, besides ambitious targets of as high as 2.5 million households laid out by a richer state like Tamil Nadu to take advantage of the scheme.

Who Will Benefit? 

On the logic provided by supporters that the scheme will lead to higher accessibility of solar for hitherto deprived sections, Rustagi points out that the eligibility conditions do not mention any specific constraints linked to income etc. In other words, the risk that relatively better off, aware consumers benefit disproportionately from the scheme is very real. In fact, many consumers who were happy with the previous subsidy regime and looking to move ahead will now wait for the higher subsidies.

In his view, the residential rooftop scheme as it existed was quite attractive, and the challenges holding it back were more about awareness and local support at discom level or more. Fixing this apathy remains relevant even in the new scenario of higher subsidies, while increasing the risk of wastage due to pressure to meet targets.

Thus, while most industry experts believe the reported deadline of 2026 is impossible for the scheme to be implemented, achieving anything over 10 GW by then would be a creditable achievement in terms of sheer logistics and execution. The question is, would that be the best way to support the growth of solar and renewables?