PM Surya Ghar-Muft Bijli Yojana- The Winners and Losers

PM on 22 Jan. 2024 announced PM Suryoday Yojana for installation of Roof Top Solar on 10 million Houses aimed at equipping 10 million households with rooftop solar installations with an objective of providing free electricity up to 300 units per month. Subsequently, the name of the scheme has been changed to “PM Surya Ghar- Muft Bijli Yojana”.

The primary objective of the PM Surya Ghar- Muft Bijli Yojana is to address multiple facets of India's energy landscape. Firstly, it aims to promote the adoption of clean energy sources, particularly solar power, as a means to mitigate the environmental impact of traditional fossil fuel-based electricity generation. By encouraging households to install rooftop solar panels, the scheme contributes to reducing carbon emissions and combating climate change. Secondly, the scheme seeks to decrease the nation's dependence on fossil fuel sources, thereby enhancing energy security and reducing vulnerability to fluctuations in global fuel prices. Thirdly, by providing sustainable electricity solutions to households, especially in rural and underserved areas, the scheme aims to improve access to reliable power, thereby fostering socio-economic development.

The scheme will be implemented in RESCO (Renewable Energy Service Company) model which is a financial arrangement commonly used in the renewable energy sector, particularly for solar projects. In the RESCO model, a third-party developer (CPSUs in this case) finances, installs, owns, operates, and maintains the Rooftop solar photovoltaic (PV) system on a customer's property.

The implementation of the scheme is entrusted to Central Public Sector Undertakings (CPSUs), with substantial financial support from the Government of India in the form of a 60% grant. This signifies a strong commitment from the government towards advancing renewable energy initiatives. By leveraging the expertise and resources of CPSUs, the scheme aims to ensure efficient and effective execution, including installation, maintenance, and monitoring of rooftop solar systems across the country. Additionally, the involvement of CPSUs may facilitate economies of scale, enabling cost-effective deployment of solar infrastructure.

The subsidy structure incentivizes households to adopt rooftop solar panels, with subsidies decreasing as the capacity of the installation increases. This encourages smaller installations, making solar power more accessible to a wider range of households. Under this scheme, the government provides central financial assistance at a rate of Rs. 30,000 per KW for the first 2 KWs and Rs. 18,000 for the third KW, totalling a maximum subsidy of Rs. 78,000 for 3 KW rooftop solar plants. The remaining 40% of the cost is financed by Central Public Sector Undertakings (CPSUs), which will be repaid through surplus electricity fed into the grid under a net metering arrangement over a period of 10 years.

A key feature of the scheme is the transfer of ownership of rooftop solar installations to homeowners after a period of ten years, free of cost. This provision not only incentivizes households to participate in the scheme but also ensures long-term benefits for homeowners. By taking ownership of the solar infrastructure, households can continue to enjoy the benefits of solar power beyond the initial ten-year period, including reduced electricity bills and greater energy independence.

Under net metering, the capacity of Roof Top Solar PV Plant (RTSPV) is limited to the connected load of the consumer and a bi-directional meter is installed which records the inflow (import) of electricity from the grid as well as the export of electricity generated by the rooftop solar PV plant. The difference between the import and export of electricity is billed at the tariff applicable to the consumer. This ensures that customers receive fair compensation for the excess electricity they contribute to the grid, thereby incentivizing the adoption of rooftop solar and promoting the efficient use of renewable energy resources. Additionally, the net metering tariff provides a transparent mechanism for calculating savings on electricity bills, making solar power more financially attractive for households.

 Financial Viability of the scheme: Winners and Losers

 Let's delve into the implications of the PM Surya Ghar- Muft Bijli Yojana on implementing agencies such as CPSUs and distribution companies (discoms). With CPSUs or RESCOs required to borrow 40% of the project cost, their ability to repay this debt with interest through the sale of surplus electricity to the grid under net metering is crucial for the scheme's viability.

For a 1KW rooftop solar photovoltaic (RTSPV) plant, the Government of India (GoI) grant is Rs. 30,000, thus CPSUs have to borrow remaining Rs. 20,000. Assuming the currently prevalent borrowing cost of 8.25%, the equated monthly instalment (EMI) for repayment over a 10-year period will be around Rs. 245 and with 0% interest rate, the EMI is Rs.167 per month. However, with current panel efficiency, RTSPVs yield an average of 120 Units (KWh) per month per KWp. Given that the most of the eligible consumers of the scheme are lifeline consumers who consume up to 100 kWh per month with connected load of 1 KW, it's estimated that only (120-100) or 20-25 units per month will be available for export to the grid under net metering. Since this electricity will be free to consumers as per scheme, they are likely to further increase their energy consumption leaving less for net-metering export to grid / discoms.

Moreover, most states offer lower tariffs ranging between Rs. 3.0 – Rs. 5 per unit for this lifeline consumer category. With net metering energy settlement done at the applicable slab rate of tariff, revenue from 25 units at applicable tariff of Rs. 5 per KWh will provide only Rs. 125 per month or 51% of the required EMI of Rs. 245. Even if the borrowing cost of CPSUs/RESCOs is 0%, the monthly revenue of Rs.125 will be around 75% of required EMI of Rs.167.

Besides, there are few additional challenges that need addressing for the scheme's success. One issue pertains to the rules notified by the Ministry of Power (MoP) relating to compulsory installation of prepaid meters under Revamped Distribution Sector Scheme (RDSS) in all consumer premises except agricultural ones is required before 31 March 2025. However, net-metering arrangements cannot function in prepaid mode. With an estimated 10 million Surya-Ghar beneficiaries needing meter replacements, costing around Rs. 8,500 per meter, discoms face a substantial financial burden totalling Rs. 8,500 crores within a couple of years.

Another rule, Electricity (Rights of Consumers) Amendment Rules, 2023 notified by the Ministry of Power on 14-June-23 relates to introduction of time-of-day tariff directing discoms to reduce solar tariff. The newly inserted rule 8(A) provides that the “tariff for solar hours of the day, specified by the State Commission shall be at least twenty percent less than the normal tariff for that category of consumers”. Application of this rule will further reduce the average net metering tariff for the RTSPV from Rs.5 to Rs.4.2 per unit shrinking the revenue available to the CPSUs to Rs.4.2 x 25 = Rs.105 per month (42% of the required EMI of Rs.245) from earlier estimated Rs.125 per month. This will be further lower for states having tariff lower than Rs.5 per unit for lifeline consumers.

Furthermore, there are minor technical issues related to typical load duration curves in states with lower industrialization. These states may encounter difficulties in managing high solar generation during daylight hours due to low demand, as well as challenges in scheduling and forecasting load demand due to behind the meter variability. Nevertheless, these obstacles should not impede the implementation of the scheme, given that the benefits far outweigh the costs of addressing such technical challenges.

Conclusion:

The customer on whose rooftop the scheme is implemented is a clear winner, as besides getting free electricity generated from the rooftop solar plant, they also get the plant free of cost after 10 years. These plants have a technical life of up to 25 years, so they can benefit for the remaining period

Nevertheless, the CPSUs, tasked with executing this scheme under the RESCO model, are poised to face potential losses. This is due to the existing financing structure and tariff framework, which fail to guarantee the repayment of their investments or borrowings. To offset this, they may require augmenting their revenue streams, either through generating more surplus electricity or raising tariffs. This appears unlikely because the size of RTSPV is capped at connected load as per rules and regulations and reducing consumers consumption for export will be contrary to the scheme’s objective. Similarly, increasing feed-in tariff for net-metering will face opposition from the discoms.

The discoms also do face the risk of additional metering cost of installation of net-meter and pressure to increase net-metering tariff which has been mandated to be reduced by the rules by at-least 20%. These challenges must be carefully addressed to ensure the scheme is a win-win for all and not a zero-sum game between the RESCOs and Discoms.

 

Raj Pratap Singh, IAS (Retd.)                                                                                                            Distinguished Fellow, FSR Global &  Former Chairman, UPERC